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T.V. Sundaram Iyengar and Sons (P.) Ltd. Vs. the State of Madras - Court Judgment

LegalCrystal Citation
Overruled ByT.V. Sundram Iyengar & Sons Vs. The State of Madras Dated:10.10.1974
SubjectSales Tax
CourtChennai High Court
Decided On
Case NumberTax Case Nos. 164 to 166 of 1965 (Revision Nos. 79, 80 and 81)
Judge
Reported in[1970]25STC160(Mad)
AppellantT.V. Sundaram Iyengar and Sons (P.) Ltd.
RespondentThe State of Madras
Advocates:V.K. Thiruvenkatachari, Adv. for ;S. Swaminathan and ;K. Ramagopal
Cases Referred(of Bennett and White (Calgary) Ltd. v. Municipal District of Sugar City
Excerpt:
.....and one component in such sum is not assessable and wrongly included, the assessment is bad in its entirety, had no application to the assessment under the sales tax act before it. 12. the supreme court disagreed with the high court that because the assessment to sales tax was one composite whole relating to the entire period from january 1, 1955 to may, 1959, the assessment which was bad in part was infected throughout and must be treated as invalid in its entirety......that the appellate assistant commissioner was competent, in disposing of the appeals filed by the assessee, to take a view different from that of the assessing authority on the nature of the bus-body-building contracts which was not objected to by the assessee in his appeal, and bring them to tax as sales of goods and thus enhance the assessment.13. there remains the last ground of the assessee relating to limitation. on this question we think the tribunal took the correct view. the appellate assistant commissioner in enhancing the assessment did not act under section 16 as a case of escaped assessment but he was using his powers under section 31(3)(a)(i) of the act. on that view the enhancement is not open to attack as out of time.14. having, however, regard to our last.....
Judgment:
Veeraswami, J.

1. In these tax cases filed by the assessee and relating to assessment years 1955-56 to 1957-58, the substantial question is whether the view of the Tribunal, agreeing with the department, that the supply by it of bus-bodies constructed and fitted on to chassis provided by customers amounted to sale of specific chattels as distinct units chargeable to sales tax, is correct. The turnover under this head was in the first instance, on the claim of the assessee, excluded from charge on the ground that it consisted of works contract. This was, however, included in the taxable turnover and the assessment to that extent was enhanced in disposing of an appeal filed by the assessee disputing the chargeability of certain other parts of the turnover which is not in question now. The second ground in these cases is that the Appellate Assistant Commissioner, Commercial Taxes, in enhancing the assessment, as aforesaid, acted in excess of his jurisdiction in the assessee's appeals confined to parts of the turnover which, according to it, had been wrongly brought to tax by the assessing authority. A further ground is also urged that the assessment of the enhanced turnover was barred by limitation and the Tribunal's view to the contrary is not correct.

2. The finding of the Tribunal on the first ground has been recorded in these words :

On an overall consideration of the entire material before us, we are inclined to hold that the predominating element in the transactions was the sale of built body, that the work and labour were only subsidiary, that it was immaterial whether a body was prepared in accordance with the specifications given by the customer, then and there and fitted on to the chassis or the body had been already prepared prior to the order and was readily fitted with the chassis, that the sale of the property was the predominating element, that the use of labour and skill was only incidental and that, therefore, the element of sale predominated over the element of contract of work and labour.

3. The phraseology so used by the Tribunal is not accurate and reveals an approach not altogether apposite to the facts. Nevertheless, its conclusion that the transactions were sales of goods appears, in our opinion, to be correct. No contracts or agreements, as such, were produced by the assessee and the nature of the transactions relating to supply of bus-bodies has to be fixed on the basis of certain typical filled in forms of 'Repair Order'. The assessee is described as 'T. V. Sundaram lyengar & Sons Private Ltd., Maduari.' The date of the order, name and address of the customer, the make, model and condition of the chassis supplied by the customer and certain other details are to be found in the 'Repair Order Form'. Four other columns therein are found, the first of which is under the head 'date of entering the job' and the entry thereunder is 'no tools', the second column is 'description' under which is stated 'to construct and mount one semi-saloon mofussil type bus-body, with 7 plywood for the floor, ayni wood for sides and frames' for which in column 4, namely, 'amount billed to customer' a sum of Rs. 9,000 is shown and further under the head 'description' is set out 'aluminium sheets and aluminium headings for panels, rubber cushion for seats, rubber squab for back all covered with green leather cloth with seating capacity 51 in all, 4 seats extra' for all of which a total sum of Rs. 450 is charged under column 4. The height and width of the bus-body are given. The 'Filled in Form' permits the assessee to drill holes in the chassis. Several specific items found in the 'Repair Order' are to provide windshield glass, rubber squabs, N/P handles for entrances, helper canvass electric buzzer (Rs. 5), invoice lamp and 4 roof lamps (all for Rs. 7-8-0). A sum of Rs. 9,636 is shown as the total amount billed to the customer. Certain specific named items listed thereafter in the bill, like leather cloth protective flaps for side curtains, felt cover for engine, electric wiper and so on are additions to the bill but each of these items has been separately valued for, and a total of Rs. 10,171-8-0 is finally billed for, including Rs. 9,636-0-0. The following recitals in stock forms used are also to be noted:

