Works contract classification turns on retained Government ownership and no transfer of property, so sales tax was not leviable.

The arrangement for manufacture and supply of MIG engines to the Government was treated as a works contract rather than a sale liable to Central sales tax. The decisive factors were that the Government's entrustment letter, procurement and payment terms, and billing procedure showed continuing Government ownership of the materials, equipment and finished engines. The assessee functioned only as an executing agency for manufacture and assembly on behalf of the Government, and the pricing and profit element were regarded as accounting features of the entrustment. Applying the distinction between a contract for sale and a contract for work and labour, the absence of any transfer of property from the assessee to the Government meant no sales tax was leviable.

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Issues: Whether the manufacture and supply of MIG engines and related equipment by the assessee to the Government of India amounted to a sale exigible to Central sales tax, or was only a works contract carried out on behalf of the Government.

Analysis: The arrangement was examined in the light of the Government of India's entrustment letter, the underlying Indo-Soviet licence arrangement, the correspondence governing procurement and payments, and the billing procedure. On that material, the property in the materials, equipment and finished engines was found to have remained with the Government throughout. The assessee acted only as the executing agency for manufacture and assembly on behalf of the Government, and the pricing, invoicing and profit element were treated as accounting features of the entrustment rather than indicia of a sale. Applying the settled distinction between a contract for sale and a contract for work and labour, the decisive consideration was the main object of the parties and the absence of any transfer of property from the assessee to the Government.

Conclusion: The transaction was not a sale but a works contract, and no Central sales tax was leviable on the impugned turnover.

Ratio Decidendi: Where the property in the materials and the finished product remains with the Government and the assessee merely executes manufacture or assembly on its behalf, the transaction is a works contract and not a sale for sales tax purposes.

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