The court established the applicability of the definition of 'works contract' and the legislative intent behind the Act in upholding the assessment of sales tax on the turnover of works contracts.

1. The petitioner (Gannon Dunkerley & Co. (Madras) (Private) Ltd.), was assessed to sales tax by the Sales Tax Officer, Second Circle, Mattancherry, on a total turnover of Rs. 2,23,197 in respect of the period 1.4.1955 to 31.3.1956. A portion of the said turnover, viz., Rs. 1,96,486 relates to "works contracts" and it is the liability to assessment of that portion of the turnover that is challenged before us.

2. Ext. A, the order of assessment dated 31.10.1956, shows that the sum of Rs.1,96,486 was arrived at as follows:

Table:#1

3. S.2(1) of the Travancore-Cochin General Sales Tax Act, 1125 defines the expression "works contract" as follows:

"'works contract' means any agreement for carrying out for cash or for deferred payment or other valuable consideration the construction, fitting out, improvement or repair of any buildings, road, bridge, or other immovable property or the fitting out, improvement or repair of any movable property".

That the contracts concerned do come within the ambit of the definition is not disputed by the petitioner.

4. The main contention before us in the same as that advanced by the petitioner with success before the High Court of Madras in Gannon Dunkerley & Co. (Madras), Ltd., v. The State of Madras V STC 216. In that case it was held:

"The legislative power of the Provincial Legislature under the Government of India Act, 1935, to levy a tax on the sale of goods is confined and restricted only to the transaction of sale as understood by the Parliament of the United Kingdom in the law relating to the sale of goods and any attempt by the legislature to tax under the guise of or under the pretence of such a power transactions, which are wholly outside it, will be ultra vires and invalid. In the case of building contracts, where the amount is to be paid to the contractor either on a lump sum basis or according to a schedule of rates after measuring the quantities, unless there is a contrary intention specifically to pass the property in the materials as and when they are brought to the site, the property in the materials passes only when they are fixed to the building whether they are bricks, doors or door frames or other materials. There is no element of sale of materials in such a contract, as the contract is not in substance and in effect a contract to sell the materials as goods for a price stipulated between the parties, the ownership in which is to pass in accordance with the principles applicable to them and laid down in the Sale of Goods Act. The ultimate result of executing such a contract is to bring into existence immovable property and not movable property, and the contract therefore does not become a contract relating to sale of goods but it is only a contract to build. If the amendments relating to taxing of works contracts introduced in 1947 by the Madras Legislature are intended to catch in the net of tax the aforesaid building contracts, to that extent the amendments are ultra vires the Madras Legislature. Having regard to the terms of particular contracts, there may be an intention to pass the ownership in the materials for a price agreed upon between the parties, in which case there might be an element of sale of goods". (Head-note) dissented from the Madras view and held:

"The imposition of sales tax on the supply of building materials used in the execution of building contracts was not ultra vires the Provincial Legislature. But the definition of "sale price" in S.2(h)(ii) of the C.P. and Berar Sales Tax Act, 1947 and R.4 of the C.P. and Berar Sales Tax Rules, 1947, were beyond the powers of the Legislature, inasmuch as they involved taxation on an artificial basis having no relevance to the price of the goods sold or supplied by a builder. The definitions of "contract", "dealer", "goods", "sale and "turnover" in S.2 of the C.P. and Berar Sales Tax Act, 1947, which not only bring within the taxing field a "sale" unmixed with any other transaction but also pick out a sale from