Sale of goods in works contracts means actual transfer of goods, not materials incorporated into immovable property.

For sales tax purposes, "sale of goods" was read in its ordinary legal sense under the Sale of Goods Act, requiring transfer of property in goods for a price. A building or repair contract was treated as an entire works contract for construction or repair of immovable property, so materials used in execution passed by accession when incorporated into the structure rather than by sale, unless the contract expressly provided otherwise. The statutory definition of sale price and Rule 2 were also held to be ultra vires because they used an artificial formula that could tax elements of work and labour beyond the taxing power. Assessments and recovery based on those provisions were quashed.

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Issues: (i) Whether, in a building or repair contract, the value of materials supplied by the contractor can be treated as a sale of goods and brought to sales tax; (ii) Whether the statutory definition of sale price and Rule 2 prescribing the method of computation were within legislative power.

Issue (i): Whether, in a building or repair contract, the value of materials supplied by the contractor can be treated as a sale of goods and brought to sales tax

Analysis: The expression "sale of goods" in the taxing entry was held to bear the meaning it had in the Sale of Goods Act, where sale requires a transfer of property in goods for a price. A building contract is an entire contract to construct or repair immovable property, and the materials used in execution do not pass by sale but by accession when incorporated into the structure. Since the contract is for work and labour culminating in immovable property, there is no sale of the materials as goods unless the contract expressly provides otherwise.

Conclusion: The supply of materials in the execution of the building and repair contracts was not a sale of goods and could not be taxed as such. This issue was decided in favour of the petitioner.

Issue (ii): Whether the statutory definition of sale price and Rule 2 prescribing the method of computation were within legislative power

Analysis: The statutory scheme attempted to sever an entire works contract by an artificial formula and, in the absence of proof of actual costs, by a flat percentage basis. That method was held to be arbitrary because it could capture a part of the consideration for work and labour, which lay outside the taxing power. A taxing provision cannot validate an assessment on a basis that includes elements not amounting to sale of goods.

Conclusion: The definition of sale price and Rule 2 were ultra vires and void. This issue was decided in favour of the petitioner.

Final Conclusion: The impugned assessments and recovery proceedings founded on those invalid provisions were quashed, and the matter was directed to be dealt with according to law.

Ratio Decidendi: For sales tax purposes, the constitutional expression "sale of goods" must be understood in its legal sense under the Sale of Goods Act, and a contract to build or repair immovable property does not become a sale merely because the contractor supplies materials that are ultimately incorporated in the work.

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