1. The dispute in this case relates to a turnover of Rs. 2,43,651, the value of gunnies supplied by the assessees to the Food Corporation of India. The assessees are dealers and manufacturers of wheat products and they also own flour mills. During the assessment year 1965-66, they returned a taxable turnover of Rs. 2,96,798.85. The assessing authority after a check of their accounts, found that they had supplied gunnies to the Food Corporation of India to the total value of Rs. 2,43,651 and that this turnover had been omitted to be shown in the return submitted by them. The assessing authority after considering the objections filed by the assessees proceeded to treat the said turnover of Rs. 2,43,651 as a taxable turnover, being the value of the gunnies said to have been sold by the assessees to the Food Corporation of India. The inclusion of the said turnover was questioned by the assessees by filing an appeal before the Appellate Assistant Commissioner, who, however, sustained the addition. Thereafter, the assessees took the matter in appeal before the Tribunal.
2. The Tribunal, after considering the various clauses of the agreement entered into by the assessees with the Food Corporation of India found that there was in fact no agreement for sale of old or new gunnies as such and that, therefore, the turnover in dispute could not be taxed as a sales turnover in the hands of the assessees. In this view, the Tribunal deleted the addition of Rs. 2,43,651 made by the assessing authority to the turnover returned by the assessees. Aggrieved against the order of the Tribunal, the State is before us.
3. It is pointed out by the learned Government Pleader that in respect of both old and new gunnies the view taken by the Tribunal cannot be legally sustained. It is urged that as regards the old gunnies, there is first a sale from the Food Corporation of India to the assessees and, thereafter, a resale by the assessees to the Food Corporation of India when the wheat products are delivered to the Food Corporation of India in a packed condition. As regards the new gunnies, he contends that the assessees have purchased the same from out-of-State dealers after issuing C forms declarations to the effect that the gunnies are intended for resale and that when they actually transferred the property in the new gunny bags to the Food Corporation of India in the course of supply of wheat products, the assessees should be taken to have sold the new gunny bags which they had purchased specifically for the purpose of resale.
4. For appreciating the above contentions advanced on behalf of the State, it is necessary to consider the terms of the contract which the assessees have entered into with the Food Corporation of India. The relevant contract between the Food Corporation of India and the assessees provides that the corporation is to supply wheat packed in gunny bags to the assessees for converting the same into maida, sooji, atta and bran and that the assessees, after such conversion, should deliver to the corporation the said wheat products marked and packed according to the existing standard packings. The services to be rendered by the assessees are taking delivery of the wheat bags from the corporation, cleaning, washing, drying, grinding the wheat supplied, and converting it into various products and delivering them to the corporation packed according to the existing standard packings. In the course of execution of the said works contract, the assessees have received wheat in gunny bags and, after manufacturing the specified wheat products, delivered them to the corporation duly packed in gunny bags. For rendering such services, the assessees have been paid a flat rate per ton. The assessees have used the old gunny bags in which wheat was supplied to them for packing the wheat products wherever it is possible, and in cases where old gunny bags could not be used, they have used new gunny bags. The value of such old and new gunny bags in which the wheat products have been packed and delivered to the Food Corporation of India is the subject-matter of dispute in this case.
5. According to the assessees, there was no agreement for sale of gunny bags as such, either express or implied, between the assessees and the Food Corporation of India and, therefore, the execution of their contract for cleaning, washing, drying and grinding the wheat and manufacturing and packing wheat products would not involve a sale of gunny bags, either old or new. But, according to the revenue, the regular purchase of new gnnny bags by the assessees from out-of-State dealers by issuing C forms shows that the assessees are in the habit of selling gunny bags and that the mere fact that the property in the gunny bags was transferred in the course of executing a works contract will not detract from the transaction being a sale.
6. On a due consideration of the rival contentions and the relevant clauses in the contract between the Food Corporation and the assessees, we are convinced that in this case there cannot be a contract for sale of gunny bags as such by the assessees to the corporation and that it is not possible even to infer an implied contract of sale of gunny bags. It is not in dispute that the agreement does not at all refer to any obligation on the part of the assessees to supply old or new gunny bags and to pack the wheat products in those bags. As a matter of fact, it is seen that the assessees have in most cases used old gunny bags in which wheat was supplied to them and only in cases where such old gunny bags could not be used, they had used new gunny bags for packing the wheat products. The agreement nowhere refers to the value of the gunny bags either old or new as forming part of the charges, and the fact that the charges are fixed at a flat rate per ton for the wheat products supplied without reference to the nature of the gunnies used, also shows that the value of the gunny bags used by the assessees for packing wheat products has not even been contemplated by the parties. In the face of the various provisions in the agreement, it is not possible for us to infer an implied contract for sale of gunny bags, either old or new, by the assessees to the Food Corporation of India.
7. The learned Government Pleader would contend that definitely there is passing of property in the gunny bags from the assessees to the Food Corporation, and from this one can infer an implied contract of sale of gunny bags. But it is well-known that the mere passing of title to goods in the course of execution of a works contract will not make the transaction a taxable sale unless there is an implied agreement to sell the goods. In Government of Andhra Pradesh v. Guntur Tobaccos Ltd.  16 S.T.C. 240, their Lordships of the Supreme Court had to consider a question somewhat similar to the one before us. In the course of the judgment, it has been laid down in that case that in order that there should be a sale of goods which is liable to sales tax as part of a contract for work under a statute enacted by the State Legislature, there must be a contract in which there is not merely transfer of title to goods as an incident of the contract, but there must be a contract express or implied for sale of the very same goods which the parties intended should be sold for a money consideration. According to their Lordships, there must be in the contract for work an independent term for sale of goods by one party to the other for a money consideration.
8. Applying the above test to the facts of this case, it is clear that in the agreement there is no independent term for the sale of gunny bags as such by the assessees to the Food Corporation for a money consideration. As already stated, there is no reference to the supply of gunny bags, either old or new, apart from the contract to grind the wheat and supply wheat products in a packed condition. The assessees have used old and new gunny bags for packing the wheat products and this is only in the course of discharging their obligation of grinding wheat and supplying wheat products in a packed condition. The obligation to pack the wheat products in standard packings cannot be construed as an obligation to supply gunny bags for a price. We are, therefore, of the view, that, in this case, the Tribunal has come to the right conclusion.
9. The tax case is dimissed with costs. Counsel's fee Rs. 150.