TaxTMI 
TaxTMI 
1961 (4) TMI 74
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..... On December 19, 1953, it entered into a contract with a company called Sindri Fertilisers and Chemicals (Private) Ltd., hereinafter referred to as the Owner, for assembling and installing machinery, plants and accessories for a coke oven battery and by-products plant at Sindri in the State of Bihar for an all-inclusive price of Rs. 2,31,50,000. The agreement provides that the appellants were to supply all the materials and labour required for the execution of the works, and that the performance was to be split up into two categories, the German section and the Indian section, that the German section was to consist of deliveries of materials from Germany free on Board European ports, cost of technical drawings and services of German specialists, and that the Indian section was to consist of supply of Indian materials and charges for Indian labour and services to be performed in India. The German section was to be paid out of the lump sum stated above a sum of Rs. 1,31,50,000 in pounds sterling in London on account of the appellant, and the Indian section was to be paid the balance of Rs. 1,00,00,000 in Indian currency in this country, and payments were to be made in inst....
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....iable to pay tax on sales which take place in Bihar, and section 5 provides that the "tax payable by a dealer under this Act shall be levied on his taxable turnover at such rate or rates and subject to such restrictions and conditions as may be laid down from year to year by an annual Bihar Finance Act." The Bihar Finance Act defines "taxable turnover" as meaning that part of the dealer's gross turnover on sales which have taken place in Bihar during any period subject to certain deductions. Section 9(1) of the Act provides that "no dealer shall, while being liable under section 4 to pay tax under this Act, carry on business as a dealer unless he has been registered under this Act and possesses a registration certificate". Section 13(5) of the Act under which the present proceedings have been initiated is as follows: "If upon information which has come into his possession, the Com- missioner is satisfied that any dealer has been liable to pay tax under this Act in respect of any period and has nevertheless wilfully failed to apply for registration, the Commissioner shall, after giving the dealer a reasonable opportunity of being heard, assess, to the best of his judgment,....
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....in the course of import from Germany, and a tax thereon was repugnant to Article 286(1)(b) of the Constitution. After taking over the Indian section of the contract, the appellant in Civil Appeal No. 238 of 1960 had registered itself on May 11, 1953, as a dealer under section 9 of the Act and was submitting periodical returns as required by the certificate and the Act. But its contention at all times has been that it is not liable to pay sales tax on the transactions in question, as there were only supplies of materials in execution of works contract and that they did not amount to sale of goods. This contention was overruled by the Superintendent of Sales Tax, Dhanbad, the third respondent herein, and the appellant was assessed to sales tax successively for the years 1952-53 and 1953-54. While proceedings by way of appeal or revision by the appellant against these orders of assessment were pending, the third respondent issued further notices for assessment of tax for the years 1954-55 and 1955-56, and directed the appellant to produce all its books and accounts for the above period. Thereupon the appellant filed in the High Court of Patna petitions under Articles 226 and....
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.... Authorities to investigate the facts and upon proper construction of the contract come to the finding whether, and if so to what extent, the petitioners are liable to pay sales tax. I have no doubt that in deciding this question the Sales Tax Authorities will keep in view the principle laid down by the Supreme Court in State of Madras v. Gannon Dunkerley & Co. (Madras) Ltd." With these observations the learned Judges dismissed the petitions. It is against this judgment that the present appeals by special leave are directed. The first question that arises for our decision is whether on the construction of the agreement dated December 19, 1953, it could be held that there was a sale by the appellants of the materials used in the construction works, apart from the execution of those works. In The State of Madras v. Gannon Dunkerley & Co. (Madras) Ltd. [1959] S.C.R. 379; 9 S.T.C. 353., after stating that building contracts could assume several forms, this Court observed as follows: "It is possible that the parties might enter into distinct and separate contracts, one for the transfer of materials for money consideration, and the other for the payment of r....
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.... It is clear from the above clauses that the subject-matter of the agreement was the installation of the coke oven battery and its accessories, that the sum of Rs. 2,31,50,000 was the price agreed to be paid for the execution of those works, and that there was no agreement for the sale of materials, as such, by the appellants to the owner. In other words, the agreement in question is a contract entire and indivisible for the construction of specified works for a lump sum and not a contract of sale of materials as such. Now the contention that found favour with the learned Judges in the High Court was that there was in the contract a clause that the property in the materials was to pass to the owner when they are brought on the site, and that, in effect, amounted to a sale of those materials by the appellant to the owner. The clause in question is as follows: "15. (ii) All materials and plant brought by the Contractor upon the site under the German and Indian Sections in connection with the construction of the Coke Oven and by-products Plant shall immediately they are brought upon the site become the Owner's property and the same shall not on any account....
