# Bishan Das v. State of Punjab

- **Citation:** [1962] 2 S.C.R. 81
- **Court:** Supreme Court of India
- **Decided:** 1962
- **Case number:** Civil Appeals Nos. 237 and 238 of 1960
- **Bench:** S. K. Das, J. L. Kapur, M. Hidayatullah, J.C. Shah, T. L. VENKATARAMA ArYAR
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/bishan-das-v-state-of-punjab-2298
- **Pages:** 20

## Headnote

Sales Tax-Construction works-Interpretation of contractSupply of materials-Legality of tax thereon-SaZ.s Tax authoritieJ;
taking proceedings to levy tax-Writ petition to
~uash proceedings
-Maintainability-Bihar Sales Tax Act, r947 (Bihar I9 of r947),
s. 2-Constitution of India, Arts. 226, 227.
On December 19, 1953, the appellant, a company registered
in West Germany, entered into a contract with a company in
India to set up a complete coke oven battery ready for production as well as by-products plants at Sindri in the State of
Bihar, agreeing to erect and construct buildings, plants and
machinery and deliver and supply accessories and articles from
Germany and also locally from India, an.d render services fully
described in the First Schedule, for an all inclusive price of
Rs. 2,31,50,000. The contract provided that in case the contractor failed to complete the works within the period specified
therein the Indian company might take possession of the works
and the materials which would become its property and complete the works and deduct from the agreed price the expenses
incurred in such completion. Under cl. l5(ii) of the contract
all materials brought by the contractor upon the site shall immediately b.ecome the company's property, hut such of them as
during the progress of the works were rejected by the company
ceased to be Company's property, and after the coke oven and byproducts plants had been constructed the contractor was entitled
to remove the surplus materials. The clause further provided that
the company shall not be liable for any loss if the materials were
destroyed by fire or otherwise. Under the Bihar Sales Tax Act,
1947, in a contract for execution of works, the materials used
11
Bishan Das
v.
State of Punjab
S. K. Das j.
82
SUPREME COURT REPOHTS
[1962]
z96z
therein are treated as sold by the contractors and their value is
taken as the sale price liable to be taxed. The execution of
Carl Still
the works was completed in 1955 as provided in the agreement
G. m. b. H.
and on March 20, 1956, the sales tax authorities issued a notice
v.
to the appellant to the effect that it was liable to pay tax for
State of Bihar the three years 1952 to 1955. under the provisions of the Act.
The appellant representtd that it had only supplied materials in
execution of works contract, that there was no sale of any goods
or materials by it and that the proceedings for taxing this
supply of materials as if they had been sold were illegal. The
sales tax authorities having proceeded _to take further steps to
levy the tax in spite of its representations, the appellant filed a
petition before the High Court of Patna under Arts. 226 and 227
of the Constitution of India for quashing the proceedings. The
High Court took the view that under cl. lj(ii) of the contract in
question the property in the materials was to pass to the Indian
company as soon as they were brought on the site, and that, in
effect, amounted to a sale of those materials by the appellant to
the company. The Court, however, dismissed the petition on
the ground that the facts had not yet been fully investigated
and that it would be open to the sales tax authorities to investigate the facts and upon the proper construction of the contract
come to the finding whether and if so to what extent, the appellant was liable to pay sales tax.
Held (Shah, J., dissenting): (1) that on its proper construction the agreement dated December 19, 1953, was a contract
entire and indivisible for the construction of specified works for
a lump sum and not a contract of sale of materials as such and
that the sales tax authorities had no right to impose a tax on
the materials supplied in execution of that contract on the footing that such supply was a sale.
The State of Madras v. Gannon Dunkerley & Co. (Madras)
Ltd., [1959] S.C.R. 379 and Peare Lat Hari Singh v. The State
·,,,
of Punjab, [1959] S.C.R. 438, followed.
(2) that where proceedings are taken befcre a tribunal
under a provision of la

## Text

_Characters 0–39,233 of 44,930. This is a partial read: ask again with offset=39233 for what follows._

2 S.C.R. SUPR:ffiME COURT Rll:POR1'S
81
quote what we said in Sahi's case (supra), remarkable
for their disturbing implications.
For these reasons, we allow the application with
costs and a writ will now issue as directed.
Petition allowed.
CARL STILL G. m. b. H. & ANOTHER
v.
THE STATE OF BIHAR AND OTHERS
(S. K. DAS, J. L. KAPUR, M. HIDAYATULLAH,
J.C. SHAH and T. L. VENKATARAMA ArYAR, JJ.)
Sales Tax-Construction works-Interpretation of contractSupply of materials-Legality of tax thereon-SaZ.s Tax authoritieJ;
taking proceedings to levy tax-Writ petition to
~uash proceedings
-Maintainability-Bihar Sales Tax Act, r947 (Bihar I9 of r947),
s. 2-Constitution of India, Arts. 226, 227.
