ORDER :

S.H. Kapadia, J.

This matter arises on the provisions of the Karnataka Sales Tax Act, 1957. On 4-10-2005, a notice under Sections 29(1)(e) and 29(2)(e) of the Karnataka Sales Tax Act, 1957, came to be issued. It was addressed to the petitioner, M/s Larsen & Toubro Ltd. It was alleged that the petitioner is engaged in property development involving construction and building of flats and subsequent sale thereof. By a separate statement details of sale of flats were given. Those sales relate to the period 2000-2001 to 2004-2005.

2. According to the show-cause notice the Department alleged that the petitioner has not been paying taxes on sale transactions of flats on the ground that the same relates to sales of complete flats, claimed as sale of immovable property. The show-cause notice further goes on to state that in view of the recent judgment of this Court in K. Raheja Development Corpn. v. State of Karnataka, (2005) 5 SCC 162, the consideration received towards sale of flats even though on ownership basis are also liable to tax for the reason that such transactions of construction and sales of individual flats are in the nature of works contract and thus liable to tax under the provisions of the said 1957 Act. In short, the entire controversy turns around the ratio of the judgment of this Court in Raheja Development Corpn. case1.

3. Before coming to the abovesaid judgment in Raheja case1 we quote hereinbelow Section 2(1)(t) which defines the word "sale":

"2. (1)(t) 'sale' with all its grammatical variation and cognate expressions means every transfer of the property in goods other than by way of a mortgage, hypothecation, charge or pledge by one person to another in the course of trade or business for cash or for deferred payment or other valuable consideration, and includes,-

(i) a transfer otherwise than in pursuance of a contract of property in any goods for cash, deferred payment or other valuable consideration;

(ii) a transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract;

(iii) a delivery of goods on hire-purchase or any system of payment by instalments;

(iv) a transfer of the right to use any goods for any purpose (whether or not for a specified period) for cash, deferred payment or other valuable consideration;"

4. We also quote hereinbelow the definition of the word "contract" vide Section 2(1)(v-i) :

"2. (1)(v-i) 'works contract' includes any agreement for carrying out for cash, deferred payment or other valuable consideration, the building, construction, manufacture, processing, fabrication, erection, installation, fitting out, improvement, modification, repair or commissioning of any movable or immovable property;"

5. We may add that the charging section is Section 5-B of the 1957 Act which reads as under:

"5-B. Levy of tax on transfer of property in goods (whether as goods or in some other form) involved in the execution of works contracts. 'Notwithstanding anything contained in sub-section (1) or sub-section (3) or sub-section (3-C) of Section 5, but subject to sub-section (4), (5) or (6) of the said section, every dealer shall pay for each year, a tax under this Act on his taxable turnover of transfer of property in goods (whether as goods or in some other form) involved in the execution of works contract mentioned in Column (2) of the Sixth Schedule at the rates specified in the corresponding entries in Column (3) of the said Schedule."

6. It is important to bear in mind the distinction between two types of contracts 'sale and works' which rests on the principle that a contract of sale is one whose object is transfer of property in and delivery of possession of a chattel as a chattel to the buyer. When the object of the work undertaken by the payee for a price is not the transfer of a chattel as a chattel the contract is one of work and labour.

7. In the present case M/s Larsen & Toubro was a developer having agreed to develop the plot owned by Dinesh R