Work and labour contract for bus body-building was not a sale of goods, so sales tax levy failed.

Bus body-building on customer-supplied chassis under an indivisible arrangement was treated as a contract for work and labour, because the materials used by the contractor became part of the customer's chassis by accession and no completed chattel was sold. On that basis, the taxable event under the Mysore Sales Tax Act, 1957 was not a sale of goods, and the turnover attributable to the work could not be split into a taxable sale element. The attempted levy at the general sales tax rate also failed, since the transactions did not fall within the charging provision for sales. The assessment orders were set aside.

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Issues: (i) Whether the bus body-building transactions were contracts of sale of goods or contracts for work and labour. (ii) Whether any part of the turnover attributable to work and labour could be exempted from sales tax. (iii) Whether sales tax could be levied at a rate higher than that contemplated by section 5(1) of the Mysore Sales Tax Act, 1957.

Issue (i): Whether the bus body-building transactions were contracts of sale of goods or contracts for work and labour.

Analysis: The statutory definition of sale in section 2(t) of the Mysore Sales Tax Act, 1957 includes transfer of property in goods, including goods involved in execution of works contract, but the State's power under Entry 54 of List II of the Seventh Schedule to the Constitution of India extends only to taxes on sale or purchase of goods. The transactions involved construction of bodies on chassis supplied by customers, on an indivisible basis, with the chassis remaining the customer's property and the materials added by the contractor becoming part of the chassis by accession. The body was not sold as a completed chattel; the essence of the bargain was improvement of the customer's chassis through labour and materials used on it.

Conclusion: The transactions were contracts for work and labour and not sales of goods.

Issue (ii): Whether any part of the turnover attributable to work and labour could be exempted from sales tax.

Analysis: The transactions were found to be indivisible contracts for work and labour, not separable into distinct agreements for sale of materials and for labour. Since the taxable event under the Act is sale of goods and the work executed on customers' chassis did not amount to a sale, the turnover relating to such contracts could not be split for taxation on a supposed sale element. The definition of works contract in section 2(w) and the turnover provision in section 2(v)(i) could not enlarge the State's competence beyond what the Constitution permits.

Conclusion: The assessees were entitled to exclusion of the entire disputed turnover from sales tax.

Issue (iii): Whether sales tax could be levied at a rate higher than that contemplated by section 5(1) of the Mysore Sales Tax Act, 1957.

Analysis: Once the disputed transactions were held not to be sales of goods, the question of applying the general rate under section 5(1) did not arise. The goods used in constructing bus bodies were treated as accretions to the chassis and not as separately taxable sales. The attempted assessment of the turnover under the general charging provision could not be sustained.

Conclusion: The levy of sales tax at the higher rate on the disputed turnovers was not sustainable.

Final Conclusion: The appeals and revision petitions succeeded, and the assessment orders were set aside.

Ratio Decidendi: Where a contractor builds and fits a body on a chassis supplied by the customer under an indivisible arrangement, and the materials used become part of the customer's property by accession, the transaction is a works contract and not a sale of goods for purposes of sales tax.

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