On December 19, 1953, the appellant, a company registered
in West Germany, entered into a contract with a company in
India to set up a complete coke oven battery ready for production as well as by-products plants at Sindri in the State of
Bihar, agreeing to erect and construct buildings, plants and
machinery and deliver and supply accessories and articles from
Germany and also locally from India, an.d render services fully
described in the First Schedule, for an all inclusive price of
Rs. 2,31,50,000. The contract provided that in case the contractor failed to complete the works within the period specified
therein the Indian company might take possession of the works
and the materials which would become its property and complete the works and deduct from the agreed price the expenses
incurred in such completion. Under cl. l5(ii) of the contract
all materials brought by the contractor upon the site shall immediately b.ecome the company's property, hut such of them as
during the progress of the works were rejected by the company
ceased to be Company's property, and after the coke oven and byproducts plants had been constructed the contractor was entitled
to remove the surplus materials. The clause further provided that
the company shall not be liable for any loss if the materials were
destroyed by fire or otherwise. Under the Bihar Sales Tax Act,
1947, in a contract for execution of works, the materials used
11
Bishan Das
v.
State of Punjab
S. K. Das j.
82
SUPREME COURT REPOHTS
[1962]
z96z
therein are treated as sold by the contractors and their value is
taken as the sale price liable to be taxed. The execution of
Carl Still
the works was completed in 1955 as provided in the agreement
G. m. b. H.
and on March 20, 1956, the sales tax authorities issued a notice
v.
to the appellant to the effect that it was liable to pay tax for
State of Bihar the three years 1952 to 1955. under the provisions of the Act.
The appellant representtd that it had only supplied materials in
execution of works contract, that there was no sale of any goods
or materials by it and that the proceedings for taxing this
supply of materials as if they had been sold were illegal. The
sales tax authorities having proceeded _to take further steps to
levy the tax in spite of its representations, the appellant filed a
petition before the High Court of Patna under Arts. 226 and 227
of the Constitution of India for quashing the proceedings. The
High Court took the view that under cl. lj(ii) of the contract in
question the property in the materials was to pass to the Indian
company as soon as they were brought on the site, and that, in
effect, amounted to a sale of those materials by the appellant to
the company. The Court, however, dismissed the petition on
the ground that the facts had not yet been fully investigated
and that it would be open to the sales tax authorities to investigate the facts and upon the proper construction of the contract
come to the finding whether and if so to what extent, the appellant was liable to pay sales tax.
Held (Shah, J., dissenting): (1) that on its proper construction the agreement dated December 19, 1953, was a contract
entire and indivisible for the construction of specified works for
a lump sum and not a contract of sale of materials as such and
that the sales tax authorities had no right to impose a tax on
the materials supplied in execution of that contract on the footing that such supply was a sale.
The State of Madras v. Gannon Dunkerley & Co. (Madras)
Ltd., [1959] S.C.R. 379 and Peare Lat Hari Singh v. The State
·,,,
of Punjab, [1959] S.C.R. 438, followed.
(2) that where proceedings are taken befcre a tribunal
under a provision of law, which is ultra vires, it is open to a
party aggrieved thereby to move the court under Art. 226 for
issuing appropriate writs for quashing them on the ground that
they are incompetent, without his being obliged to wait until
those proceedings run their full course.
The State of Bombay v. The United Motors (India) Ltd.,
[1953] S.C.R. ro69, Himmatla! Hari!aJ Mehta v. State of Madhya
Pradesh, [1954] S.C.R. n22 and The Bengal Immunity Company
Ltd. v. State of Bihar, [1955] 2 S.C.R. 603, relied on.
In the present case, the sales tax authorities sought to
maintain the liability of the appellant to ·pay tax in respect of
materials supplied by it only under the contract dated December 19, 1953, and on the basis of the legality of the provisions
2 S.C.R. SUPREME COURT REPORTS
83
of the Bibar Sales Tax Act, 1947· Consequently, the proceedings taken by them must be held to be illegal and must be
quashed.
Per Shah, J.--Under the agreement dated December 19,
1953, there was a contract for the construction of a coke oven
battery and by-products plant, and also to deliver and supply
accessories and articles. Even if this delivery and supply was
incidental to the works contract, it could not be assumed without investigation that it was not a part of a transaction of sale
liable to tax. The investigation of facts on the questio~ of
liability to pay tax has to be made by the taxing authorities in
whom that jurisdiction is vested. Before these facts are ascertained, by merely looking at the terms of the written contract
and withont any investigation as to the true nature of the transaction, the High Court could not decide whether the contract
performed \vas a pure works or construction contract or was a
composite contract. The High Court "as, therefore, right in
declining to issue the writ prayed for.
CIVIL APPELLATE JURISDICTION:
Civil Appeals
Nos. 237 and 238 of 1960.
Appeals by special leave from the judgment and
order dated July 8, 1958, of the Patna High Court,
in Misc .. Tudl. Cases Nos. 713 and 819 of 1958.
