Judgment

SARKARIA, J. :- Whether on the facts of this case, the contract dated 15-6-1968 between the Union of India and the Central India Machinery Manufacturing Company Ltd. (Wagon & Structural Division) Bharatpur (hereinafter called the Company) for the manufacture and supply of wagons, was a contract of sale or a work contract, is the principal question that falls to be determined in this appeal by certificate, filed by the Union of India against a judgment dated January 31, 1969 of the High Court of Rajasthan. It arises out of these facts;

The Company Respondent No. 1 herein entered into a contract (No. 67/RS (1)/954/15/396, dated 15-6-1968, with the Union of India through the Railway Board for the manufacture and supply of 258 BG Bogie covered BCX type wagons and 812 MG covered wagons of MBC type to the Railways. The sales-tax authorities of the State (Respondent 3 herein) under the Rajasthan Sales Tax Act, levied the sales tax treating the contract as one of sale and delivery of wagons. Under a similar past contract the appellant reimbursed the Company the amount of sales-tax for the wagons supplied by it to the appellant in the months of March and April, 1967. In March 1967, the High Court of Mysore in the case of Hindusthan Aeronautic Ltd. Bangalore Division v. Commr. of Commercial Taxes, Mysore, held that the contract for the supply of wagons to the Railway Board by HAL was in the nature of works contract and therefore sales-tax was not payable on such supplies. In view of this decision, the Railway Board by its letter dated June 7, 1968 informed the Company that the money paid by it to the Company, which was not deposited with the Sales-tax Department should be refunded because the real nature of the transaction was that of a works contract and not a sale or purchase, and therefore the Railway Board was not liable to reimburse the Company for the amount of sales-tax if any paid by the Company to the State of Rajasthan. While in reply to the Railway Board the Company contended that the contract was for sale of wagons and not a contract for works, it took a contrary position in its representation to the Commissioner of Sales-tax, Rajasthan. Instead of giving any relief, the Sales-tax Department informed the Company that it should stop purchasing material on the strength of Form C under the Central Sales-tax Act. Such stoppage would have saddled the Company with a further liability to pay tax at the enhanced rate on the purchase of material used for the manufacture of wagons.

2. The Commercial Tax Officer provisionally assessed the company under S. 7(D) of the Rajasthan Sales-tax Act on the sale of wagons to the Railway Board for the month of May 1968, and served a demand notice for payment of Rupees 1,91.827/79P., including Rs. 1,899.29P. as penalty. Since the Company was registered as a dealer under the Sales-tax Act, it had to bear, in the first instance, the charge of the tax although its incidence normally passes on to the purchaser, in the absence of a contract of the contrary under the provisions of S. 64 (a) of Sale of Goods Act.

3. By its letter of August 14, 1968, the Railway Board finally informed the Company that in future, it would not reimburse the Company for the sales-tax if paid by it in connection with the supply of wagons. The Company thereupon invoked the writ jurisdiction of the High Court by a petition under Art. 226 of the Constitution. In the writ petition, the Commercial Taxes Officer Special Circle, Jaipur. The Union of India through the Railway Board, and the State of Rajasthan were impleaded as Respondents.

4. The relief prayed in the petition was :

"(1) That an appropriate Order be made determining whether the contract in question is in the nature of a contract for sale of goods, or works contract.

(2) That in the event of a finding that the contract is in reality a contract for sale the respondent Union of India be prohibited from claiming refund from the petitioner of the sum of Rs. 1,56,703.20 l