TaxTMI 
TaxTMI 
1970 (12) TMI 83
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....r, 1965, for manufacture and supply of kiln-burnt bricks to the said department for the construction of Gandhinagar. The assessee manufactured and supplied a large quantity of bricks under the contract and received payment for the same. The assessee made an application to the Commissioner of Sales Tax under section 52 of the Bombay Sales Tax Act, 1959 (hereinafter referred to as "the Act") on 19th November, 1967, for the determination of the question as to whether, for the purposes of the Act, the transaction of supply of bricks to the Government amounted to a sale. The Deputy Commissioner of Sales Tax, who heard the application, by his order dated 15th July, 1968, determined that the supply of bricks was a transaction of sale within the meaning of the Act. The assessee, being dissatisfied with the determination of the Deputy Commissioner of Sales Tax, preferred an appeal to the Gujarat Sales Tax Tribunal (hereinafter referred to as "the Tribunal"). The Tribunal, upon a review of the several terms and conditions of the contract and relying upon the decision of the Supreme Court in Chandra Bhan Gosain v. State of Orissa[1963] 14 S.T.C. 766 (S.C.). came to the conclusion ....
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....a contract of sale simpliciter. The principles there enunciated may be briefly summarised as under: (1) Whether a contract is a contract of work, or a contract of sale, or a composite contract of work to be done for remuneration and for supply of material for use in the execution of the work for price, is a question which must be decided on the facts and circumstances of each case. (2) The determination of the question must depend upon the real intention of the parties gathered principally from the construction of the terms of the contract itself viewed in the light of the surrounding circumstances of the case. (3) In determining the true nature of a contract, it is permissible to consider how the contract was intended to be performed. It is not the letter of the document but its spirit and essential character which would help in ascertaining whether the transaction evidenced by the document partakes of the nature which renders it either a works contract or a contract of sale simpliciter or a composite contract of work and labour and supply of materials for price. (4) One basic difference between a contract for sale of goods and a works contract is that while in the for....
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....ependent existence as the sole property of the party who produced it, the contract would be one for work or service. (9) The burden of proving that in a given case a contract for service for execution of work also involves a taxable sale of goods is upon the taxing authorities who must clearly show that there was a taxable sale and that burden is not discharged by merely showing that property in the goods which belonged to the party performing service or executing the contract stands transferred to the other party. It is in the light of these principles that we shall have to determine the question which has been posed for our opinion in this reference. As indicated above, the answer to the question, viz., whether the contract in the instant case is a contract for execution of work, i.e. a contract, the principal object of which is to render service which requires employment of skill and labour, or whether it is a contract of sale, i.e., a contract, the main object of which is the transfer of property in and the delivery of possession of bricks as bricks to the buyer or whether it is a composite contract either divisible or indivisible which involve supply of labour for remune....
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.... Government at a nominal rent. (3) The Government had also to make available suitable land as per the requirements of the assessee for excavating soil for the manufacture of bricks free of rent and the assessee was not required to pay any royalty or quarry charges for excavating earth for manufacturing bricks. (4) The assessee had to make arrangements for other raw materials, equipments, water, coal, labour etc. The Government would, however, assist the assessee, if possible, in supply of water and procurement of coal. The coal procured under the permit issued by the Government or supplied by the Government at fixed price from its stock, was to be utilised only in the manufacture of bricks on site. (5) The work of excavation of soil for manufacturing bricks and the utilisation of soil in the process of manufacture had to be done by the assessee as per the directions of the Executive Engineer and the bricks had to be dried and burnt in kilns of the type specified in the contract or approved by the Executive Engineer. (6) The assessee was required to make security deposit with a view to securing expeditious execution of the work. The contract had to be executed within the....
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....xecutive Engineer fully qualified or experienced and trustworthy personnel who will be available at the site of work during the progress of the work and the Executive Engineer had full power to remove such personnel and thereupon the assessee was under an obligation to appoint another qualified personnel to the satisfaction of the Executive Engineer. (13) The assessee was not to employ any person below the age of 12 years, or any animal suffering from any disease or infirmity and the Executive Engineer had the authority to remove such person or animal from the site of work. The assessee was also under an obligation to pay fair and reasonable wages to the workmen employed for the work undertaken by him and the dispute, if any, regarding fairness or reasonableness of wages between the assessee and his workmen was to be resolved by the Executive Engineer whose decision was conclusive and binding on the contractor. The responsibility to pay compensation under the Workmen's Compensation Act for injuries caused to any of the workmen was also in terms fastened on the assessee. These, then, are the important features of the contract and, in our opinion, they are not usually found in ....