A. V. Viswanatha Sastri, S. R. Banerjee and S. 0.
Mazumdar, for the appellants.
S. P. Varma, for the respondents.
1961.
April 19. The judgment of S. K. Das, J. L.
Kapur, M. Hidayatullah and T. L. Venkatarama
Aiyar, JJ., was delivered by Venkatarama Aiyar, J.
J.C. Shah, J., delivered a separate judgment.
I96I
Carl Still
G. m. b. H.
v.
State of Bihor
VENKATARAMA AIYAR, J.-Both these appeals arise
Venkatarama
out of the same facts and involve the determination
Aiyar, ;.
of the same question, and this judgment will govern
both of them.
The appellant in Civil Appeal No. 237 of 1960 is a
company registered 11.t Recklinghausen near Duss<eldorf
in West Germany, and carries on business in the
manufacture and erection of plants and machinery.
On December 19, 1953, it entered into a contract with
a company called Sindri Fertilisers and Chemicals
(Private) Ltd., hereinafter referred to as the Owner,
for assembling and installing machinery, plants and
Carl Still
G.ni. b. H.
v.
State of Bihar
Venkalarama
Aiyar ].
84
SUPREME COURT REPORTS
[1962)
accessories for a coke oven battery and by-products
plant at Sindri in the State of Bihar for an all-inclusive price of Rs. 2,31,50,000. The agreement provides
that the appellants were to supply all the materials
and labour required for the execution of the works,
and that the performance was to be split up into two
· categories, the German section and the Indian section,
that the German section was to consist of deliveries of
materials from Germany Free on Board European
ports, cost of technical drawings and services of German specialists, and that the Indian section was to
consist of supply of Indian materials and charges for
Indian labour and services to be performed in India.
The German section was to be paid out of the lump
sum stated above a sum of Rs. 1,31,50,000 in pounds
sterling in London on account of the appellant, and
the Indian section was to be paid the balance of
Rs. 1,00,00,000 in Indian currency in this country, and
payments were to be made in instalments related to
the progress of the contract. Subsequent to the agreement, the appellant entrusted the work of the Indian
section to an Indian company called the Coke Oven
Construction Company (Private) Ltd., and the Owner
having accepted this arrangement the said company
has become the assignee of the contract in so far as it
relates to the execution of the Indian section thereof.
It is this company that is the appellant in Civil
Appeal No. 238 of 1960. The execution of the works
was completed in 1955 as provided in the agreemel)t,
and the amounts due thereunder were also paid to the
two appellants.
The present dispute between the parties is as to
whether the appellants in the two appeals are liable
to pay sales tax on the value of the materials used by
them in the execution of the works under the contract. It will be convenient now to refer to the relevant provisions of the Bihar Sales Tax Act (Bihar
Act No. XXX of 1947), hereinafter referred to as the
Act. Section 2(g) of the Act defines 'sale' as including
a transfer of property in goods involved in the execution of contract. 'Contract' is defined in s. 2(b) as
meaning any agreement for carrying out for cash or
2 S.C.R. SUPREME COURT REPORTS
85
valuable consideration, the construction, fitting out,
improvement or repair of any building, road, bridge
or other immovable property; and 'goods' are defined
ins. 2(d) as including "all materials, articles and commodities, whether or not to be used in the construction,
fitting out, improvement or repair of immovable property." 'Sale price' is defined in s. 2(h)(ii) as meaning
the amount payable to a dealer as valuable consideration for the carrying out of any contract, less such portion as may be prescribed, of such amount representing
the usual proportion of the cost of labour to the cost of
materials used in carrying out such contract. •Dealer'
is defined in s. 2( c) as meaning any person who sells or
supplies any goods including goods sold or supplied in
the execution of a contract. Section 2(i) defines 'turnover' as meaning the aggregate of the amounts of sale
prices received and receivable by a dealer in respect
of sale or supply of goods or carrying out of any contract, effected or made during a given period. Section 4 is the charging section, and it provides that
every dealer whose gross turnover during the accounting period exceeded Rs. 10,000 shall be liable to pay
tax on sales which take place in Bihar, and s. 5 provides that the "tax payable by a dealer under this
Act shall be levied on his taxable turnover at such
rate or rates and subject to such restrictions and conditions as may be laid down from year to year by an
annual Bihar Finance Act." The Bihar Finance Act
defines 'taxable turnover' as meaning that part of the
dealer's gross turnover on sales which have taken
place in Bihar during any period subject to certain
deductions. Section 9(1) of the Act provides that "No
dealer shall, while being liable under s. 4 to pay tax
under this Act, carry on business as a dealer unless
he has been registered under this Act and possesses a
registration certificate". Section 13(5) of the Act
under which the present proceedings have been initiated is as follows:-
"If upon information which has come into his
possession, the Commissioner is satisfied that any
dealer has been liable to pay tax under this Act in
respect of any period and has nevertheless wilfully
Carl Still
G. m.b.H.
v.
