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C. Krishnaswami Rao Vs. the State of Madras - Court Judgment

LegalCrystal Citation
SubjectSales Tax
CourtChennai High Court
Decided On
Case Number Tax Case Nos. 165, 206 and 207 of 1964 and Revision Nos. 108, 138 and 139 of 1964
Judge
Reported in[1968]22STC146(Mad)
AppellantC. Krishnaswami Rao
RespondentThe State of Madras
Appellant Advocate R.S. Venkatachari, Adv. in T.C. No. 165 of 1964, ;T.V. Balakrishnan and ; N. Vanchinathan, Advs. in T.Cs. Nos. 206 and 207 of 1964
Respondent Advocate The Additional Government Pleader
Cases ReferredChandra Bhan Gosain v. State of Orissa
Excerpt:
- - this certificate was held by the appellate authority not to assist the assessee's contention and the appeal failed. 766 a different view bad necessarily to be taken and that the specific terms in the contract relied upon by the assessee did not serve to distinguish his case from the reported decision. we are well aware that in agreements of this nature, the line of division between what are works contracts and what are contracts for supply of goods is bound to be thin......terms of the contract for supply that would be entered into. where one undertakes a contract to supply bricks of a specified quality at specified places and quotes the price therefor, that would obviously amount to a sale of the goods and there can be no question that, because it is a contract of 'supply', the supplier becomes a contractor and performs any works contract. but where a contractor is told to utilise clay belonging to the corporation in a particular manner, to manufacture bricks under controlled supervision and there is the further stipulation that neither the clay nor the bricks nor the coal supplied by the corporation for the manufacture of bricks, even though paid for by the contractor, should be utilised for any other purpose, these features take the case out of the.....
Judgment:

Srinivasan, J.

1. We shall take up T.C. No. 206 of 1964 first. The assessee in this case was one Krishnaswami Rao. For the year 1959-60 he returned a turnover in respect of supply of bricks to the Neyveli Lignit Corporation. Against that total turnover he claimed an exemption on a turnover of over Rs. 53,000 and odd, as covered by charges for transport. The exemption was denied by the Deputy Commercial Tax Officer on the ground that no bills had been issued in which charges of transport had been separately indicated and claimed. It was held by the assessing authority that the assessee supplied bricks, which the Corporation paid for at the rate of Rs. 39 per 1000 bricks. Accordingly the entire turnover was assessed to tax. An appeal was taken. Once again the appellate authority held that the assessee manufactured bricks and sold them to the Corporation and that the deduction in respect of transport charges was permissible only where the dealer specified and charged them in the bill separately, without including such charges in the price of the goods. At this stage a certificate was produced from the Executive Officer of the Corporation which was to the effect that the contract with the assessee was for the manufacture of bricks in the lands belonging to the Corporation and that the payment of Rs. 39 per 1000 bricks was made up of the cost of bricks being Rs. 24 per 1000 at the site of the kiln and the charge of transport being Rs. 15 for transporting the goods over a distance of 19 miles from the site of the kiln to the site of the works in the Neyveli Township. This certificate was held by the appellate authority not to assist the assessee's contention and the appeal failed. At the further stage before the Sales Tax Appellate Tribunal, the assessee claimed exemption of the entire turnover on the ground that there was no sale of goods involved, that only a contract for the manufacture and supply of bricks was entered into between himself and the Neyveli Lignite Corporation. It was established that for the previous assessment year 1958-59, a similar claim had been examined and dealt with by the Appellate Tribunal in favour of the assessee. That circumstance was brought to the notice of the Tribunal at the hearing of the appeal leading to this revision petition. While the Tribunal did not dispute that the agreement between the assessee and the Neyveli Lignite Corporation for this assessment year was governed by the same contract entered into in the previous year, which contract was for a period of 3 years, it thought that by reason of the recent decision of the Supreme Court in Chandra Bhan Gosain v. State of Orissa [1963] 14 S.T.C. 766 a different view bad necessarily to be taken and that the specific terms in the contract relied upon by the assessee did not serve to distinguish his case from the reported decision. Accordingly the Tribunal held that the agreement was not in the nature of a works contract but that the supplies of goods thereunder, could be regarded only as sales. The alternative contention that relief should be given at least to the extent of transport charges was also rejected.

2. In this revision petition, two points have been urged. Firstly it is stated that the arrangement between the assessee and the Neyveli Lignite Corporation was in the nature of a works contract, that no sale was in fact involved and that therefore the entire turnover is not liable to sales tax. The other point is whether, in any event, the assessee is not entitled to a deduction of the transport charges.

