TaxTMI 
TaxTMI 
1983 (12) TMI 259
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....ad dismissed several writ petitions against several orders being S.T.R.P. Nos. 28, 27 and 29 of 1975 under the Karnataka Sales Tax Act, for the years 1960-61, 1961-62 and 1962-63 respectively and also three others namely; S.T.R.P. Nos. 25, 26 and 24 of 1975 under the Central Sales Tax Act for the corresponding years respectively, at the instance of the present appellant. These involved common questions of law and facts and were disposed of by a common judgment. We also propose to do the same. As stated, one of the questions was about the taxability of the turnover in respect of the sales made in the canteen of the appellant-company. This question is not before us. Before the Tribunal, the two following questions relevant for appeals before us were agitated, namely: (i) Whether the turnover apportioned from the job works undertaken by the appellant related to the sales of materials by the appellant to the Indian Air Force or other private parties, as the case may be, and as such whether these were taxable as held by the lower appellate authority. (ii) Whether, in the case of job works undertaken from the private parties mainly on quotation on inclusive-price-basis, the sales t....
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.... only or were agreements to sell spare parts, it would be relevant to refer in detail to some of the clauses of the "1951 contract". The agreement states that the "contractor" agrees to accomplish for the "owner" the servicing and maintenance of the H.Q. Training Command, I.A.F. Communication Flight, and works required on visiting aircrafts, to the standard as specified in the said agreement at Bangalore or at any other place required by the "owner". Then the specifications according to which the works had to be done were mentioned thereafter. The agreement also provides that the works would be carried out by the contractor, and payment made by the owner "at cost plus 10 per cent profit basis" or at the contractor's standard fixed rates, where applicable. Sub-clause (b) of clause 2 provides that any additional works to those specified in clause 1, items (a), (b) and (c), authorised by Air Head- quarters should also be charged for separately as per sub-clause (a) of clause 2 of the agreement. As the question of the price of the spares and materials is involved, it is necessary to set out clause 3 which deals with spares and materials: "Generally, the owner will provide the ....
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....affidavit had been filed before the Sales Tax Tribunal in Mysore, Bangalore. In the said affidavit, lie had described the nature of the works done by the appellant in connection with repairs and had mentioned that two types of works were done; one was overhaul of aircrafts, accessories and equipments thereof, and the other known as fixed quotation basis. It is not necessary to refer to the said affidavit in detail. He had mentioned in the said affidavit the procedure for preparing the bills and had stated that after the works were completed, a final inspection of the repairs done was checked by the Works Inspection Department, whereafter delivery orders were prepared and thereafter he described how bills were prepared thus: "After the work is completed, a final inspection of the repair done is checked by the Works Inspection Department, whereafter a delivery order is prepared and the billing section prepares the bill. As it is required by the defence audit purposes, the labour charges and material charges are shown which is worked out on cost plus 10 per cent basis. In the case of private aircraft owners and other airlines for a similar contract for repairs, we give a fixed p....
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....question became the property of the owner, i.e., I.A.F., only by way of accretion to the aircrafts for being used in the process of executing the contracts and not as a result of the agreement between the contracting parties. The High Court referred to certain decisions and came to the conclusion that in the present case what was sought to be brought within the purview of the Sales Tax Act was the cost to the vendees of the spare parts supplied by the appellant. In such a case, the High Court was of the view that the stage at which the property therein passed to the owner was not material. What was material was as to whether the goods in question were the property of the assessee before the same became the property of the President of India under the contracts. Dealing with the contention of the parties, the High Court was of the view that in providing separately the basis of payment of spare parts in the contracts, the intention of the parties was clear and unambiguous, i.e., the parties clearly agreed to the sale of spare parts according to the contract. Certain invoices were placed on record, namely, the invoice dated 28th February, 1962, being Invoice No. HT2/CAT. B/F-1 whic....
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.... of the appellant contended that that was the intention and there was no intention whatever to pass any property in any chattel qua chattel. It is well-settled that the difference between contract of service and contract for sale of goods, is, that in the former, there is in the person performing work or rendering service no property in the things produced as a whole notwithstanding that a part or even the whole of materials used by him had been his property. In the case of a contract for sale, the thing produced as a whole has individual existence as the sole property of the party who produced it some time before delivery and the property therein passed only under the contract relating thereto to the other party for price. It is necessary, therefore, in every case for the courts to find out whether in essence there was any agreement to work for a stipulated consideration. If that was so, it would not be a sale because even if some sale may be extracted that would not affect the true position. Merely showing in the bills or invoices, it was contended on behalf of the appellant, the value of materials used in the job would not render the contract as one of sale. The nature and ty....
