TaxTMI 
TaxTMI 
1958 (9) TMI 59
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.... of spare parts or materials supplied or used in effecting the repairs. There is no controversy in regard to the turnover in the sales department and these revision cases are concerned mainly with the transactions in the workshop department of the company. Although the turnover for the various assessment years vary, the nature of the business and the question to be decided in the cases are the same. It would be convenient for the purpose of deciding the question involved if the assessment for the year 1949-50 is taken as a typical one. For that year the Deputy Commercial Tax Officer assessed the turnover of the company in a sum of Rs. 42,13,684-13-9. Out of that sum the Officer allocated a sum of Rs. 2,63,462-6-9 as turnover in respect of works contracts referable to repairs of motor vehicles in the workshop. He deducted a sum of Rs. 46,874 therefrom on account of sums charged for services pure and simple. He held that the balance of Rs. 2,16,548-6-9 should be treated as turnover in respect of works contracts and levied a tax on 70 per cent thereof as representing the sales of materials to the customers while executing the works, repairs etc. On appeal the Special Commercial Tax O....
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....expression "turnover" in section 2(i), Explanation (1) stated that the amount for which goods are sold in relation to a works contract shall be deemed to be the amount payable to the dealer for carrying out such contract less such portion as may be prescribed of such amount representing the usual proportion of the cost of labour to the cost of materials used in carrying out such contract. The expression "works contract" was also defined in section 2(i-1) as meaning any agreement for carrying out for cash or for deferred payment or other valuable consideration, the construction, fitting out, improvement or repair of any building, road, or bridge or other immovable property or the fitting out, improvement or repair of any movable property. Under the Turnover and Assessment Rules framed under the Act, rule 4(3) stated that the amount for which goods are sold by a dealer shall in relation to a works contract be deemed to be the amount payable to the dealer for carrying out such contract less a sum not exceeding such percentage of the amount payable as may be fixed by the Board of Revenue from time to time. In pursuance of that rule a notification has been issued fixing the cost of labo....
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....ne in substance and in effect not a contract of sale of materials. It is now settled that in the case of a building contract the property and the materials used do not pass to the other party to the contract as movable property in the absence of any agreement between the parties relating thereto. It may be in particular cases that even in regard to building contracts where the materials employed in the building cease to be movable property there may be an agreement to pass the ownership in the materials for a price agreed upon between the parties, in which case the contract might contain an element of sale of goods. This was recognised in the judgment of this Court in Gannon Dunkerley and Co. v. State of Madras[1955] 1 M.L.J. 87, at 96; 5 S.T.C. 216. and by the Supreme Court in State of Madras v. Gannon Dunkerley[1958] 9 S.T.C. 353 at 385. As regards works contract relating to movable property the Supreme Court has observed at page 386: "It may be, as was suggested by Mr. Sastri for the respondents, that when the thing to be produced under the contract is movable property then any material incorporated into it might pass as a movable, and in such a case the conclusion that no taxab....
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.... Madras. S.S. Debit Note, 13609/13611 Date: 7-4-1950. Mr. K. Narasimhalu Naidu, Crown Talkies, Madras. Repair Order No. 7960 Registration No. M.D.K. 1186 1. Brg. Assy. Front wheel inner Rs 29 2. King pins 10 3. Cleaning materials 4 to 12 4 to 12 … … … 12 0 8 0 0 8 0 … … Total of itesm 1 to 12. 58 15 6 A. To charges fo renewing king pins and bushes 15 0 0 B. To turning 4 king pin bushes 10 0 0 C. To washing cary by power, lubricating all points, checking all oil levels, cleaning engine, checking tyre pressure and radiator water 10 0 0 D. To charge battery 2 8 0 E. To examing stg. Connections and checking toe in 3 8 0 103 1 3 or 103 1 0 The first 12 items of the bill amounting to Rs. 58-15-6 represent$BR$the charges for motor parts as such. These transactions though made$BR$in the course of executing the repairs were treated as sales, and the sales tax was collected from the customer. Thereafter there are four items, namely, A and C to E which are obviously in the nature of labour charges (A and C to E are charges for renewing king pin bushes, washing, lubricating etc., charging battery and examining steering connections etc.).....
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.... of those spare parts. But if such spare parts are not available, the assessee manufactures those parts for the purpose of effecting repair in its, what is stated to be a well-equipped, workshop. It would be convenient to refer to them as "fabricated parts". An illustration of this is the item in respect of which charges for "turning four king pin bushes" Rs. 10 is made in the accounts. We have indicated already that the charges comprise the cost of material and labour. It is argued for the State that in regard to this fabricated part it was really a sale of such part to the customer, and therefore the assessee would be liable to pay the tax thereon. In the particular case referred to by way of illustration it is contended that Rs. 10 would represent the sale price of the four king pin bushes. It is therefore necessary to consider whether there has been a sale by the assessee to the customer of the fabricated materials, e.g., four king pin bushes. Neither the bill issued to the party nor the account books of the assessee support the case of a sale of the four king pin bushes as such. In order to constitute a sale it is necessary that there should be an agreement between the parties....
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....ntention to sell the materials as such. This aspect of the case has been considered by the Supreme Court in the judgment referred to above at page 377 thus: "It has been already stated that, both under the common law and the statute law relating to sale of goods in England and in India, to constitute a transaction of sale there should be an agreement, express or implied, relating to goods to be completed by passing of title in those goods. It is of the essence of this concept that both the agreement and the sale should relate to the same subject-matter. Where the goods delivered under the contract are not the goods contracted for, the purchaser has got a right to reject them, or to accept them and claim damages for breach of warranty. Under the law, therefore, there cannot be an agreement relating to one kind of property and a sale as regards another. We are accordingly of opinion that on the true interpretation of the expression 'sale of goods' there must be an agreement between the parties for the sale of the very goods in which eventually property passes." The Supreme Court then quotes with approval a passage from the judgment of Blackburn, J., in Appleby v. Myers[1867] L.R. 2 C....
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....repairs, in respect of which movables there was no specific intention either to sell or to purchase. In the present case it cannot be said that the intention was to sell the king pin bushes as such. Rarely customers know or even care to know anything about the parts to be replaced; the necessity for replacement is often discovered only during the process of repair. To them the transaction is very often an integral one; on the part of the assessee the parts were needed in the course of effecting repairs to the car and were fabricated ad hoc, i.e., for that purpose. It was a manufacture of the material occasioned by reason of the undertaking to repair the car and not one done as part of a commercial undertaking; to quote the words of the learned Advocate for the petitioners, it was "an ad hoc manufacture in connection with the repair of the car". The elements necessary for constituting a sale of the part as such are therefore lacking in the case. In this connection reference may be made to a passage in Benjamin on Sale (8th Edn.) at page 167: "Where a contract is made to furnish a machine or a movable thing of any kind and before the property in it passes, to fix it to land or to an....