Sale versus works contract in body-building contracts: composite supply treated as a taxable sale of goods.

A body-building contract was construed by examining the agreement as a whole to determine whether it was a sale of goods or a contract for work and labour for sales tax purposes. The majority treated it as an arrangement for the construction and supply of composite bodies for a fixed price per unit, with delivery terms and transfer of property on delivery, and found no term inconsistent with a sale. On that basis, the transaction was characterised as a sale of goods and was liable to sales tax under the Bombay Sales Tax Act, 1953. A dissenting view considered the dominant character to be construction work on Government-supplied chassis and not a sale.

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Issues: Whether the body-building contract was a contract of sale of goods or a contract for work and labour, and consequently whether the transaction was liable to sales tax under the Bombay Sales Tax Act, 1953.

Analysis: The contract was construed as a whole to ascertain the true intention of the parties. The majority treated the agreement as one for the construction and supply of composite bodies for a fixed price per unit, with delivery schedules, transfer of property on delivery, and no term inconsistent with a sale. On that basis, the transaction was characterised as a sale of goods rather than a work-and-labour arrangement, and the taxable character of the receipts followed. Shah, J. dissented, holding that the dominant character of the agreement was construction work on chassis supplied by the Government, supported by supervision, approval, inspection, and penalty clauses, and therefore not a sale.

Conclusion: The contract was held to be a contract for sale and not a contract for work and labour, so the transaction was liable to sales tax under the Act. The dissenting view would have allowed the appeal.

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