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SUPREME COURT OF INDIA
H.R. KHANNA AND P.K. GOSWAMI, JJ.
Commissioner of Sales Tax, Gujarat, Appellant
Versus
M/s Sabarmati Reti Udyog Sahakari Mandali Ltd., Respondent.
Civil Appeal No. 1512 of 1971,
D/- 26-4-1976.
Advocates appeared
Mr. S.T. Desai, Sr. Advocate, Mr. M.N. Shroff Advocate with him, for Appellant; Mr. V.S. Desai, Sr. Advocate, Mr. Vimal Dave and Miss Kailash Mehta Advocates with him, for Respondent.
Bombay Sales Tax Act, 1959 - Section 52 - Claim for any compensation - Department for construction - Hindustan Steel Private of materials described in mentioned memorandum- memorandum described materials as bricks and also stated quantities to be delivered and rate at which materials are to be supplied- All se provisions plainly show that contract was for sale of bricks- If it were so property bricks must have been in appellant and passed from him to company Public Works Department of Government of Gujarat for manufacture and supply of kiln-burnt bricks to said Department for construction of Capital Project Gandhinagar- Large quantities of bricks were manufactured and supplied under contract and applicant received payment for same in accordance with agreed rates assesses made an application Section Bombay Sales Tax Deputy Commissioner of Sales Tax to determine question said supplies of bricks by assesses to Public Works Department were sales or works contract- Deputy Commissioner supplies of bricks by assesses as sale assesses n appealed to Tribunal against that order- Tribunal following ratio of decision of this Court in Chandra State of Orissa came to conclusion that supplies of bricks were sales- At instance of assesses Tribunal referred following question of law to High Court -Held, Hindustan Steel Private materials described in mentioned memorandum- memorandum described materials as bricks and also stated quantities be delivered and rate at which materials are to be supplied- All se provisions plainly show that contract was for sale of bricks- If it were so property in bricks must have been in appellant and passed from him company case such as maintenance of qualified Executive Engineer for supervision of work subject to removal at instance of Government restriction on employment of children welfare provision regarding wages workmen’s compensation etc provisions in relation to prevention of cruelty to animals; non-payment of royalty for excavating earth use of tube-wells standing on Government site; manner of execution of work regarding moulding and drying and provision against subletting which shall constitute a breach of contract resulting in forfeiture of security deposit above terms relate to a stage in process of proper and efficient manufacturing of bricks and are not inconsistent in a contract of sale- se terms do not appear to impinge on character of contract as one for sale of bricks manufactured- Government in its overall interest and anxiety for general welfare could insist on compliance with certain beneficial legal measures- It could also insist on certain terms which will ensure efficient production of material- Provision against subletting when land was given free by Government is also understandable- All above features do not negate concept of a contract of sale of bricks that are ultimately manufactured true test in this case is whether in making contract brick produced was transferred as a chattel consideration and court are clearly of opinion that this has taken place in this case property bricks was entirely of assesses- He had not only to manufacture m but also to stack for facilitating delivery essence of contract was delivery of bricks after manufacture- present case cannot be distinguished from decision of Chandra case - Appeal allowed
Judgment
GOSWAMI, J. :- This is an appeal by special leave against the judgment of the Gujarat High Court dated 8th/9th December, 1970.
2. The respondent (hereinafter to be described as the assesses) entered into a contract with the Public Works Department of the Government of Gujarat on September 6, 1965 for manufacture and supply of kiln-burnt bricks to the said Department for the construction of the Capital Project, Gandhinagar. Large quantities of bricks were manufactured and supplied under the contract and the applicant received payment for the same in accordance with the agreed rates. The assesses made an application under Section 52 of the Bombay Sales Tax Act, 1959, on November 19, 1967, to the Deputy Commissioner of Sales Tax, to determine the question whether the said supplies of bricks by the assesses to the Public Works Department were sales or works contract. The Deputy Commissioner held the supplies of bricks by the assesses as sale. The assesses then appealed to the Tribunal against that order. The Tribunal following the ratio of the decision of this Court in Chandra Bhan Gosain v. State of Orissa, ((1963) 14 STC 766) came to the conclusion that the supplies of bricks were sales. At the instance of the assesses, the Tribunal referred the following question of law to the High Court :-
"Whether on the facts and in the circumstances of the case the transaction envisaged by the contract entered into by the applicant with the Public Works Department of the Government of Gujarat on 6th September, 1965, for the manufacture and supply of kiln-burnt bricks to the said Department and the supply of bricks to the said Department in terms of their running Bill No. XI dated 28th October, 1967, is a sale or a works contract?"
3. The High Court answered the question in favour of the assesses holding that the transaction was a works contract. In coming to that conclusion the High Court held as follows :-
"In our opinion, the decision of the SC in chandra Bhan Gosains case (supra) is clearly distinguishable on facts. The contract in that case, though prima facieworded as regards the relevant clauses in similar fashion as the contract in the instant case, is in fact cast in a different mould and it would be difficult to hold in the light of the special features and characteristics of the contract with which we are concerned that the decision of the SC in that case would completely govern the facts of this case."
4. Mr. S. T. Desai, the learned counsel for the appellant, submits that the present case is squarely governed by the decision in Chandra Bhan Gosains case (supra) and the High Court is wrong in holding to the contrary.
5. Mr. V.S. Desai, learned counsel appearing on behalf of the assesses, on the other hand, submits that the High Court is right in distinguishing the present case in view of certain distinguishing features of the contract with which we are concerned.
6. It is well settled that whether a particular transaction is a contract of sale or a works contract depends upon the true construction of all terms and conditions of the document, when there is one. The question will depend upon the intention of the parties executing the contract. As we have observed in our judgment in Civil Appeals Nos. 1492 and 1493 of 1971, which we have just delivered there is no standard formula by which one can distinguish a contract of sale from a contract for work and labour. The question is not always easy and has for all time vexed jurists all over. The distinction between a contract of sale of goods and a contract for work and labour 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. (Halsburys Laws of England, Third Edition, Volume 34, page 6.)
7. The contract with which we are concerned in this appeal is found in a tender " for the supply of materials" containing a memorandum of the conditions. The nature of
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