TaxTMI 
TaxTMI 
1958 (9) TMI 59
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....ly the labour charges as such but the cost 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....
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....of a works contract. In the definition of the 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 notifi....
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....he building separately, as the contract would be one 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 ....
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.... and it runs thus: Sundaram Motors Ltd., 37, Mount Road, 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 batte....
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....e State would not be entitled to levy any tax on the labour charges as also on the price of materials which got used up in the course of repairs, e.g., polish, cotton waste, etc. In the latter case there would be no transfer of property to the customer, and it is not possible to conceive that those materials were sold as such to him. What, therefore, remains is the fourth item, the charges in respect of the fabricated materials. If a car is sent to the assessee for repair and some spare parts have to be fitted and those spare parts are either available with them or in the market, such parts are supplied and sales tax collected from the customer. Such a supply is treated by the assessee itself as a sale 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 f....
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.... viz., car, as the car belonged to the customer. The contract was to execute works on the car of the customer, and in the course of such repairs certain new accessories or parts had to be put in. There is no doubt that the property in those materials would eventually pass to the customer, but the question would be whether the agreement between the parties was that such parts should be treated as sold separatim or were they merely supplied in the course of carrying out a works contract of repair and charged as such. Therefore whether in a particular case there is a contract of sale of materials as distinct from a pure works contract would depend upon the agreement between the parties and on proof of an intention 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....
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....rned Judge who has held that as the contract involved transferring to the defendants for a price chattels, namely, curtains in which they had no previous property, it was a sale of goods. If one orders another to make and fix curtains at his house the contract is one of sale though work and labour was involved in the making and fixing........." It is clear from the facts of that case that the agreement was to supply curtains, and the mere fact that they were agreed to be prepared, supplied and fixed up would not deprive the contract of its essence, viz., a sale of the curtains. This rule cannot apply where the contract was to execute a work or repair which involved the supply of certain movables for effecting the 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 i....