Works contract vs sale: manufacture and supply arrangement taxed as works contract where ownership never passed for a price.

A contract for manufacture and supply of bricks and tiles was treated as a works contract, not a sale liable to sales tax, where the terms of the agreement, surrounding circumstances and the parties' intention showed that the dominant object was performance of work. The transaction did not involve a transfer of property in goods for a price by the contractor, because the Government supplied the materials and retained ownership of the raw materials and finished goods throughout. The court noted that where any transfer of property is merely incidental to execution of the work, the arrangement is not a sale. The assessee therefore succeeded.

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Issues: Whether the contract for manufacture and supply of bricks and tiles was a works contract or a contract for sale exigible to sales tax.

Analysis: The nature of the transaction had to be determined from the terms of the agreement, the surrounding circumstances, the object of the transaction, and the intention of the parties. Where the materials used in manufacture are supplied by the Government, the raw materials and the manufactured goods remain the Government's property throughout, and the contractor never acquires ownership so as to transfer the goods for a price, the transaction does not amount to a sale. The distinction between sale and works contract depends on whether the main object is transfer of property as chattel or performance of work, with any transfer of property being merely incidental.

Conclusion: The transaction was a works contract and not a sale exigible to sales tax, and the assessee succeeded.

Ratio Decidendi: A transaction for manufacture and supply is not a sale where the materials and finished goods remain the purchaser's property throughout and no transfer of property by the contractor for price occurs; in such a case the dominant object is performance of work rather than sale of goods.

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