I am leaving the above vehicle/spares after repairs and for attending to such jobs that are listed in this Repair Order Sheet and also in the Continuation Repair Order Sheets....You may also carry out such other jobs as you find it necessary during the course of repairs and after dismantling to make the vehicle roadworthy.

I hereby agree and definitely understand that Messrs T. V. Sundaram lyengar & Sons Private Limited assume no responsibility for loss or damage by whatever means to vehicles or spares placed with them for storage, sale or repair. The above vehicle/spares left in your premises or driven by your employees is entirely at my employer's/owner's risk as regards accidents, damage by fire or any other causes. Sd...Order accepted.: Sd... Signature of customerDate of delivery promised :While taking delivery of the vehicle, the customer is required toacknowledge as hereunder :Vehicle checked and kept ready. PartsSd...Service Salesman 10,382-8-9I have this day taken delivery of the above Petrolvehicle/spares after repairs in good order Sundriesand to my satisfaction. I hereby agree to Labourthe various jobs listed in this Repair OrderSheet and also in the Continuation RepairOrder Sheets Nos...and further accept to paythe amount noted alongside being chargesfor repairs and parts replaced to the above __________vehicle. Total 10,382-8-9__________Total No. of sheets.Sd...Customer's signature.Bill No. P/L DN. 1371 dated 11-2-57Vehicles/Spares delivered on :

4. These are the only materials produced by the assessee on which the department as well as the Tribunal had to decide the character of the transactions. That is the position before us too.

5. Where on a movable property supplied by a customer, a dealer does to or on it some work using his own material in the process, it has to be ascertained from the terms of the contract or the available evidence whether the parties intended delivery of a finished article as a specific chattel though fitted on to the customer's movable property. The test often to be applied to is when and how the property of the dealer in such a transaction with the materials used by him passes to the customer : is it by transfer at the time of delivery of the finished article as a chattel or by accession during the process of a work on affixture or fusion to the movable property of the customer If it is the former, it is a sale of goods; if it is the latter, it is a works contract. In deciding this question, which is one of construction of the contract relating to the transaction, one has to see how the risk is borne and by whom and what stages in respect of the materials used by the dealer which he placed together and fitted on to the movable property supplied by the customer. While these are the main considerations which will govern, there may be others like a lump sum contract indicative of the particular intention of the parties. In coming to a conclusion, not merely the relative terms separately but the contract as a whole should be read and understood. These principles are well settled.

