Works contracts and welfare supplies were outside sales tax where no sale in law or business motive existed.

The constitutional entry for "sale of goods" could not be expanded to cover an entire works contract, because such a contract is a single, indivisible agreement for work and labour and the materials used do not become separately sold chattels; the Madras General Sales Tax Amendment Act, 1947 was therefore ultra vires to that extent and the levy on works-contract turnover failed. Supply of foodgrains to workmen, recovered from wages as a welfare arrangement, was not shown to be a commercial activity carried on with profit motive, so it did not constitute business by a dealer and was not liable to sales tax. The disputed turnovers were consequently excluded from assessment.

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Issues: (i) Whether the Madras General Sales Tax Amendment Act, 1947, was beyond the legislative competence of the Provincial Legislature insofar as it sought to tax works contracts by treating the transfer of materials involved in execution as a sale of goods; (ii) Whether supply of foodgrains to workmen by the assessee amounted to carrying on business as a dealer so as to attract sales tax.

Issue (i): Whether the Madras General Sales Tax Amendment Act, 1947, was beyond the legislative competence of the Provincial Legislature insofar as it sought to tax works contracts by treating the transfer of materials involved in execution as a sale of goods.

Analysis: The expression "sale of goods" in the legislative entry was taken to bear its settled legal meaning, namely an executed transaction involving transfer of property in goods for money consideration. A building or works contract was held to be an entire and indivisible contract for work and labour, where materials used by the contractor become part of the immovable property when affixed and are not sold as chattels under a separate bargain. The Court held that the Legislature could provide machinery and incidental incidents of taxation, but could not enlarge the constitutional field by redefining as a sale a transaction which is not a sale in law.

Conclusion: The impugned provisions were ultra vires to the extent that they sought to tax works contracts as sales of goods; the levy on the works-contract turnover was invalid.

Issue (ii): Whether supply of foodgrains to workmen by the assessee amounted to carrying on business as a dealer so as to attract sales tax.

Analysis: The definition of dealer required a person to carry on the business of buying or selling goods. The supply of foodgrains here was only a welfare measure for workmen, the cost being recovered from wages, and it was not shown to be an activity carried on with a profit motive. The word "business" in the Act was treated as commercial activity of buying or selling with a view to earn profit, not every recurring or organised activity.

Conclusion: The assessee was not carrying on business in respect of the foodgrains supplied to workmen and was not liable to sales tax on that turnover.

Final Conclusion: The assessment was set aside in respect of the disputed works-contract turnover and the foodgrains turnover, with consequential deletion of those items from the taxable turnover.

Ratio Decidendi: A taxing entry for "sale of goods" cannot be expanded by legislation to cover transactions which are not sales in law, and an activity amounts to business for sales-tax purposes only when it is carried on as a commercial venture with a profit motive.

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