State of Bihar
Venkatatoma
Aiyar ].
z961
Ca.Z Still
G. m. b. Ii.
v.
State of Bi"har
Venkutarama
Aiyar J.
86
SUPREME COURT REPORTS
[1962]
failed to apply for registration, the Commissioner
shall, after giving the dealer a reasonable opportunity of being heard, assess, to the best of his judgment, the amount of tax, if any due, from the dealer in respect of such period and subsequent periods
and the Commissioner may direct that the dealer
shall pay, by way of penalty, in addition to the
amount so assessed, a sum not exceeding one and
half times that amount."
The gist of the above provisions is that in a contract
for execution of works, the materials used therein are
treated as sold by the contractor and their value is
taken as the sale price liable to be taxed, and there
are provisions for determining that value.
Acting on these provisions, the Superintendent of
Sales Tax, Dhanbrtd, the third respondent J:ierein, issued on March 20, 1956, a notice to the appellant ffi Civil
Appeal No. 237 of 1960, under s. 13 of the Act, statin_,,.,g that on information which had come to his possession he was satisfied that the appellant was liable to
pay tax for the periods 1952-53, 1953-54 and 1954-55,
that it had wilfully failed to register itself under s. 9
of the Act, and it was direct<ld to show cause why
penalty should not be imposed. In response to this
notice, the appellant appeared before the third respondent and represented that it had only supplied
materials in execution of works contract, that there
was no sale of any goods or materiftls by it, and that
1
the proceedings for taxing this supply of ma,tol"ials as
if they had been sold were illegal. Disagreeing with
this contention, the third respondPnt direct.Pd the
appellant to produce all its lH>oks, accounts and documents for purposes of a8sessment, and this is quite
understandable, as it was his duty to levy tax in
accordance with the provisions of the Act.
Thereupon, the appellant filed petitions before the High
Court of Patna under Arts. 226 and 227 of the Constitution for t.he issue of appropriate writs for qL1ashing
the proceedings before the third respondent and for
prohibiting further proceedings under the Act as being
wholly :incompetent. The grounds put forward in
support of the petition were firstly that the State
t
2 S.C.R. SUPR.EME COURT REPORTS
87
legislature having authority to enact a \aw imposing
a tax on the sale of goods wtts not competent to tax
what under the law was not a sale, and thl1t <ts the
supply of materil1ls in the course of the execution of
works, was not in 111w 11 sale of thoae goods, a t11x
on such supply was u nautlwri:r.ed; 11nd secondly th11t,
even if there wa.s a sale of m1tterials, that was in the
course of import from Gerrrmny, and a tl1x thereon
was repugnl1nt to Art. 286(1)(0) of the Constitution.
After taking over the Indian section of the contract, the appellant iu Civil Appeal No. 238 of 1960
h11d registered itself on Ml1y 11, HJ53, as a dealer
under s. 9 of the Act and Wl1S submitting periodical
returns as required by the certificate tH!d the Act.
But its contention at a.JI times has twen ~hat iL is not
liable to pay sales tax on the transactions in ques~ion,
as there were only supplies of nmtcril11s in execution
of works contract anJ that thev did not 'mwunt to
sale of goodH.
This contention v:as overruled by the
Superintendent. of Sales Tl1x, Dhanbad, the third
respondent herein, and the appellant was assessed to
sales tttX successively for the years 1952-53 and 195354.
While proceedings by way of appeal or revision
by the appellant against these orders of assessment
were pending, the third respondent issued further
notices for <tssessment of tax for the years 1954-55
and 1955-56, and directed the appellant to produce
all its books and accounts for the above period.
Thereupon the appellant filed in the High Court of
Patna, petitions under Arts. 226 and 227 of the Constitution, similar to those filed by the appellant in
Civil Appeal No. 237 of 1960, for issue of appropriate
writs to quash the orders of the Sales Tax authorities
on the ground that the provisions of the Act, in so far
as they sought to tax supply of materials in works
contracts, were ultra vims.
By the t.ime the above petitions came up for hearing, the decision of this Court in The State of Madras
v. Gannon Dunkerley & Co. (Madra,~) Ltd. (1), had been
reported, wherein it was held tliat the expression
"sale of goods" in Entry 48 in List II of Sch. V H to
(1) [1959] S.C.R 379·
Carl Still
G.•ni. b. ll.
v.
State of Hihar
Venkatararna
Aiyar J.
r96r
Carl Still
G. m. b.•H.
v.
State of Bihar
Venkataratna
Aiyar ].
SS
StJPREME COUR'r REPORTS
[1962]
the Government of India Act, 1935, corresponding to
Entry 54 in List II of Sch. VII to the Constitution of
India had the same meaning that it has in the Sale
of Goods Act, 1930, that where there is a building
contract, under which specified work is to be executed
for a lump sum, there is no contract of sale, as such,
of materials used in the works, and that accordingly,
a tax on the supply of those materials treating it as a
sale was ultra vires the powers of the State Legislature under Entry 48 in List II of Sch. VII to the
Government of India Act, 1935. The learned Judges
were of opinion that this decision was distinguishable
because there was a term in the agreement before
them that the property in the materials was to pass
to the owner as soon as they were brought on the site.