3. It is not disputed in this case that the assessee entered into a contract No. 286/58-59 with the Neyveli Lignite Corporation and this contract was to enure for a term of three years. The work involved was described as '(1) manufacture and supply at kiln site in the lands taken over by this Corporation at Sethiathope chamber burnt bricks of size...inclusive of stacking properly at places shown by the Corporation Officers for measurement.' The rate is given as Rs. 24. '(2) Manufacturing chamber burnt bricks of size...by putting in chamber kilns in the lands taken over by this Corporation at Sethiathope, transporting burnt bricks to work site in the Neyveli Township and stacking at places shown by the Corporation Officers for measurement'; and the rate is given as Rs. 39. Under the special conditions of the contract, the contractor is directed to quarry the earth free of cost only from certain specified survey numbers and only from the locations indicated in those survey numbers. Certain further limitations with regard to excavations were imposed. The contractor had to put up kilns only at the places approved and if required the Corporation undertook to manufacture in its own workshop a moving chimney, the cost of which was to be borne by the contractor. The Corporation also undertook to supply the coal necessary for burning the bricks at a cost to be recovered from the contractor's bills. The contractor had to give an undertaking to use the coal only for the purpose of burning bricks required for supply to the Corporation. At the end of the three year period, during which a supply of one crore of bricks had to be made, the contractor had to clear the survey numbers of any structures put up by him and also level the ground as required by the Corporation. An important condition of the contract was that the rejected bricks and brick-bats were not to be sold to outsiders, but shall be dumped in excavated pits and ground levelled up, as and when the required clay in the particular area had been removed to permissible limits. There are other conditions of the contract which deal with the manner in which the contract shall be carried out, particularly with regard to the use of the earth and the putting up of the kilns and other details.

4. A perusal of these terms of the contract certainly does support the prima facie view that the contractor was called upon to perform a certain work, namely to utilise clay belonging to the Corporation and manufacture bricks out of it and supply those bricks only to the Corporation and to no other person. Practically all the materials required for the manufacture of the bricks were provided by the Corporation itself, which retained an overall control over the work of the contractor, right from the commencement of the process of manufacture down to the actual supply of the bricks. It will be noticed that the two items of works were described differently. Where the Corporation took delivery of the bricks at the site of the kiln, the rate was fixed at Rs. 24 per 1000. But where the Corporation demanded supply at the work site in the Neyveli Township, it involved a further contract of transport to that site and delivery at the site was priced at Rs. 39 per 1000. In a normal case, where a party desires to purchase bricks, having no other concern except perhaps only with the quality of the bricks, these are not the terms of the contract for supply that would be entered into. Where one undertakes a contract to supply bricks of a specified quality at specified places and quotes the price therefor, that would obviously amount to a sale of the goods and there can be no question that, because it is a contract of 'supply', the supplier becomes a contractor and performs any works contract. But where a contractor is told to utilise clay belonging to the Corporation in a particular manner, to manufacture bricks under controlled supervision and there is the further stipulation that neither the clay nor the bricks nor the coal supplied by the Corporation for the manufacture of bricks, even though paid for by the contractor, should be utilised for any other purpose, these features take the case out of the common picture presented by an agreement between a mere buyer and a seller. That was the scope of the decision of this Court in Sundaram Motors (Private) Ltd. v. State of Madras [1958] 9 S.T.C. 687. But the Tribunal thought that notwithstanding the specific features indicated above, Chandra Bhan Gosain v. State of Orissa [1963] 14 S.T.C. 766 places a different complexion even upon contracts of this kind. The question is whether this view of the Tribunal can be sustained.

5. In the decision of the Supreme Court the facts are very briefly stated. There the bricks were made out of the earth belonging to the company which called for the supply and it was argued before the Supreme Court that the bricks were therefore always the property of the company and that there could be no transfer of property in them from the supplier to the company. There was a clause in that contract which was to the effect that land will be given free, which their Lordships took to mean that it was intended to make earth available to the appellant for making bricks. From this clause alone, their Lordships refused to infer that the earth all along continued to belong to the company. When the expression used was 'the land will be given free', it meant in their opinion that the property in the earth to be dug out for making the bricks would be transferred to the supplier. Again what was supplied was not the earth but the bricks which were something different. There was another express term in that contract which provided that the bricks would remain at the appellant's risk till delivery to the company. From this, the conclusion was naturally reached that they should be supplier's property, for, otherwise they could not remain at the supplier's risk. By yet another clause the supplier could sell the bricks to other parties with the permission of the company. In fact the clause was negatively worded to the effect that the supplier should not sell bricks to other parties without, the permission of the company. It followed that if he was in a position to sell the bricks, the bricks should belong to him. From these features, their Lordships held that there was a transfer of property in the earth to the supplier and that the subsequent transfer of property in the bricks for consideration was consequently a sale of bricks.

