A contract is a works contract if the primary object of the parties to the contract is to do the works undertaken as one job and there is no intention whatever to pass any property in any chattel qua chattel.

Raju, J. - The above revisions have been filed by the State challenging the order of the Tamil Nadu Sales Tax Appellate Tribunal (Main Bench) at Madras, setting aside the levy of tax on a total and taxable turnover of Rs. 1,94,551 of the respondent - assessee for the assessment year 1974-75 on the ground that the turnover in question related to works contract and, therefore, was not exigible to tax. T.C. (R) No. 156 of 1983 has been filed against that portion of the order made in the main appeal. During the pendency of the appeal before the Tribunal, the Revenue filed an enhancement petition to restore the penalty levied by the assessing officer, which was deleted by the Appellate Assistant Commissioner. The said enhancement claimed in T.M.P. No. 168 of 1982 was also rejected by the very same order and challenging the said order T.C. (R) No. 157 of 1983 has been filed. Since the issues involved are common, and submissions have been made in common, they are dealt with together.

The respondents - assessees were said to be ship repairers and engaged in doing repair works to ships at harbour and also supplying necessary materials in effecting such repairs. On March 18, 1980, the place of business of the assessees appears to have been inspected, as a result of which, action was taken to assess the respondents for the assessment year 1974-75. After giving due notice and opportunity, the assessing officer, by his order dated October 21, 1980, determined the total and taxable turnover of the respondents at Rs. 1,94,551 and levied a tax of Rs. 11,120. Penalty under section 12(3) to the tune of Rs. 16,680 was also levied at 1 1/2 times the tax due.

Aggrieved, the respondents - assessees pursued the matter before the Appellate Assistant Commissioner. The said appellate authority, while noticing the facts that the assessees are the ship repairers, that they have produced parts and accessories of the ships and used them while carrying out repairs and reconditioning them, that they have not maintained any agreements in writing with the parties to the transaction, that the only evidence available consisted of the account books of the assessees as well as the bills issued to the customers and that in the accounts, the assessees have made distinction between the case of sales as such and case of charges for labour and work and came to the ultimate conclusion that the transactions in question amounted to sales exigible to tax. The said appellate authority strongly relied upon the fact that the bills maintained showed that the appellants used to charge separately for each of the items of spare parts supplied and the charges for the labour. The appellate authority allowed the enhancement petition filed by the department, and refixed the taxable turnover at Rs. 3,39,298.60. At the same time, the first appellate authority thought it fit to delete the penalty under section 12(3) of the Act on the ground that the levy of penalty was not called for on the facts and circumstances of the case. The assessing officer, by a revised proceedings dated March 4, 1982, refixed the total and taxable turnover of the assessee for the year 1974-75 at Rs. 3,39,298.60 and levied a tax of Rs. 26,782.67 and surcharge of Rs. 1,339.13.

Aggrieved, the assessees pursued the matter further before the Tribunal. The Tribunal, after analysing the nature of the transactions in the light of certain judicial pronouncements, came to the conclusion that the transactions in question are essentially a contract to do repair works in ships and the mention made separately as to the value of the materials was only to determine the reasonableness of the total work of the contract and being primarily a works contract, the supply of materials was only incidental and that, therefore, the turnover in question was not exigible to tax. So far as the levy of penalty is concerned, the Tribunal applied the ratio of the decision in State of Tamil Nadu v. Jakthi Veliyeetakam [1977] 40 STC 466