Sale versus works contract turns on the true construction of the agreement; quality control clauses do not negate a sale of manufactured goods.

A contract for supply of hydraulically pressed tiles was held to be a contract of sale, not a works contract, because the agreement required delivery of a fixed quantity at a fixed price, with ownership passing only on conformity with prescribed tests and departmental approval. Clauses on rejection, supervision, quality control, and the supplier's obligation to provide materials, machinery, and labour were consistent with a sale of manufactured goods as chattel. The contract's reference to sales tax did not change its legal character. The Tribunal was also right that determination of sale price was outside the scope of section 62, as the point had not been properly pressed or canvassed below.

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Issues: (i) Whether supply of hydraulically pressed blocks (tiles) under the contract amounted to a sale under the Gujarat Sales Tax Act, 1969, or a works contract. (ii) Whether determination of the sale price of the goods supplied was outside the scope of section 62 of the Gujarat Sales Tax Act, 1969.

Issue (i): Whether supply of hydraulically pressed blocks (tiles) under the contract amounted to a sale under the Gujarat Sales Tax Act, 1969, or a works contract.

Analysis: The nature of the transaction had to be determined from the true construction of the contract as a whole. The agreement provided for supply of a fixed quantity of tiles at a fixed price within a stipulated time, with ownership in the manufactured tiles passing only after the tiles conformed to prescribed tests and were approved by the department. Rejection clauses, fixed consideration, supply of cement at a fixed rate, and the contractor's obligation to provide the other materials, machinery, and labour showed that the dominant object was delivery of manufactured tiles as chattel and not merely execution of work. Supervision and quality-control conditions were held to be consistent with a contract of sale. The clause referring to sales tax could not alter the statutory character of the transaction.

Conclusion: The contract was a contract of sale of tiles and not a works contract, and the answer was against the assessee and in favour of the Revenue.

Issue (ii): Whether determination of the sale price of the goods supplied was outside the scope of section 62 of the Gujarat Sales Tax Act, 1969.

Analysis: The question of sale price had not been pressed, and in any event it had already been determined by prior judicial authority. The Tribunal also lacked occasion to entertain that question in appeal because it had not been canvassed before the assessing authority, and section 62 did not justify its determination in the manner suggested.

Conclusion: The Tribunal was right in holding that the question of sale price was outside the scope of section 62, and the answer was against the assessee and in favour of the Revenue.

Final Conclusion: Both referred questions were answered in favour of the Revenue, and the reference was disposed of accordingly.

Ratio Decidendi: Whether a contract is one of sale or works contract depends on the true construction of the agreement as a whole, and supervisory or quality-control stipulations do not negate a sale where the dominant object is transfer of the manufactured chattel for price.

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