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1958 Supreme(Mad) 245
IN THE HIGH COURT OF JUDICATURE AT MADRAS
Mr. Justice Rajagopalan and Mr. Justice Ramachandra Aiyar
Sundaram Motors Ltd., Madras
Versus
State of Madras, by Commercial Tax Officer
T.R.C. Nos. 233 to 236 of 1956. (11th Bhadra-1880 Saka).
Decided On : 02 September 1958
K. V. Venkatasubramania Ayyar and N. R. Govindachari, for Petitioner.
The Advocate-General (V. K. Thiruvenkatachari) and the Additional Government Pleader (K. Veeraswami), for Respondent.
Headnote:
Sales Tax - Workshop Transactions - Madras General Sales Tax Act, 1939, Section 12-B(1), Rule 13(c)(1-A) - Section 2(A), Section 2(i), Explanation (1), Rule 4(3) - The court discussed the definition of 'sale', 'turnover', and 'works contract' under the Madras General Sales Tax Act, as well as the provisions related to the assessment of works contracts. The court emphasized that the state government has no power to tax a works contract by treating it or a portion of it as sales, and that the method of assessment based on a fixed proportion of turnover as labour charges and cost of materials is illegal. The court also highlighted the necessity of an agreement between the parties for the sale of goods and the intention to sell the materials as distinct from a pure works contract.
Fact of the Case:
The cases involved assessments of workshop transactions under the Madras General Sales Tax Act for the years 1949-50 to 1952-53. The main issue was the propriety of the assessment in regard to workshop transactions, specifically whether the transactions should be deemed to be pure works contracts or contracts coupled with a series of sales of movable property.
Finding of the Court:
The court found that the state government has no power to tax a works contract by treating it or a portion of it as sales, and that the method of assessment based on a fixed proportion of turnover as labour charges and cost of materials is illegal. The court held that the charges for the fabricated materials should be treated as charges in respect of the works contract and not independent sales of those materials.
Issues: The main issue was whether the transactions in the workshop business should be deemed to be pure works contracts or contracts coupled with a series of sales of movable property.
Ratio Decidendi: The court emphasized that the state government has no power to tax a works contract by treating it or a portion of it as sales, and that the method of assessment based on a fixed proportion of turnover as labour charges and cost of materials is illegal. The court also highlighted the necessity of an agreement between the parties for the sale of goods and the intention to sell the materials as distinct from a pure works contract.
Final Decision: The Revision Cases were allowed, and the court held that no portion of the disputed turnover was liable to be taxed, except for parts supplied and in respect of which tax was levied on the customers and the tax on such taxes collected.
These tax revision cases are filed under section 12-B (1) and rule 13 (c) (1-A.) of the Madras General Sales Tax Act. The assessee is the petitioner in all these cases and they relate to assessments in respect of years, 1949-50 to 1952-53. Sundaram Motors (Private) Ltd., the assessee, is a private limited company incorporated under the Indian Companies Act, and it carries on business in selling and distributing motor vehicles. It also deals in motor parts and accessories and maintains a workshop where reconditioning or repairs of motor vehicles are undertaken. The turnover in the business of the company would, therefore, relate to the sales department, where the goods are sold, and also to the works department where the vehicles are repaired or reconditioned. In the latter case, the turnover represent not merely the labour charges as such but the cost of spare parts or would material supplied or used in effecting the repairs. There is no controversy in regard to the turnover in the sales department and these revision cases are concerned mainly with the transactions in the workshop department of the company.
Although the turnover for the various assessment years vary, the nature of the business and the question to be decided in the cases are the same. It would be convenient for the purpose of deciding the question involved if the assessment for the year 1949-50 is taken as a typical one. For that year the Deputy Commercial Tax Officer assessed the turnover of the company in a sum of Rs. 42,13,684-13-9. Out of that sum the Officer allocated a sum of Rs. 2,63,462-6-9 as turnover in respect of works contracts referable to repairs of motor vehicles in the workshop. He deducted a sum of Rs. 46,874 therefrom on account of sums charged for services pure and simple. He held that the balance of Rs. 2,16,548-6-9 should be treated as turnover in respect of works contracts and levied a tax on 70 per cent. thereof as representing the sales of materials to the customers while executing the works, repairs, etc. On appeal the Special Commercial Tax Officer held that out of the sum of Rs. 2,16,542-6-9 (1) Rs. 1,27,765 would represent pure labour charges, (2) Rs. 73,627 would represent works involving transfer of property and (3) Rs. 15,158 would represent charges for the manufacture of spare parts. He taxed seventy per cent., of item 2 at 3 pies per rupee and the whole of item 3 at nine pies per rupee. The assessment was taken up on appeal to the Sales Tax Appellate Tribunal. Substantially two questions were raised before the Tribunal and they were:- (1) in regard to the validity and proper rate of levying tax on the sales-tax collected by the assessee and (2) the proper method of assessing workshop transactions. The Appellate Tribunal held that the assessee was liable to pay sales-tax on the sales-tax collected by them and that the rate of levy adopted by the department was correct. On the second question it held that the department correctly assessed works contracts at seventy per cent. of the turnover. In the result the order of the Special Commercial Tax Officer was confirmed. Thereupon the assessee has preferred these Tax Revision Cases in respect of the assessment for the four years stated above.
The learned advocate for the assessee did not contest the correctness of the finding of the Appellate Tribunal in regard to the tax liability on the sales-tax collected by the assessee and also as regards the rate of levy in view of the decisions reported in The State of Madras v. The Bangalore Automobiles1 and Sundararajan &38; Co., Ltd. v. State of Madras2.
The only question argued before us related to the propriety of the assessment in regard to workshop transactions.
The validity of the provisions of the Sales Tax Act in regard to works contract has been considered by a judgment of this Court to which one of us was a party, in Gannon Dunkerley &38; Co. v. State of Madras3. That judgment was taken up in appeal to the Supreme