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.... delivery of the bricks manufactured out of the said clay, the mere passing of property in the finished articles would not, in our opinion, change the essential character of the contract in this case because the property which so passed as a result of the execution of the contract was merely ancillary or incidental to the contract of work undertaken by the assessee. Mr. B.R. Shah, learned Assistant Government Pleader, appearing on behalf of the revenue, however, laid great stress on two features of the contract which in his submission were determinative of the question and to the inescapable conclusion that the contract was one of sale of bricks as bricks to the Government and not a works contract or a composite and indivisible contract of work and labour for remuneration as well as of supply of materials for price. He urged, firstly, that the contracting parties had used in the contract words such as "sale", "purchase", "delivery" and "rate of supply" in connection with the supply of bricks and the language employed was clearly indicative of the manifest intention of the parties that it was a transaction of sale, and, secondly, that there were several clauses in the contract wh....
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....was really intended to be procured therein was the skill and labour of the contractor so that bricks of a specified design and quality may be obtained. It would, therefore, be a works contract notwithstanding that words such as "sale", "purchase", "delivery" or "rate of supply" are used at some places in the contract. Besides, we cannot lose sight of the fact that the tender as well as the general conditions of the contract and specifications are each to be found under the heading "Name of work: Supply of kiln-burnt bricks for construction of Gandhinagar", and not under the heading "contract for sale of bricks". Further, we also find that the language employed in the several clauses of the contract is not uniform and the contracting parties have very often used the words "work", "supply" etc. in some of the clauses of the contract. In any case, therefore, this particular feature of the contract does not throw much light in the present case on the real intention of the parties nor does it finally clinch the issue raised for our determination. As regards the second contention, Mr. Shah drew our attention to the following few features of the contract which, according to him, show t....
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.... contract, contended Mr. Shah, conclusively and irrefutably showed that the contract was a contract of sale of bricks as bricks. In support of his contention Mr. Shah relied upon the decision of the Supreme Court in Chandra Bhan Gosain v. State of Orissa[1963] 14 S.T.C. 766 (S.C.). to which we shall presently advert and upon the following passage in the commentary on the Sale of Goods Act by Pollock and Mulla, Third Edition, at page 24: "Generally a contract to make a chattel and deliver it, when made, is a contract of sale, but not always. The test would seem to be whether the thing to be delivered has any individual existence before delivery as the sole property of the party who is to deliver it......It will be observed that in the cases where there is no sale there is never a moment when the thing produced is as a whole the maker's absolute property, notwithstanding that part, or even the whole, of the materials may have been his property, whereas in the other case he might, if he found it possible and profitable, and if not restrained by patent, copyright or any other similar breach of laws, make in duplicate or in greater numbers chattels of the kind ordered, appropriate one a....
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....disposal of the contractor for the purpose of carrying out the contract of supply of bricks of specified design at agreed rate after applying necessary labour and skill in the manufacture of bricks. In this context, we may also note that the owner of the land undisputedly was the Government and the land was placed at the disposal of the assessee only for a specified purpose and for a limited duration. The assessee was under an obligation to return the land to the Government after excavating necessary earth for manufacturing bricks in requisite quantity. At no stage had the appropriate authority under the Bombay Land Revenue Code made the assessee occupant of the land and granted him necessary permission to put the land to non-agricultural use as required by law nor had any other appropriate authority concerned with the administration of the law pertaining to mines and minerals at the relevant time granted to the assessee the necessary lease for excavating the land and exempted the assessee from the payment of royalty, assuming that the appropriate authority had the power to exempt a person from payment of royalty. It is only on such action being taken by the appropriate authority u....
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....actured out of such earth to any person other than the Government. Mr. Shah urged that unless the contracting parties assume that the assessee was the sole owner of the bricks which were manufactured, such a condition could not have found place in the contract. Since however the other terms of the contract lead to the inference that the bricks manufactured out of the earth supplied by the Government had no individual existence as that of being of sole ownership of the assessee, such an assumption cannot legitimately be made from one isolated provision in a contract of the nature with which we are concerned. As regards the provision regarding removal of material inferior to that described in the specifications from the site of work, it must be borne in mind that the Government had under the contract agreed to purchase not only the bricks of the type and specifications for which the contract was entered into but also inferior and burnt bricks as well as brick-bats and chharas. The assessee would therefore be required to remove from the site only such material which did not conform even to the specifications of brick-bats and chharas and which would be wholly useless to the Gove....