6. The State of Madras v. Gannon Dunkerley & Co. (Madras) Ltd. [1958] 9 S.T.C. 353 related to a building contract. But the principle applicable thereto is not very different from that relating to movable property. The Supreme Court there pointed out that in a building contract, the property in the materials did not pass as movable property but became the property of the other party to the contract by accretion. Even in a building contract, it is possible for the parties to agree that property will pass to the other as movable property. In Sundaram Motors (Private) Ltd. v. The State of Madras [1958] 9 S.T.C. 687, the turnover included the value of repairs carried out to motor vehicles. This court said that in order to constitute a sale of goods, there should be an agreement between the parties to sell and purchase, the agreement should be with reference to the particular goods and there should be transfer of property in such goods. This shows that there may be a contract of works which includes sales of specific or particular goods in that sense. On the facts, the Supreme Court in Carl Still G.m.b.H. v. State of Bihar [1961] 12 S.T.C. 449 found that it was a case of a works contract, namely, assembling and installing machinery, plants and accessories for a coke oven battery and by-products plant. The court was of the opinion that the contract was an entire and indivisible one for construction of specified works for a lump sum and not a contract of sale of materials as such. McKenzies Limited v. State of Bombay [1962] 13 S.T.C. 602, Commissioner of Sales Tax, U.P. v. Haji Abdul Majid & Sons [1963] 14 S.T.C. 435, Jiwan Singh & Sons v. State of Punjab [1963] 14 S.T.C. 957, Patnaik and Company v. State of Orissa [1965] 16 S.T.C. 364, McKenzies Ltd. v. State of Maharashtra [1965] 16 S.T.C. 518, Sarvodaya Motor Works v. State of Gujarat [1966] 17 S.T.C. 261 and B.B. Astekar v. Commissioner of Commercial Taxes, Mysore [1967] 19 S.T.C. 462, are all cases of contracts for supply of bus-bodies to be constructed and fitted on to the chassis supplied by the customer who is either a Government department or a private person. In each of these cases, the Supreme Court or the High Court concerned held that the transaction was a sale of goods on the view that the contracts were for supply of finished bus bodies as specified chattels notwithstanding the fact that under the contracts bus-bodies were to be fitted on to the chassis and were to be delivered as buses. It was found in them that the property in the bus-body passed in each of these cases,, not as and when parts were fitted on to chassis but at delivery as finished articles fitted on to chassis. The test as to risk was also used in these cases. State of Gujarat v. Kailash Engineering Co. (Pvt.) Ltd. [1967] 19 S.T.C. 13 was also a case of bus-body-building contract. But there the Supreme Court held that having regard to the terms of the contract, the transaction was a works contract and not a sale of goods. The main reason for this view was the term of the contract that as soon as the plant and materials were brought on the site of the Railway, where the Railway coaches were to be constructed, the ownership in them would vest in the Railway. There was a further fact that the coach bodies were not separately described as units or components to be supplied by the assessee to the Railway. In Shankar Vittal Motor Co. Ltd. v. State of Mysore [1964] 15 S.T.C. 771, which was also a case of contract to construct bodies of buses, lorries and vans over the chassis supplied by the customers for a fixed and stated amount in one lump sum, the Mysore High Court, on a construction of the contract, was of the view that it was not a case of sale of goods. In Kailash Engineering Co. v. State of Gujarat [1964] 15 S.T.C. 574, the contract was for building, erecting and furnishing of third class timber coach bodies on broad-gauge, under frames to be supplied by the Railway administration. The main ground for holding that the transaction was not a sale of goods was that there was a stipulation in the contract that immediately the manufacturer brought plant and materials upon the land of the Railway, the property in them must be deemed to be the property of the Railway. These cases show that there is unanimity of opinion as to some of the major tests to be applied in the construction of a contract, and the difference in view in a few of these cases resulted in their application to the particular terms of the contract. The major tests are those which we mentioned earlier in this judgment and on facts Patnaik and Company v. State of Orissa [1965] 16 S.T.C. 364 appears to be very near to the instant case. It makes no difference that in that case the chassis were supplied by the Government.

7. In the cases before us, the intention of the parties has to be gathered only from the terms of the filled in order forms and connected vouchers rather than from the contracts entered into between the parties which were not produced before the revenue or the Tribunal. Considerable reliance has been placed for the assessee on the words in the Repair Order 'to construct and mount' and the varying specifications in each case of bus-body-building. It is also said that delivery is made not as bus-body as such but as bus. We are unable to regard these facts as in any way inconsistent with the transactions being sales of goods. The terms, as far as we are able to gather from the limited materials before us, disclose that the property in the completed bus-body passed only at the time of the delivery thereof as such, as a specific chattel though fitted on to the chassis. There is no evidence that the property in the materials passed to the customer as and when they were worked into the chassis in the process of body-building. The provision as to insurance of risk also confirms this view. In some of the appeals, we find that specific articles are mentioned, the prices of which are given separately. As the evidence stands, we accept the conclusion rightly arrived at by the Tribunal on this question. It is not clear whether there were actually contracts entered into by the assessee with the customers and if that were so, why they were not produced. Anyway, in the interests of justice we are inclined to think that the question may be re-examined by the Tribunal if the contracts are filed before it. If none is filed, the view that the transactions are sales of goods will stand.

8. The second ground of the assessee turns on the scope and effect of the word 'enhance' in Clause (a)(i) of Sub-section (3) of Section 31 of the Madras General Sales Tax Act, 1959. That section confers appellate powers on the Appellate Assistant Commissioner, Commercial Taxes, and defines their scope. Any person objecting to an order passed under Section 12 by the assessing authority is, by Sub-section (1) of Section 31, given a right within a specified, period to appeal against that order, to the Appellate Assistant Commissioner. Sub-section (3) of Section 31 says that in disposing of an appeal, the Appellate Assistant Commissioner may, after giving the appellant a reasonable opportunity of being heard,

(a) in the case of an order of assessment-

(i) confirm, reduce, enhance or annul the assessment or the penalty or both.

