Works contract, not sale: quarrying and ballast supply on railway-owned material did not transfer property in goods.

Contracts for quarrying, breaking stones and supplying ballast were treated as works contracts because no property in goods passed from the contractor to the railway. The stones and ballast remained the railway's property throughout, and the contractor merely performed work and labour on materials belonging to the railway. The presence of a rejected-ballast removal arrangement and a royalty clause did not change the essential character of the transaction. On that basis, the supplies were not sales within section 2(n) of the Madhya Pradesh General Sales Tax Act, 1958, so no sales tax liability arose and the penalty could not be sustained.

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Issues: Whether the transactions for quarrying, breaking stones, and supplying ballast under the contracts constituted sales within the meaning of section 2(n) of the Madhya Pradesh General Sales Tax Act, 1958, or were merely works contracts.

Analysis: The decisive test was whether there was a transfer of property in goods. The contracts required the assessee to quarry stones belonging to the railway, break them into ballast of specified size, and supply them to the railway. The ballast was at all relevant times the property of the railway, and the assessee did not transfer any property in goods to it. The arrangement for removal of rejected ballast and the royalty clause did not alter the legal position that the railway owned the quarry and the materials. The nature of the contract had to be determined by its essence, and on that basis the transaction was one for work and labour, not for sale of goods.

Conclusion: The transactions were not sales within section 2(n) of the Act, the turnover was not liable to sales tax, and the penalty could not be sustained. The answer was against the Revenue and in favour of the assessee.

Ratio Decidendi: A contract is not a sale unless property in the goods produced passes from the contractor to the other party for price; where the contractor merely performs work on materials belonging to the other party, the transaction is a works contract and not a sale.

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