6. We do not agree with the Appellate Tribunal that the facts in this decision can govern the facts of the case before us. On every one of the points referred to by their Lordships in that decision, the contract in the present case is differently worded and the inferences made by their Lordships from those facts cannot legitimately be made upon the clauses governing the present contract. It seems to us accordingly that the bricks at every stage of manufacture continued to be the property of the Corporation. What the assessee was called upon to do was only to manufacture bricks out of the earth supplied and to deliver the bricks at the places indicated by the officials of the Corporation. We are well aware that in agreements of this nature, the line of division between what are works contracts and what are contracts for supply of goods is bound to be thin. But, nevertheless, we see enough distinguishing features in the present case to hold that it was a works contract pure and simple. It follows that no sale was involved and the petitioner is not liable to be assessed.

7. The second point does riot call for consideration in the light of what is stated above.

8. The petition is allowed. But in view of the fact that the petitioner put forward the present contention only at a late stage in these proceedings, we award him no costs.

9. T.C. No. 165 of 1964 relates to the assessment year 1960-61 and T.C. No. 207 of 1964 to the assessment year 1959-60. The assessees in these two cases were Krishnaswami Rao and Seshagiri Rao. The same contentions were put forward in these two cases. But the assessee did not produce the contracts relevant to these transactions. It is admitted that the supply in these cases was not made in pursuance of the contract which was dealt with in T.C. No. 206 of 1964. We have thus no means of knowing what the terms of the relevant contracts were. We are unable to agree with the learned counsel for the petitioners appearing in these cases that the contract in these cases was on the same lines as the contract referred to. The plea of the petitioner Seshagiri Rao (Krishnaswami Rao, his father being dead) that he is unable to lay his hands on the contract cannot be accepted. In these cases also a certificate proceeding from an official of the Neyveli Lignite Corporation was produced merely to show that the contract No. 321/59-60 in the case was for manufacture of chamber burnt bricks in private lands at Poonthottam village and supply them at site... We notice that the contract number is different. It is also seen from this very certificate that it was the contractor's look-out to find for himself the required earth in private lands and to manufacture the bricks. He was called upon only to supply bricks at the site of work in the Neyveli Township and the understanding was that he was to be paid at a particular rate. Even the scanty materials furnished by the certificate show that the contract in this case was totally different from the one in the previous case. It follows that the petitioner has not been able to show that it was a works contract he was engaged upon.

10. The acceptance of the alternative plea was pressed before us. It was urged that the certificate referred to showed that the rate of Rs. 41 per 1000 'comprised of Rs. 28 per 1000 towards the cost of bricks at the site of the kiln and Rs. 13 per 1000 for transport over a distance...' and on the basis of this it was argued that the sum of Rs. 13 covered by transport charges could not be a part of the sale consideration. In dealing with this argument we have to take note of the definition of 'turnover'. Section 2(r) of the Madras General Sales Tax Act, 1959, provides in Explanation (2) thereto that, subject to such conditions and restrictions, if any, as may be prescribed, the amount for which goods are sold shall include any sums charged for anything done by the dealer in respect of the goods sold at the time of, or before the delivery thereof. Normally therefore even the transport charges could form part of the total turnover. But conditions and restrictions may be prescribed to take these charges out of the scope of the turnover. Now under Rule 6(c) of the Madras General Sales Tax Rules, such transport charges can be deducted from the total turnover of the dealer provided that such amounts are specified and charged for by the dealer separately without including them in the price of the goods sold. It is conceded that in the present case, no bills submitted by the supplier are available which would show the split up of the total charges of Rs. 41 per 1000 into two distinct amounts, namely, Rs. 28 per 1000 as the price at the kiln site and Rs. 13 being transport charges. The exclusion of the amount covered by the transport charges cannot be granted unless they are specified and charged for separately, which mode of dealing with such charges does not obtain in the present cases. It follows therefore that the plea for exemption was rightly rejected by the Appellate Tribunal.

11. These two revision petitions are dismissed.

12. In the circumstances, however, there will be no order as to costs.


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