Dealing next with the contention of the present
appellants that, as there was no agreement for the
payment of price for the materials, as such, they
could not be held to have been sold, the learned
Judges noticed without comment the contention of
the Government Pleader for the respondents, based
on s. 9 of the Sale of Goods Act, that even though no
price had been fixed for the materials, that could be
determined from the account books and invoices
and the course of dealings between the parties. The
learned Judges then proceeded to observe:
"I wish, however, to state that I do not express
any concluded opinion on the question whether there
is sale of materials liable to be taxed in the present
case. The facts have not been fully investigated by
the sales tax authorities and the petitioners have not
furnished all the account books and documents and
other relevant information for the purpose of deciding this question. It would be open to the sales
tax authorities to investigate the facts: and upon
proper construction of the· contract come to the
finding whether and if so to what extent, the petitioners are liable to pay sales tax. I have no doubt
that in deciding this question the sales tax authorities will keep in view the principles laid down by
the Supreme Court in State of Madras versus Gannon Dunkerley and Company (Madras) Limited (9
Sales Tax Cases 353)",
t
I
2 S.C.R. SUPREME COURT REPORTS
89
With these observations the learned Judges dismissed
the petitions. It is against this judgment that the
present appeals by special leave are directed.
The first question that arises for our decision is
whether on the construction of the agreement dated
December 19, 1953, it could be held that there was a
sale by the appellants of the materials used in the construction works, apart from the execution of those
works. In The State of ~Madras v. Gannon Dunkerley
& Co. (Madras) Ltd.('), after stating that building
contracts could assume several forms, this Court
observed as follows:
"It is possible that the parties might enter mto
distinct and separate contracts, one for the transfer of materials for ·money consideration a.nd other
for the payment of remuneration for services
and for work done. In such a case there are really
two agreements, though there is a single instrument
embodying them and the power of the State to
separate the agreement of sale from the agreement
to do work and render service and to impose a tax
thereon, cannot be questioned and will stand
untouched by the present judgment."
The point for determination, t.herefore, is whether on
its true construction, the contract in question is a
combination of two distinct agreements, one to sell
materials and the other to supply labour and services,
or whether it is only one agreement entire a.nd indivisible for execution of the works.
We will now refer
to the relevant portion of the agreement dated December 19, 1953.
The preamble to the agreement states
that the Owuer had agreed with the contractor that
the latter was to set up a complete coke oven battery
re:tdy for production :ts well as by-products plants
according to specifications given I.herein, that the
installation was to be made at a site selected hy the
Owner and thut t.he contractor was to "erect and construct buildings, plants and machineries am! deliver
and supply accessories and articles from Germany and
also loca,Ily from India and render services fully
(I) (1959} SC I\.. 379•
r96r
Carl Still
G. m, b. Ti.
v.
State of Bihar
Venkatarama
Aiyar ].
z961
Carl Still
G. m. b. I-!.
v.
State of Biha1
Venkatara111a
A.iya1· ].
90
SUPREME COURT REPORTS
[1962]
deHcribcd in the :First Schedule ......... for an all-inclusive price of Rs. 2,31,50,000." Then cl. 1 provides
that the contractor shall execute and complete the
works mentioned in the Schedule, and cl. 2 that the
Owner shr11! pay to the contractor for executing the
contract the sum of H.s. 2,31,50,000. Clause 4 requireB
the contractor to "provide all labour, materials,
machinery, plant, tools, tackles and other implements
for performing the works in a workman-like mrmner."
Under cl. 11, the contractor guarantees "to accompli~h full prod notion within 22 months from the 15th
September, l!J52," and further undertr1kes to fulfill the
guarantees prescribed in Schedule II to the agree.
ment "to the satisfactfon of the Owner within a period
of three months from the date of accomplishment of
full production." Clause 28 provides that in case the
contractor fails or is unable to complete the works
within the period, the Owner might take possession of
the works and of the mr1terials, "which will bocome
the property of the owner," and complete the works
and deduct from the agreed price the cxpellses incurred in such completion.
It is clear from the above clauses that the subject
matter of the agreement was the installation of the
coke oven battery and iLs accessories, that the sum of
Rs. 2,31,50,000 was the price agreed to be paid for the
execution of those works, and that there was no
agreement for the sale of materials, as such, by the
appellants to the Owner. In other words, the agreement in question is a contract entire and indivisible
for the construction of specified works fo1· a lump snm
and not a contract of sale of materials as such.
Now the contention that found favour with the
learned LTuJges in the High Court was !hat there was
in the contract a clause that _the property in the
rnateri.iJs was to pass to the owuer when they are
brought on the site, and thr1t, in effect, amounted to a
sale of those materials by the 11ppellant to the Owner.