9. A further appeal to the Tribunal from the order of the Appellate Assistant Commissioner which is objected to by a person is provided for by Section 3G. Sub-section (3)(a)(i) of that Section uses phraseology similar to Section 3l(3)(a)(i). Sections 32 to 35 give to the Deputy Commissioner and. the Board of Revenue powers of revision which may be exercised by them suo molu and on application, and certain special powers. The special powers under Sections 32 and 34 cannot be exercised by the Deputy Commissioner or the Board of Revenue, if the time for appeal against an order under Section 12 has not expired or such order has been made the subject of appeal to the Appellate Assistant Commissioner, the Appellate Tribunal or of revision in the High Court under Section 38. An appeal to the High Court is provided by Section 37 from an order of the Board of Revenue under Section 34 which is objected to. In the light of these provisions, it is contended for the assessee in this court that as its appeals to the Appellate Assistant Commissioner were confined to that part of the order of the assessing authority in relation to certain amounts collected by way of tax under Section 8-B(2) of the Madras General Sales Tax Act, 1939, and in one of the appeals, a further question as to the character of the transaction, which had been brought to tax, was alone raised, the Appellate Assistant Commissioner in dealing with those appeals has no power to travel beyond their scope, reopen the assessment order relating to bus-body-building contracts which was not objected to by the assessee in the appeals and thus enhance the assessment by taking the view that they are not works contracts but sales of goods. It is not disputed that unlike under the Madras General Sales Tax Act, 1939, the appellate powers of the Appellate Assistant Commissioner as well as the Tribunal under the Madras General Sales Tax Act, 1959, include the power to enhance the assessment in disposing of an appeal. But it is urged that the power of enhancing in appeals can only be exereised within the limits of the assessment which is the subject-matter of the assessment that is objected to by the assessee in his appeals. In our opinion, there is no justification for this narrow view of the scope of the power to enhance the assessment in disposing of an appeal. If this view is to prevail, the content of the power will be reduced to almost nothing. It is difficult to conceive of cases of enhancement of assessment confined to the limits of that part of the order which is objected to and appealed against by the assessee. The words 'enhance the assessment' in Section 31(3)(a)(i) should, as it appears to us, be given their full scope. Section 31(1) does not speak of an assessment but of an order which is objected to. The word 'assessment' means the full process of assessment and covers the entire assessment, not merely that part of it which is objected to by the assessee in his appeal. There is indication in Sub-section (3)(a) itself to that effect, for Clause (ii) to Sub-section (3)(a) speaks of the power of the appellate authority to set aside the assessment and direct the assessing authority to make a fresh assessment; and that cannot possibly mean a part of the assessment that had been objected to by the assessee in the appeal. Likewise, the word 'enhance' should receive its full meaning and in relation to the assessment, the scope of the power to enhance should extend to the entire assessment. This view appears to receive support from Sections 32(2)(a) and (b) and 34(2)(a) and (b). The special powers of the Deputy Commissioner and the Board of Revenue, as is evident from those two provisions, cannot be exercised if the time for appeal against the order under Section 12 has not expired or such order has been made the subject of an appeal to the Appellate Assistant Commissioner or the Appellate Tribunal or of a revision in the High Court, if the intention of the Legislature is to confine the power of enhancing the assessment in disposing of appeals to only that part of the order under Section 12 that is objected to by the assessee, the limitation to the special powers of the Deputy Commissioner and the Board of Revenue under Sections 32 and 34 would have been differently worded in Sub-section (2) of each of those sections. The language of Sections 32(2)(a) and (b) and 34(2)(a) and (b) is consistent with the view that the power of enhancing the assessment under Section 31 extends to the entire range of assessment. Though the Income-tax Act, 1922, adopts a different scheme, and decisionsSthereunder may not always be apposite to the construction of other fise enactments like the Madras General Sales Tax Act, 1959, yet it appears that the phraseology of Sub-section (3)(a)(i) of Section 31 of the Madras General Sales Tax Act, 1959, has been reproduced word for word from Sub-section (3)(a) of Section 31 of the Income-tax Act, 1922. Sections 32(2)(a) and (b) and 34(2)(a) and (b) of the Madras General Sales Tax Act, 1959, substantially follow the pattern of Clauses (a) and (b) to the proviso to Section 33-A of the Income-tax Act, 1922. There are numerous cases interpreting the scope of the power to enhance under Section 31 of the Income-tax Act, 1922. It will suffice to refer only to Narrondas Manordass v. Commissioner of Incometax, Central, Bombay : [1957]31ITR909(Bom) , approved by Commissioner of Income-tax v. McMillan & Co. : [1958]33ITR182(SC) and to Pearey Lal Shukla of Cawnpore, In re : [1942]10ITR239(All) . In the first of these cases Chagla, C.J., on behalf of the Tax Bench construed the scope of the power to enhance the assessment under Section 31 of the Income-tax Act, 1922, and held :

