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Issues: (i) Whether the contract for setting up and installing the coke oven battery was an indivisible works contract or a contract of sale of materials as such; (ii) whether sales tax could be levied on the value of materials supplied in execution of that contract and the assessment proceedings quashed in writ jurisdiction.
Issue (i): Whether the contract for setting up and installing the coke oven battery was an indivisible works contract or a contract of sale of materials as such.
Analysis: The agreement was construed as a whole. Its dominant object was the construction and installation of a complete plant for a lump sum price. The clauses relied on by the revenue, including the provision that materials brought on site would become the owner's property, did not create a separate bargain for sale of materials. The transfer of property clause was treated as ancillary to the performance and safeguarding of the works, not as evidence of a distinct sale transaction.
Conclusion: The contract was held to be an entire and indivisible works contract and not a contract of sale of materials as such.
Issue (ii): Whether sales tax could be levied on the value of materials supplied in execution of that contract and the assessment proceedings quashed in writ jurisdiction.
Analysis: On the binding principle that a works contract of this kind does not amount to a sale of the materials used in its execution, the statutory provisions treating such materials as sold could not sustain levy on the contract in question. Since the proceedings were founded entirely on the supposed taxable character of supplies made under the contract, they were incompetent. The existence of a statutory assessment machinery did not bar writ relief where the levy itself was beyond power.
Conclusion: The levy on materials supplied under the contract was held invalid and the writ petitions were maintainable to quash the proceedings.
Final Conclusion: The appeals succeeded for the assessee, and the impugned sales tax proceedings based on the works contract were set aside.
Ratio Decidendi: A contract whose true nature is an indivisible works contract cannot be dissected into a sale of materials for the purpose of sales tax merely because property in materials passes during execution or on the site.
Concurring Opinion: Shah, J. dissented, holding that the taxing authorities were entitled to investigate whether the transaction was composite and whether any part involved taxable sales of goods, and that the High Court should not have assumed the factual basis necessary to grant writ relief.
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