The clause iu question is as follows:-
" 15 (ii).
All mitterials and plant brought by the
Contracto1· upon the site under tho German and
Indian 8eclim1A in counect.iou with tlrn nmrntruc:tion
' t
2 S.C.R.
SUPREME COURT REPORTS
91
of the Coke Oven and by.products Plant shall immediately they are brought npon the site become
the Owner's property and the same shall not on any
account whatsoever be removed or taken away by
the Contractor or by any other person without the
Owner's prior authority in writing. Such of them
as during the progress of the works will be reje<lted
by the Owner in accordance with the terms agreed
upon between the Contractor and the Owner in this
respect sh11ll on such rejection, ce11se to be the
Owner's property ............ The Owner shall not be
liable for any loss or dam11ge which may happen to
or in respect of such materials 11nd plant by the
s11me being lost, stolen or injured or destroyed by
fire, tempest or otherwise for which the contractor
will be liable ......... The Owner agrees th11t after the
Coke Oven and by-products Plants have been constructed according to the agreed terms, the Contractor will be entitled to remove from the site their
tools, tackles, machines, packing materials, protection roof and other materials as are surplus to the
requirements of the normal operation of the Coke
Oven and by-products Plant provided that no claim
for increased cost is made in respect of anything so
removed."
In Peare Lal Hari Singh v. The State of Punjab('),
a, building contract contained the following clause:-
" All stores and materials brought to the Site shall
become and remain the property of Government
and shall not be removed off the Site without the
prior written approval of the G. E. But whenever
the works are finally completed, the contractor
shall at his own expense forthwith remove from the
Site all surplus stores and materials originally supplied by him and upon such removal, the same
shall revest in and b0come the property of the
Contractor."
Discussing the questio11 whether by reason of this
clause there was a contract of Ha,Je of Uie materials by
the Contractor, distinct from the works contract, this
Court held that its object was only to ensure that
(1) [I959] S.C. R. 438.
I96I
Carl Still
G.tn.b H.
v.
;:;tate of Bih.ar
Venkatai'ama
Aiyar ].
1961
Ca,l S:ill
G. 1n. b. H.
v.
State of Biha(
Venkalatama
Aiyar ].
92
SUPREME COURT REPORTS
[1962]
materials of the right sort "·c·re 1ised in the construction and not to constitute a contrnct of purchase of
• the materials separatim.
In the . present case, ol. 15
is e·ven clearer·t,hat no sale of materials, as such, was
intended, because it expressly provides that if they
were destroyed by fire, tempest or otherwise, the loss
would fall not on the owner, which must bo the result
if the property is taken· to have been absolutely transferred to it, but on the contractor.
The argument basecf on s. 9 of the Sale of Goods
Act is, in our opinion, equally unsound. What that
section enacts is that where ~hero is a contract of sale
of movables but the pricc)s not mentioned, it has to
be fixed either in the manner provided in the agreement or by hav;ing regard to the course of dealings
between the pa:rties, and where that is not possible,
the buyer has 'to pay the seller a reasonable price.
But the- section presupposes that there is a contract of
sale of goods,-and, as'held in The State of Mddras v.
Gannon Dunkerley & Co. (Madras) Ltd.('), such a contract, requires that there must have been an agreement between the parties for the Aale of the very
goods in which eventually property passes. If, -as
held hy us, cl. 15 does not embody an agreement for
the sale of materials as such, there is no contract of
sale with respect •to them and s. 9 of the Sale of Goods
Act crin have no ripplication. The contention, therefore, that cl. 15 of the agreement could be read as
amounting to a contract of sale of m11.t.erialR, ancl that
the price t.herefoi; could be fixed-as provided ins. 9 of
the Sa.le of Goods Aci; by reoourse t.o th'3 account
bookrl' of -the <•pp<'llrints or the im·okcs or the course
of dc.alings between t.hpm and Lhe owner, must be
reject0 ris unt-0un,ble. lt follows that the agreement
dated J)ecember 19, l!J53, bejng a contract for the
construction of works, one and indivi~ible, t.he respondents have no right to impose a tax on the materiah supplied in cxeoution of tha:. cop.tract on the
footing that such supply is a sale .
. rt is next contended for·the responden_ts that, whatever the merits of the'contentions base4,. on the construction of the contract"the proper forum to agitate
(I) [z959) S.C.R. 379.