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....k and for the supply of spare parts. It was also emphasised that the appellant was a regular manufacturer of the spare parts involved in the case of supply to the I.A.F. As has been clearly stated in the Halsbury's Laws of England, Third Edition, Volume 34, a contract of sale of goods must be distinguished from a contract for work and labour. The distinction is often a fine one. A contract of sale is a contract whose main object is the transfer of the property in, and the delivery of the possession of, a chattel as a chattel to the buyer. Where however the main object of work undertaken by the payee of the price was not the transfer of chattel qua chattel, the contract is one of work and labour. The test is, whether or not the work and labour bestowed end in anything that can properly become the subject of sale; neither the ownership of the materials, nor the value of the skill and labour as compared with the value of the materials, is conclusive, although such matters may be taken into consideration in determining, in the circumstances of a particular case, whether the contract was in substance one for work and labour and one for the sale of a chattel. In the case of Sentine....
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....olling shutters for money and the other for service and labour and that the amount payable at the stage of delivery represented the sale price of rolling shutters and it was liable to sales tax. On appeal, by special leave, this Court held that the contract was one single and indivisible contract and the erection and installation of the rolling shutters was as much a fundamental part of the contract as the fabrication and supply. The contract was clearly and indisputably a contract for work and labour and not a contract for sale. It cannot be said as a general proposition that in every case of works contract, there is necessarily implied the sale of the component parts which go to make up the repair. That question would naturally depend upon the facts and circumstances of each case. Mere passing of property in an article or commodity during the course of performance of the transaction in question does not render the transaction to be transaction of sale. Even in a contract purely of work or service, it is possible that articles may have to be used by the person executing the work, and property in such articles or materials may pass to the other party. That would not necessarily ....
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.... England, Third Edition, Volume 34, pages 6 and 7, para 3. It would be appropriate in our opinion, because it clearly enunciates the principles, to refer to the statement of law in Benjamin's Treatise on the Law of Sale of Personal Property with reference to the French Code and Civil Law, Eighth Edition (1950) at pages 167-168, where the learned Editor has deduced the principles that would be applicable in deciding the controversy before us. These principles are: "1. A contract whereby a chattel is to be made and affixed by the workman to land or to another chattel before the property therein is to pass, is not a contract of sale, but a contract for work, labour and materials, for the contract does not contemplate the delivery of a chattel as such. 2.. When a chattel is to be made and ultimately delivered by a workman to his employer, the question whether the contract is one of sale or of a bailment for work to be done depends upon whether previously to the completion of the chattel the property in its materials was vested in the workman or in his employer. If the intention and result of the contract is to transfer for a price property in which the transferee had no pre....
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....rafts, according to the standard as specified hereunder as these airplanes were necessary to be kept in readiness and that as there should be no delay in getting the materials, the contract in detail provided that the works would be carried out by the contractor and payment to be made by the owner at cost plus 10 per cent profit or at the contractor's standard fixed rates. The additional work that would be required as specified in clause 1 in the different sub-clauses was also to be charged as in clause 2(a). Regarding spares and materials, the idea was that the owner would provide to the contractor all the necessary spares and materials except expendable materials, such as paints, dopes, cleaning rags, etc., and it may be mentioned that these were necessary tools in carrying out the works entrusted to the appellant. It also stipulated in order to ensure that there should be no delay in keeping the airplanes ready at all times, that in cases of delay in supply of materials, the contractor would provide those from wherever possible, either by purchase or manufacture but the expenditure to be incurred for the same should be authorised by the owner's Deputy Financial Adviser at the co....
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....and materials, the contractor would be free to procure or obtain these spares and materials either by manufacturing or by purchase from the market, local or foreign, these goods to be identified and would be treated by the operation of the contract to be the goods of the owner of the planes. It is true as was emphasised that in order to be given out on loan by the "owner" to the contractor, the "owner" must have property in the spares and materials in question. But the "owner ", i.e., the Government, in our opinion, in the context of 1951 agreement, and it is indisputable that the transactions in this case were done on the basis of the agreement of 1951, became the owner of the property the moment the goods were identified and there was delay or inability on the part of the Government in supplying spares and materials. It was emphasised that not a consolidated price was contemplated but what was contemplated was separate price for the materials. Indeed the invoices relied upon by the parties in the specific works orders indicated those were charged for separately. The basis for this has been explained in the affidavit of Shri Krishna Murthy mentioned hereinbefore. The affidavit was....