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....[1963] 14 S.T.C. 766 (S.C.).and contended that terms similar to those which are found in the contract in the present case have been construed by the Supreme Court in that case to mean that the property in the earth as well as in the bricks was vested in the contractor and that the property in the bricks passed to the other contracting party only at the stage of delivery against price. We shall, therefore, examine the decision of the Supreme Court in Chandra Bhan Gosain's case[1963] 14 S.T.C. 766 (S.C.). A perusal of the decision of the Supreme Court shows that the terms of the contract with which the court was there concerned, are not extensively set out in the judgment. However, it would be reasonable to assume that all the relevant and material terms and conditions of the contract must have been set out in the judgment. The bricks in that case were to be manufactured by the contractor for a company and the company had for that purpose agreed that "land will be given free". There was further a condition in the contract that the bricks were to remain at the appellant's risk till the delivery to the company. Another clause in the contract provided that the contractor would not be....
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.... discussing that point earlier, indicated as to why we are taking the view that the property in the earth excavated from the land placed at the disposal of the assessee did not pass to the assessee. We need not repeat here all that we have said earlier and would rest content by saying that having regard to the two peculiar features of the contract with which we are concerned, viz., mutual obligation cast on both the contracting parties regarding the sale and purchase of all types of bricks, brick-bats and chharas as well as the circumstance that the assessee was permitted to dig out earth from Government land not only free of rental charges but also without having to pay royalty or quarry charges, it would not be possible to say that the relevant clause in the contract with which we are concerned, must necessarily be interpreted in the same manner in which the Supreme Court has interpreted the relevant clause in Chandra Bhan Gosain's case [1963] 14 S.T.C. 766 (S.C.)., especially when the abovenoted features are not found to be present in like manner in the said contract. The same reasoning must also apply to the three other conditions in Chandra Bhan Gosain's case [1963] 14 S.T.C. ....
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....about the true agreement between the parties and that the terms of the agreement must be deduced from a review of all the attendant circumstances. It would therefore be futile to contend that the decision of the Supreme Court in Chandra Bhan Gosain's case [1963] 14 S.T.C. 766 (S.C.). would apply to the facts of the present case although property in some of the materials used in the execution of work may incidentally pass because there are distinguishing features between the contract in that case and the contract in this case. As regards the passage referred to and relied upon by Mr. Shah from the commentaries on the Sale of Goods Act by Pollock and Mulla, we find that the test therein laid down is satisfied in the present case. In this case, the property in the whole of the materials was not that of the assessee; the thing produced, that is, the bricks as a whole did not have any individual existence before delivery as the sole property of the assessee and it was not open to the assessee, if he found it possible and profitable, to manufacture bricks of the kind which he had agreed to supply to the Government in greater number and to sell the same to others after fulfilling his obli....
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....eatures with the contract with which the Madras High Court was concerned and the reasons which led the Madras High Court to take the view that it was a works contract must also apply with equal force to the contract in this case. In the light of the various terms of the contract with which we are concerned in this case, it would be proper and legitimate to hold that the bricks at every stage of manufacture, continued to be the property of the Government and what the assessee was called upon to do was only to manufacture bricks out of the earth supplied by the Government and to deliver the same to the Government as per specifications. The contract, in our opinion, is therefore a works contract, pure and simple. Assuming, however, that the property in the earth supplied by the Government to the assessee in the present case was transferred to the assessee at some stage prior to the delivery of bricks and the property in the material ultimately passed to the Government on the fulfilment of the contract, it would not yet be possible to hold that the contract in the present case, merely on account of that fact, was a contract for sale of bricks. As observed by the Supreme Court in the....
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.... in deciding, on the facts and circumstances of this case, the true nature and character of the transaction with which we are concerned. Besides, we find that in Krishna Chandra Acharya v. The Board of Revenue, Orissa[1955] 6 S.T.C. 400., the Orissa High Court has on the terms of the contract with which it was concerned, taken the view that the stipulation in the contract that the earth would be supplied free of cost to the contractor by the Government from their land and used by him in the process of preparing the embankment, did not result in passing the property in the earth to the contractor. Similarly, in the case of Commissioner of Sales Tax, M.P. v. Purshottam Premji[1970] 26 S.T.C. 38 (S.C.)., a reference to which has already been made above, the Supreme Court has held that the property in the ballast which was obtained from the stones quarried from the quarries belonging to the railway did not pass to the contractor although the contractor in that case was required to pay royalty on the stones excavated by him from the quarries of the railway. These cases go to show that a contrary view may also be taken on the question and it is possible to hold that on supply of material....