Works contract classification for railway coach construction on supplied underframes excluded sales tax on the amount received.

A contract for building railway coaches on railway-supplied underframes was treated as a works contract rather than a sale of goods. The agreement, read as a whole, showed execution of the entire work for a lump sum, with materials, labour, fitting, furnishing and finishing included, while the underframes remained railway property throughout. Clauses on interim payments, specification control, indemnity for entrusted property, suspension and termination were consistent with work execution, and no independent contract for sale of the coaches was established. The amount received was therefore not taxable as sales turnover.

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Issues: Whether the contract for building railway coaches on railway-supplied underframes was a pure works contract or a contract of sale of goods liable to sales tax.

Analysis: The contract, read as a whole, described the undertaking as building coaches on railway underframes, with the property in the underframes remaining with the railway throughout. The payment structure was a lump sum for execution of the entire work, including materials, labour, fitting, furnishing and finishing, and the agreement contained clauses consistent with execution of work rather than sale, including interim payments during progress, railway control over specifications, indemnity for entrusted railway property, and contractual provisions dealing with suspension and determination of the work. The Court applied the settled principle that a taxable sale within a works contract arises only where there is an independent agreement for sale of the very goods, and not merely a transfer of property as an incident of the work. On the facts, the department did not establish any independent contract of sale of coaches.

Conclusion: The contract was a works contract and not a sale of railway coaches. The amount received was not taxable as sales turnover and the answer was against the revenue and in favour of the assessee.

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