1. Contract for manufacture and supply of bricks — Assessment of sales tax under Orissa Sales Tax Act, 1947 — Dispute over whether transaction constituted a sale of goods. (Para 1 )
Back
Next 
1963 Supreme(SC) 105
SUPREME COURT OF INDIA
A.K.Sarkar : M.Hidayatullah : S.K.Das
C.B.Gosain
Versus
State Of Orissa
Case No. : 41 , 42 , 43 , 44 , 45 , 46 , 47 , 48 , 49 of 1962
Date of Decision : 4/5/63
Advocates Appeared: Chetty A.Ranganadham : Daphtary C.K. : Dapthary C.K. : Dhawan B.D. : Iyer R.Ganapathy : Mehta K.L. : Mehta S.K. : Sachthey R.N.
Advocates:
A.RANGANADHAM CHETTY, B.D.DHAVAN, C.K.DAFTARY, K.L.Mehta, R.Ganapathy Iyer, R.N.SACH, S.K.MEHTA
A.RANGANADHAM CHETTY, B.D.DHAVAN, C.K.DAFTARY, K.L.Mehta, R.Ganapathy Iyer, R.N.SACH, S.K.MEHTA
The distinction between a contract for the sale of goods and a contract for work and labour depends on the essence of the contract. If the primary intention is the production and transfer of a chattel for consideration, it constitutes a sale of goods.
Headnote:(A) Sales Tax Act - Definition of "sale" - Transfer of property in goods for consideration - Whether a contract for manufacture and supply of bricks, where raw material is provided by the buyer, constitutes a sale - If the contract provides that goods remain at the risk of the supplier until delivery and the supplier is prohibited from selling them to others without permission, it indicates ownership by the supplier - The absence of the word "sale" in the contract does not preclude it from being a sale if there is a transfer of property for consideration. (Paras 2, 4, 7)
(B) Contract for sale of goods vs. Contract for work and labour - Test to determine the essence of the contract - Whether the intention of the parties was that a chattel should be produced and transferred as a chattel for a consideration - If the primary object is the delivery of the finished goods, the contract is for the sale of goods, even if the goods are manufactured to specifications involving skill and labour. (Paras 8, 9, 10)
Facts of the case:
The appellant entered into a contract with a company for the manufacture and supply of bricks. The company provided the land and earth for making the bricks free of cost. The state assessed the appellant to sales tax on these supplies. The appellant contended that the contract was for labour or work done and materials found, and thus no sale of goods occurred.
Findings of Court:
The court found that the property in the earth was transferred to the appellant for the purpose of making bricks. The bricks were distinct from the earth and remained at the appellant's risk until delivery. The essence of the contract was the delivery of bricks as chattels for consideration.
Issues: Whether the contract for the manufacture and supply of bricks, where the raw material was provided by the buyer, was a contract for the sale of goods or a contract for work and labour.
Ratio Decidendi: The court held that the determining factor is the essence of the contract. If the intention is to produce and transfer a chattel for consideration, it is a sale of goods. The fact that the goods are manufactured to specifications or that the buyer provides raw materials does not convert a contract for the sale of goods into a contract for work and labour.
Result: Appeal dismissed with costs.
Legal Category Hierarchy
Table of Contents
2. Whether the contract was for the sale of goods or merely for labour and work done where raw materials were provided by the employer. (Para 1 , 3 , 7 , 8 )
3. Analysis of risk, tender terms, and the nature of the product to determine if property in the goods transferred from the manufacturer to the buyer. (Para 4 , 5 , 6 , 7 , 9 , 10 )
4. A contract is for the sale of goods if its essence is the transfer of a chattel for consideration, regardless of the labour or skill involved. (Para 8 , 9 , 10 )
5. Appeal dismissed with costs. (Para 12 )
6. How is a sale determined when the contract does not explicitly use the word sale?
A transaction constitutes a sale if there is a transfer of property in goods for cash, deferred payment, or other valuable consideration, regardless of whether the word sale is used in the contract. (Para 2 , 7 )
7. What is the test to distinguish a contract for the sale of goods from a contract for labour and materials?
The test is the essence of the contract: whether the intention of the parties was that a chattel should be produced and transferred as a chattel for a consideration. (Para 8 , 9 )
8. Does the requirement to manufacture goods to specific specifications or the use of skill and labour convert a sale of goods into a contract for work and labour?