2 S.C.R. SUPREME COURT REPORTS
93
them would be the authorities constituted under the
Act to hear and decide disputes relating to assessment
of tax, that it was open to the appellants to satisfy
those authorities that there have been no sales such
as are liable to be taxed, that indeed they were bound
to pursue the remedies under the Act before they
could invoke the jurisdiction of the court under
Art. 226 and that the learned Judges of the High
Court were, therefore, right in declining to entert11,in the present petitions. It is true that if a
statute sets up a Tribunal and confides to it
jurisdiction over certain matters and ,if a proceeding
is properly taken before it in respect of such matters,
the High Court will not, in the exercise of its extraordinary jurisdiction under Art. 226, issue a prerogative writ so as to remove the proceedings out of the
hands of the Tribunal or interfere with their course
before it. But it is equally well settled that, when
proceedings are taken before a Tribunal under a provioion of law, which· is ultra vires, it is open to a party
aggrieved thereby to move the court under Art. 226
for issuing appropriate writs for quashing them on the
ground that they are incompeteu I., without his being
obliged to wait until those proceedings run their full
course. That has been held by 1his court in The Sfate
of Bombay v. The United :JJiotors (India) Ltd.('), flimmatlal llarilal :JJiehta v. The State of Madhya Pradesh(').
and The Bengal Immunity Company Limited v. 'l.'he
State of Bihar ('). The position that emerges i5 t.hat,
if the proceedings before the Sales Tax Officer n,re
founded on the provisions of the Act, which authorizes the le\'_\' of the tax on the supply of materials in contruction contracts, then they must in
view of the dtecision in The Slate of Madras v. Gann on
Dunkerly & Co. (Madras) Ltd.('), be held to be incompetent and quashed. But if the proceedings relate to
any extent to sales otherwise than under the contract,
then the enquiry with respect to them must proceed
(1) [1953) S.C.R. 1069, 1077.
(2) [1954] S C.R. 1122, 1127.
(3) [r955] 2 S C.R. 603. 6'7-619, 764-766.
(4) [1959] S.C.R. 379.
1961
Carl ,\till
G. »I. b. H,
v.
State of Bihar
Venkatarama
Aiyar ].
Carl Still
G.m.b.H.
v.
Slttte of Bihar
Yenleatara1na
Aiyar ].
94
SUPREME COURT REPORTS
(1962]
before the authorities under the Act and the application under Art. 226 must fail.
We must now examine the true scope of the proceedings before the Sales Tax Officer in the light of
the above principles. \Ve start with this that the Act
contains provisions imposing a tax on the supply of
materials under a construction contract. The appellants were indisputably engaged in construction works
under the agreement dated December 19, 1953, and it
is not suggested that they were carrying on any independent business as dealers in the State of Bihar.
Presumably, therefore, when the sales tax authorities
took proceedings against them, it was in respect of
materials supplied by them under their contract dated
December 19, 1953. When the appellants, in response
to the notice issued by the third respondent, contested
their liability to be taxed, it was on the ground that
the supplies of materials under the contract were not
sales. When the appellants next moved the court
under Art. 226 for quashing the proceedings, they
urged that the provisions of the Act, in so far as they
purported to impose a tax on the materials supplied
in the performance of the contract, as if they were
sold, were ultra vires. If the respondents sought to
tax the appellants on the footing that sales of materials were effected outside the contract, it was their
duty to have put that case forward in ans\\:er to the
petition. They did nothing of the kind. They did
not file even a counter-~tatement. At the time of the
argument, when faced with the decision of this Court
in the case of The State of ~Ilfadras v. Gannon Dunkerley & Co. (Madras) Ltd.('), their entire case was
that the agreement between the parties should be
construed as involving a sale of materials, and that
their value could be ascertained from the invoices,
account books and the course of dealings between the
parties. No contention was urged that there were
sales of materials which fell outside the argeement
between the appellants and the Owner. The learned
Judges of the High Court in dismissing the petitions
made it clear that the investigation before the sales
(1) [1959) S.C.R. 379.
2 S.C.R. SUPREME COURT REPORTS
lJl.l
tax authorities must be as regards their liability to
pay sales tax "upon proper construction of the contract." In this Court also, the i·espondents seek in
their statement to maintain the liability of the appellants only on the basis of the contract, reliance being
placed on cl. 15 already referred to and on s. 9 of the
Sale of Goods Act. There is no claim that the appellants are liable on the basis of sales falling outside the
agreement. It was stated before us for the appellants,
and not contradicted by the respondents, that the
Sindri Fertilisers and Chemicals (Private) Ltd., is a
company controlled by the Government. If that is
so, the respondents were at all times in possession of
facts which would have shown whether the appellants
entered into any transaction de hors the agreement,
and it is significant that at no stage have they alleged
any such facts. We are satisfied that the proceedings
have at a.II stages gone on the footing that the liability of the appellants arose under the contract and not
otherwise. In that view, we must hold, following the
decision in The State of Madras v. Gannon Dunkerley
& Co. (Madras) Ltd. (1) that the proceedings taken by
the respondents for imposing sales tax on the suprfies
of materials by the appellants, pursuant to the contract dated December 19, 1953, are illegal and must
be quashed. In the result, the appeals are allowed
and appropriate writs as prayed for by the appellants
will be issued. The appellants are entitled to their
costs throughout.
SHAH, J.-In my view these appeals must fail.