It is clear that the Appellate Assistant Commissioner has been constituted a revising authority against the decisions of the Income-tax Officer; a revising authority not in the narrow sense of revising what is the subjectmatter of the appeal, not in the sense of revising those masters about which the assessee makes a grievance, but a revising authority in the sense that once the appeal is before him. he can revise not only the ultimate computation arrived at. by the Income-tax Officer but he can revise every process which led to the ultimate computation or assessment. In other words, what he can revise is not merely the ultimate amount which is liable to tax, but is entitled to revise the various decisions given by the Income-tax Officer in the course of the assessment and also the various incomes or deductions which came in for consideration of the Income-tax Officer.

10. In Commissioner of Income-tax v. McMillan & Co. : [1958]33ITR182(SC) the Supreme Court accepted this view to be correct. The subject-matter of the assessment in this context, as pointed out by Pearey Lal Shukla of Cawnpore, In re : [1942]10ITR239(All) , is the total income. The limit of the power of enhancing the assessment is that, in exercise of that power, new sources of income cannot be gone into : Prabhudas Ramji v. Commissioner of Income-tax : [1966]62ITR621(Guj) . When the State Legislature uses in Section 31 of the Madras General Sales Tax Act, 1959, a language identical with Section 31 of the Income-tax Act, 1922, followed by a similar scheme of revision powers, we fail to see why we cannot justifiably adopt the construction placed by Chagla, C.J., in the case referred to by us.

11. It has been strenuously urged that there is a vital difference in the assessment under the two Acts and that while the total income is what is assessed as a whole under the Income-tax Act, the assessment to sales tax is severable because such a tax is imposed on receipts from individual sales or purchases of goods. In support of this contention our attention is invited to State of Jammu and Kashmir v. Caltex (India) Ltd. [1966] 17 S.T.C. 612, where the Supreme Court referred to Bennett and White (Calgary) Ltd. v. Municipal District of Sugar City [1951] A.C. 786 and observed that the principle laid down there, namely, where the assessment consists of a single undivided sum in respect of the totality of property treated as assessable and one component in such sum is not assessable and wrongly included, the assessment is bad in its entirety, had no application to the assessment under the Sales Tax Act before it. The Supreme Court pointed out :

But the principle (of Bennett and White (Calgary) Ltd. v. Municipal District of Sugar City [1951] A.C. 786 has no application in the present case because the sales tax is imposed, in ultimate analysis, on receipts from individual sales or purchases of goods effected during the entire period and it is possible to separate the assessment of the receipts derived from the sales for the period from January 1, 1955 to September 6, 1955, and to allow the taxing authorities to enforce the statute with respect to the sales taking place in this period and also prevent them by grant of a writ from imposing the tax with regard to sales for the exempted period.

12. The Supreme Court disagreed with the High Court that because the assessment to sales tax was one composite whole relating to the entire period from January 1, 1955 to May, 1959, the assessment which was bad in part was infected throughout and must be treated as invalid in its entirety. The question before us is not whether the assessment under the Sales Tax Act is not severable in part so as to retain the rest as valid but turns on the scope of the power of enhancing the assessment on a true construction of the relative statutory provisions. Though as held by the Supreme Court that the sales tax is imposed on individual sales or purchases of goods effected during the entire period of assessment, we think that the reference to the assessment in Section 31(3)(a)(i) of the Madras General Sales Tax Act, 1959, is the entire assessment. We are, therefore, of the view, as we have already indicated, that the Appellate Assistant Commissioner was competent, in disposing of the appeals filed by the assessee, to take a view different from that of the assessing authority on the nature of the bus-body-building contracts which was not objected to by the assessee in his appeal, and bring them to tax as sales of goods and thus enhance the assessment.

13. There remains the last ground of the assessee relating to limitation. On this question we think the Tribunal took the correct view. The Appellate Assistant Commissioner in enhancing the assessment did not act under Section 16 as a case of escaped assessment but he was using his powers under Section 31(3)(a)(i) of the Act. On that view the enhancement is not open to attack as out of time.

14. Having, however, regard to our last observations in dealing with the first ground of the assessee, the tax cases are allowed for that limited purpose and the appeals are remitted to the Tribunal for fresh disposal in accordance with our judgment. It will be open to the assessee and the revenue to adduce before the Tribunal further evidence if any. There will be no order as to costs in these tax cases.


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