No. If the object of the contract is the delivery of the goods, the fact that they are manufactured to specifications or require skill and labour does not change the essence of the contract as a sale. (Para 10 )
9. Does the provision of raw materials by the buyer necessarily mean the buyer retains ownership of the finished product?
Not necessarily. If the property in the raw materials is transferred to the manufacturer to create a different product, and the manufacturer bears the risk until delivery, the finished product is considered the manufacturer's property. (Para 4 )
10. Does the pursuit of a remedy before a Sales Tax Appellate Tribunal bar a subsequent petition for a writ of mandamus?
No. A petition for a writ and an appeal to a tribunal are separate remedies; the pursuit of one does not necessarily bar the other. (Para 11 )
A.K.SARKAR, J.
(1) THE appellant had entered into a contract with a company called the Hindusthan Steel Private Ltd., for the manufacture and supply of bricks at Rourkela in Orissa. Large quantities of bricks were manufactured and supplied under the contract and the appellant received payment for them. The respondent State assessed the appellant to sales tax under the Orissa Sales Tax Act, 1947 on these supplies on the basis that they were sales. The appellant contended that the contract was only for labour or for work done and material found, and that there was really no sale of any goods on which the tax could be levied. He moved the High Court of Orissa for a write of mandamus directing the respondent State not to assess or levy the tax. The application was rejected in limine by the High Court. The appellant has now come to this Court in further appeal.
(2) NOW a sale which can be taxed under the Act has been defined as "Any transfer of property in goods for cash or deferred payment or other valuable consideration." The point at issue is whether the contract was for a transfer of property in the bricks from the appellant to the Company for a consideration.
(3) IT is said that the bricks were made out of earth belonging to the Company and, therefore, the bricks had all along been its property and there could be no transfer of property in them to it. This contention is founded on a clause in the contract which says, "land will be given free" and which was apparently intended to make the earth available to the appellant for making the bricks.
(4) WE are unable to agree that this clause proved that the earth all along continued to belong to the (Company. It seems to us that when the clause said, "land will be given", it meant that the property in the earth to be dug out for making the bricks would be transfered to the appellant. It may be presumed that it was undersood that in quoting his rate for the bricks, the appellant would take into account the free supply of earth for making the bricks. Again what was supplied to the Company by the appellant was not the earth which he got from it but bricks, which, we think, are something entirely different. It could not have been intended that the property in the earth would continue in the Company in spite of its conversion into such a different thing as bricks. Further we find that the contract provided that the bricks would remain at the appellants risk till delivery to the Company. Now, obviously bricks could not remain at the appellants risk unless they were his property. Another clause provided that the appellant would not be able to sell the bricks to other parties without the permission of the Company. Apperantly, it was contemplated that without such a provision the appellant could have sold the bricks to others.
(5) NOW he could not sell the bricks at all unless they belonged to him. Then we find that in the tender which the appellant submitted and the acceptance of which made the contract, he stated, "I/we hereby tender for the supply to the Hindusthan Steel Private Ltd. of the materials described in the undermentioned memorandum". The memorandum described the materials as bricks, and also stated the "Quantities to be delivered" and the "Rate at which materials are to be supplied". All these provisions plainly show that the contract was for sale of bricks. If it were so, the property in the bricks must have been in the appellant and passed from him to the Company. The same conclusion follows from another provision in the contract which states that if bricks are stacked in a specified manner "then 75% of the value of the bricks at kiln site will be measured and paid....... The balance of 25%... ...will be paid finally when all the bricks have been delivered... .. Only full bricks as finally delivered ......will be taken into account......"
(6) BEFORE we leave this part of the case we have to notice the decision in P. A.