The appellants claim that they are not liable to be
taxed in respect of the transaction dated December
19, 1953, because it is not a sale within the meaning
of the. Bihar Sales Tax Act, 19 of 1947, but is a contract to ftssemble and install machinery, plants and
accessories of a coke oven battery and other plants
which under the principle of the decision of this Court
in The State of Madras v. Gannon Dunkerley & Co.
(Madras) Ltd. (1) is not subject to sales-tax.
The Act defines "sale" as meaning--omitting parts
not material-any transfer of property in goods for
(1) [1959] S.C.R. 319.
Ig6I
Carl
Stil~
G nz. b. J!.
v.
State of Bihar
Venktitarama
Aiyar ].
Shah].
I96z
Ca,z Still
G. tn, b. H.
v.
Slate of Bihar
Shah ].
96
SUPREME COURT REPORTS
[1962]
cash or deferred payment or other valuable consideration, including a transfer of property in goods involved in the execution of contract. "Contract''' is
defined as meaning any agreement for carrying out
for cash or deferred payment or other valuable consideration, the construction, fitting ont, improvement
or repair of a,ny building, road, bridge or other
immovable property. The expression "goods" means
all kinds of movable property other than actionable claims, stocks, shares or securities and inclndes
all materials, articles and commodities whether or not
to be used in the construction, fitting out, improvement or repair of immovable property. "Sale price"
means the amount payable to a dealer as valuable
consideration for-(1) the sale or supply of any goods,
less any sum allowed as cash discount according to
ordinary trade practice, but including any sum charged for anything done by the dealer in respect of the
goods at the time of, or before, delivery thereof, other
than the cost of freight or delivery or the cost of installation when such cost is separately charged; or
(ii) the carrying out of any contract, less such portions
a~ay be prescribed, of such amount, representing the
usual proportion of the cost of labour to the cost of
materials used in carrying out such contract.
These definitions in so far as they seek to treat
goods supplied or used in the execution of a works or
construction contract, :i.s sold and liable to sales-tax
under the Act, must, on t.he decision of this Court in
Gannon Ditnkerley's ca.se (1) be regarded as beyond the
legislative competence of the State Legislature. In
Gannon Dunkerley's case('), this Court held that in a
building contract, the contractor constructs the bnilding arcording to the specifications contained in the
agreement and in consideration therefor receives payml'nt as provided therein, and in such an agreement,
there is rieither a contract to sell the materials used
in the construction, nor does property pass therein as
moveables, and accordingly in a building contract
which is one, entire and indivisible, Uwre is no sale of
goods and it is not within the competence of the Provincial Legislature nnder Entry 48 in List II in
(1) [1959] S.C.R. 379.
I
•
I
2 S.C.R. SUPREME COURT REPORTS
97
Sch. VII of the Government of India Act, 1935, to
impose a tax on the supply of the materials used in
such a contract treating it as a sale.
Relying upon
the decision of this court in Gannon Dunkerley's
case('), the appellants contend that the amount
received by them under the contract <lated December
19, 1953, is not liable to be :issessed to sales-tax. But
the question whether the contract is a pure works contract or a composite contract has never been investigated. Undoubtedly, the formal document evidencing
the contract suggests, prima facie, that it is a works
contract, but in assessing liability to tax, the taxing
authority is not restricted merely to the letter of the
document: he has to enquire into the true nature of
the transaction on all the relevant materials and to
ascertain whether it partakes of the nature of the transaction which the statute renders taxable. He is, in ascertaining the true nature of the contract, also entitled
to consider how the contract was performed. The Act
entrusts power to ascertain the facts on which the
liability to tax depends to the taxing authorities and in
that behalf, the Act is exhaustive in scope <tnd content.
The appellants in approaching the High Court by
petitions under Arts. 226 and 227 of the Constitution
sought to eliminate the entire procedure and machinery set up by the Act for ascertaining facts on which
the liability to tax depends.
I strongly deprecate the practice of the taxpayer
being permitted to invoke the jurisdiction of the High
Court to issue high prerogative writs on certain
assumed facts-facts the truth of which has never
been subjected to scrutiny in the only manner in
which the la.w provides they should be scrutinised.
The power to assess the facts on which the decision
as to the true nature of the ta..:rnblA transaction
depends by the statute lies solely with the taxing
authorities: it does not lie with any other bndy or tribunal.
Invoking the jurisdiction of the High Court
to adjudicate upon the facts, directly or indirectly, on
which the liability to tax depe11dA, in my view,
Ir) [1959] S.C.R. 379.
13
Car! Still
r;. m. b. H.
v,
State of Bifiar
Shah j.
Carl Still
G. m. b. H.
v.
State of Bihar
Shah ].
98
SUPREME COURT REPORTS
[1962]
amounts to inviting the High Court to exercise jurisdiction which it does not possess. This is however
not to say that the jurisdiction of the High Court to
issue a writ of prohibition restraining the levy of tax
under a statute can never be entertained.