A contract for repair work is a works contract and not a composite contract for doing labor work as well as supplying materials if the supply of materials is merely incidental to the execution of the work.

The judgment of the court was delivered by

MEHTA, J. - The real question which arises to be considered in this reference is whether the repairing work done by the assessee-opponent M/s. Asha Watch Co., amounts to a works contract or a composite contract for doing labour work as well as supplying materials.

2. Short facts which give rise to this reference are as under : The opponent-assessee M/s. Asha Watch Co., is a firm registered under the Bombay Sales Tax Act, 1959 (hereinafter referred to as "the Act"). It deals in watches, timepieces and clocks and also undertakes repairing works. On 27th September, 1957, the concerned Sales Tax Officer, on some information, seized the account books of the assessee and thereafter passed assessment orders enhancing the turnover of sales and purchases. He further found that during the assessment years 1954-55 and 1955-56, the assessee had undertaken repair works from different customers and during the course of these repair works, it had utilised certain spare parts for the purpose of carrying out the repairs. The bills, which were supplied by the assessee to these different customers, were composite bills for the labour work done as well as for the materials utilised, but these bills, admittedly, did not specifically state what were the labour charges and what were the charges for the spare parts, which were utilised in carrying out the repairs. So far as the assessment year 1954-55 is concerned, it is for the period from 1st April, 1954, to 31st March, 1953, and the aggregate amount of all the bills prepared by the assessee in this manner comes to Rs. 9,881. So far as the assessment year 1955-56 is concerned, it is from 1st April, 1955, to 31st March, 1956, and the aggregate amount of the bills supplied by the assessee to its different customers comes to Rs. 7,833.

3. The Sales Tax Officer sought to tax both these aggregate amounts which also included labour charges. But in the appeal preferred by the assessee the Assistant Commissioner of Sales Tax bifurcated the labour charges and the price of the materials used during the course of the repairs and charged only that price for the purpose of levying sales tax. This action of the Assistant Commissioner was confirmed by the Deputy Commissioner, Sales Tax, in revision.

4. The contention of the assessee is that the contracts in question being purely works contracts, it has not rendered itself liable to pay any tax on the price of the materials which were used during the course of the repairs because the passing of the property in the materials to different customers was only incidental to the execution of the works contracts. The assessee, therefore, approached the Tribunal in revision and became successful, because the Tribunal, basing its judgment upon the decision given by the Supreme Court in the Government of Andhra Pradesh v. Guntur Tobaccos Ltd. ([1965] 16 S.T.C. 240 (S.C.)), allowed the revision application and held that the materials which were utilised by the assessee during the execution of the repair works were not sold and the property in these materials passed only incidentally.

5. Being aggrieved by this decision of the Tribunal, the department has preferred this reference. The Tribunal has referred to this court, the following two questions for opinion :-

"(1) Whether on the facts and in the circumstances of the case contracts evidenced by the various bills aggregating to Rs. 9,881 for the assessment period from 1st April, 1954, to 31st March, 1955, and Rs. 7,833 for the assessment period from 1st April, 1955, to 31st March, 1956, enumerating without price the items of spare parts of watches constitute one and indivisible contract of works and labour for repairing work or a composite contract of both labour and sales of aforesaid spare parts under the provisions of the Bombay Sales Tax Act, 1959.

(2) If the answer of the first question is that the contract is a composite contract of material and labour whether such s