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....of the Sale of Goods Act is, in our opinion, equally unsound. What that section enacts is that where there is a contract of sale of movables but the price is not mentioned, it has to be fixed either in the manner provided in the agreement or by having regard to the course of dealings between the parties, and where that is not possible, the buyer has to pay the seller a reasonable price. But the section presupposes that there is a contract of sale of goods, and, as held in The State of Madras v. Gannon Dunkerley & Co. (Madras) Ltd. [1959] S.C.R. 379; 9 S.T.C. 353., such a contract requires that there must have been an agreement between the parties for the sale of the very goods in which eventually property passes. If, as held by us, clause 15 does not embody an agreement for the sale of materials as such, there is no contract of sale with respect to them and section 9 of the Sale of Goods Act can have no application. The contention, therefore, that clause 15 of the agreement could be read as amounting to a contract of sale of materials, and that the price therefor could be fixed as provided in section 9 of the Sale of Goods Act by recourse to the account books of the appellants or t....
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....ecision in The State of Madras v. Gannon Dunkerley & Co. (Madras) Ltd. [1959] S.C.R. 379; 9 S.T.C. 353., be held to be incompetent and quashed. But if the proceedings relate to any extent to sales otherwise than under the contract, then the enquiry with respect to them must proceed before the authorities under the Act and the application under Article 226 must fail. We must now examine the true scope of the proceedings before the Sales Tax Officer in the light of the above principles. We start with this that the Act contains provisions imposing a tax on the supply of materials under a construction contract. The appellants were indisputably engaged in construction works under the agreement dated December 19, 1953, and it is not suggested that they were carrying on any independent business as dealers in the State of Bihar. Presumably, there- fore, when the Sales Tax Authorities took proceedings against them, it was in respect of materials supplied by them under their contract dated December 19, 1953. When the appellants, in response to the notice issued by the third respondent, contested their liability to be taxed, it was on the ground that the supplies of materials ....
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....dings taken by the respondents for imposing sales tax on the supplies of materials by the appellants, pursuant to the contract dated December 19, 1953, are illegal and must be quashed. In the result, the appeals are allowed and appropriate writs as prayed for by the appellants will be issued. The appellants are entitled to their costs throughout. SHAH, J.-In my view these appeals must fail. The appellants claim that they are not liable to be taxed in respect of the transaction dated December 19, 1953, because it is not a sale within the meaning of the Bihar Sales Tax Act, XIX of 1947, but is a contract to assemble and install machinery, plants and accessories of a coke oven battery and other plants which under the principle of the decision of this Court in The State of Madras v. Gannon Dunkerley Co. (Madras) Ltd. [1959] S.C.R. 379; 9 S.T.C. 353. is not subject to sales tax. The Act defines "sale" as meaning-omitting parts not material- any transfer of property in goods for cash or deferred payment or other valuable consideration, including a transfer of property in goods involved in the execution of contract. "Contract" is defined as meaning any agreem....
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....m under the contract dated December 19, 1953, is not liable to be assessed to sales tax. But the question whether the contract is a pure works contract or a composite contract has never been investigated. Undoubtedly, the formal document evidencing the contract suggests, prima facie, that it is a works contract, but in assessing liability to tax, the taxing authority is not restricted merely to the letter of the document: he has to enquire into the true nature of the transaction on all the relevant materials and to ascertain whether it partakes of the nature of the transaction which the statute renders taxable. He is, in ascertaining the true nature of the contract, also entitled to consider how the contract was performed. The Act entrusts power to ascertain the facts on which the liability to tax depends to the taxing authorities and in that behalf, the Act is exhaustive in scope and content. The appellants in approaching the High Court by petitions under Articles 226 and 227 of the Constitution sought to eliminate the entire procedure and machinery set up by the Act for ascertaining facts on which the liability to tax depends. I strongly deprecate the practice of the taxpayer ....
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....by- products together with the plant, and also to deliver and supply accessories and articles. Undoubtedly, the price agreed to be paid is an "inclusive price" in respect of the entire contract, but that does not affect the nature of the contract to deliver and supply accessories and articles. The appellants have undertaken, subject to the terms and conditions mentioned in the contract, to execute and complete the works mentioned in the first schedule. The contract in so far as it relates to the installation of plant and construction of building was a works contract and notwithstanding the definition of "sale" and "con- tract " in the Act, was not taxable but the contract contemplates delivery and supply by the appellants of accessories and articles. Even if this delivery and supply of accessories and articles is incidental to the works contract, it cannot be assumed without investigation that it was not a part of a transaction of sale liable to tax. The appellants asked the High Court to assume that the contract in question was a pure works contract, but the High Court declined to make that assumption. Ramaswami, C.J., in dealing with that plea observed: "I wish, however....