The distinction between a works contract and a contract for sale of goods is that while in the former the goods are sold as goods without the purchaser bothering in the least about the manner and method of employment of labour in producing these goods, in the latter, the emphasis is mainly on the manner, method and skill with which the labour is employed in producing the goods.

MEHTA, J. - The only question which is involved in this reference is whether the contracts for body-building of railway coaches executed

2. The short facts of the case are that Messrs Variety Body Builders, Baroda, who are the assessees in this case, have entered into three contracts for the construction of railway coaches on the underframes supplied to them by the railway. The first contract is dated 17th September, 1954, and is for the construction of 25 N. G. Coaches. The second contract is dated 11th July, 1956, and is for the construction of 6 T.L.R. Coaches and the third contract is dated 14th January, 1956, and is for the construction of 25 M.G. Coaches.

3. The assessment relates to two periods, namely (1) from 24th October, 1955, to 31st March, 1956, and (2) from 1st April, 1956, to 31st March, 1957.

4. During the course of the assessment, the Sales Tax Officer found that the applicants had received some amounts on account of the above contracts for building coaches and that these amounts were not accounted for by the applicants for the purpose of computing their total turnover. The Sales Tax Officer was of the view that the contracts in question amounted to the sale of the coaches in question and, therefore, they were all contracts for sale of goods liable to be taxed under the provisions of the Sales Tax Act. He, therefore, carried out the assessment accordingly by adding the turnover represented by these three contracts. It is found that the assessment for the first period was of Rs. 2,72,803-8-0 while for the second period it was of Rs. 3,82,820.

5. At this stage, it would be necessary to make some general reference to the terms of contracts, which are to be considered for the purpose of this reference. It is an admitted position that all the three, contracts mentioned above contain similar terms. Under the circumstances, the third contract which is dated 14th January, 1956, is taken by the lower authorities and the Tribunal as a standard contract and the parties also have addressed their arguments before us on this basis. A reference to this contract shows that it contains 38 clauses embodying different terms. The main features of this contract can be stated as under :-

(1) By these contracts, the assessees have undertaken to "build" railway coaches according to the drawings and specifications supplied to them by the railway administration on the underframes which are also supplied by the railway administration. None of these contracts makes any reference to "sale" of the coaches as such. However, a lump sum amount, to be paid per unit of coach, is mentioned in each of the contracts.

(2) The work of constructing the coaches is required to be carried out either at the railway premises or at any other premises mutually agreed upon.

(3) This work is agreed to be carried out under the close supervision of railway administration and in accordance with the instructions issued by the Mechanical Engineer of the railway.

(4) These contracts contain clauses about security deposit to be made by the contractor as well as deduction of 10 per cent. of the amount of the running bills with a view to secure expeditious execution of the work and to cover possible losses and damages caused to the railway administration.

(5) The contractor is supposed to use materials of a particular standard as approved by the railway administration during the course of the construction of these coaches.

(6) The electric materials to be used during the course of the construction are agreed to be supplied by the railway and the railway staff is also supposed to contribute their labour with a view to co-operate in fitting the electrical installations in coaches.

(7) The contracts stipulate that two coaches every month should be prepared by the contractor but if he fails to do so, damages counted on the basis of the value of work in arrears are stipulated to be given to the railway administration.

(8) The contractor is made responsible for the