Sale of goods in indivisible works contracts excludes materials used in construction from sales tax liability.

The expression "sale of goods" in Entry 48 was construed in its legal sense, requiring an agreement to transfer the very goods for money consideration with property passing under that agreement. An entire and indivisible building or works contract is an agreement to execute work, not to sell materials separately; the materials used become part of the structure by accretion and do not pass as goods under a sale contract. Deeming provisions in the Madras enactment could not expand the taxing power beyond the constitutional entry. The supply of materials in such indivisible works contracts was therefore not taxable as a sale of goods.

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Issues: Whether, under Entry 48 in List II of Schedule VII to the Government of India Act, 1935, the supply of materials in the execution of an entire and indivisible works contract can be treated as a sale of goods so as to sustain sales tax on the value of those materials.

Analysis: The expression "sale of goods" in the constitutional entry was held to be a term of legal import and not a popular one. In its legal sense, a sale requires an agreement to transfer the very goods in question for money consideration, with property passing pursuant to that agreement. A building contract is ordinarily an agreement to execute work and construct immovable property, and the materials used in such performance are not separately agreed to be sold as movables. Where the contract is entire and indivisible, the materials become part of the structure by accretion and do not pass as goods under a contract of sale. The deeming provisions in the Madras enactment could not enlarge the provincial taxing power beyond the constitutional entry.

Conclusion: The supply of materials in the respondents' indivisible works contracts was not a sale of goods within Entry 48, and the impugned taxing provisions were beyond the competence of the Provincial Legislature.

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