# • ., M/s. T.V. SUNDRAM IYENGAR & SONS v. THE STATE OF MADRAS

- **Citation:** [1975] 2 S.C.R. 372
- **Court:** Supreme Court of India
- **Decided:** 1974-10-10
- **Case number:** Civil Appeais Nos. 22?.9. 2230 and 2231 of 1969
- **Bench:** H. R. Khanna, A. C. Gupta
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/m-s-t-v-sundram-iyengar-sons-v-the-state-of-madras-6310
- **Pages:** 12

## Headnote

&k8 Tax-Construction of bru bodka and fitting to chMaiJ provided b;y custotMr._Propert.Y in the material ustd by assessee, whethtr ]JQ88td to thtlr customers
dwlng the cDurse ~I corutructiorr.
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1n Civil Appeais Nos. 22?.9. 2230 and 2231 of 1969. the Appellate Assistant
Qnnmissioner and the Appellate Tribunal held that the appellant company was
liable to pay sales tax under the,Madras General Sales Tax Act, 1939. in respect of
bodies constructed and fitted by it to the chassis provided by the customers. No
formal agreements were produC'.ed by the assessee and the nature of the transactions
C
relatin1 to the supply of bus bodies has been found on the basis of .. repair orders".
These appeals on certificate have been filed against the judgment of the Madras
High Court by the eppeUant-as$essee company. Civil Appeals Nos. 290 and 291
of 1970 have been filed on certificate by the Commissioner of Cc mm( rcial Taxes
Mysore against the judgment of the Mysore Hi~h Court. The return ·filed by the
assessee-firm for the year 196()..61 showed rece1pt of Rs. 9174,460 on account of
the bus bodies constructed under agreement dated January 23, 1959 between the
assessee-firm .and the Govemment for the construction of bus bOdies on the chassis
D. .
supplied by the Govt, The ·conunercial Tax Officer, held that the said amount
represented the pri~ of the bus bodies received by the assessee and included it in
the taxable turnover under the Mysore Sales Tax Act, 1957. On appeal the Deputy
Commissioner of Commercial Taxes held that the agreement between the assessee
and the Govt. was in the nature of a works contract and as such there was no sale
of bus bodies. The Commissioner in exercise of'his revisional power set aside the
order of the Deputy Commissioner and restored that of ~he Commercial Tax Officer.
In the opinion of the Commi:ssioner, there was a sale of bus bodies by the assessee.
In appeal, the Mysore High Court set aside the order of the. Commissiober and
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restored that of the Deputy Commissioner. In the opinion of the High Court
the agreement between the as!;essee and the Govt. was for. works contract.
It was contended for the assc:~s'e that the c,cnstructic n cftbe bus bJ"dies and
the supply of the same by the assessees to their customers was in pursuance of
a contract for work and labour.
HELD: (I) The Madra:s General Sales Tax Act, 1939 and. the Mysore Sales
Tax Act, 1957, have been enacted respectively in pursuance of the powers oontained
in entl)' 48, List Jl, Schedule Vll of the Government of India Act 1935, and entry
F
sc. List n1 Schedule VII of the Constitution of Indi~ 1950. It is now settled taw
that the words "sale of goods!• bave·to be construed not in the popular sense but in
their legal sense and should be siven the same meaning which they carry in the Sale
of Goods Act, 1930. The expression '"sale of goods .. is a nomen jlll'ls, its essential
ingredients being an agreement to seD movables for a price and property pas.'liog
thcreiill pursuant to that agreement; (377 F--Ql
.
· The State of MadriU -v. Gmuwn l>unurley & Co. (1958) 9 S.T.C. 353 followed.
(ii) The salient features of the dealings between the two assessees disclose that
G
dle property in the material used by the ~
in oonstructins the bus bodies
never passed to their customers durin& the course of construction. Tt was only when
the complete bus with the body fitted to c;tassis was delivered to the customer that·
the J)lOperty io the bus body passed to the customer. There was nothing to pre\Tcot
the assessee from removing a plank, or other materi~ after fixing it to a chassis.
and using it for a difl'erent purpose or for a difl'erent bus body. The PJ'CSCDt is' also
aot the case wherein the asses.1ee undertakes to construct some building or set ap
D factory wherein the material Used caD be said to become the property of the other
party by invoklns the theory of accretion. It is no doubt true that tho bus bodies
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supplied by the aasee:~CCS were not ready made

## Text

....
•
.,
M/s. T.V. SUNDRAM IYENGAR & SONS
v.
THE STATE OF MADRAS
October 10, 1974
(H. R. KHANNA AND A. C. GUPTA, JJ.)
&k8 Tax-Construction of bru bodka and fitting to chMaiJ provided b;y custotMr._Propert.Y in the material ustd by assessee, whethtr ]JQ88td to thtlr customers
dwlng the cDurse ~I corutructiorr.
A
B
1n Civil Appeais Nos. 22?.9. 2230 and 2231 of 1969. the Appellate Assistant
Qnnmissioner and the Appellate Tribunal held that the appellant company was
liable to pay sales tax under the,Madras General Sales Tax Act, 1939. in respect of
bodies constructed and fitted by it to the chassis provided by the customers. No
formal agreements were produC'.ed by the assessee and the nature of the transactions
C
relatin1 to the supply of bus bodies has been found on the basis of .. repair orders".
These appeals on certificate have been filed against the judgment of the Madras
High Court by the eppeUant-as$essee company. Civil Appeals Nos. 290 and 291
of 1970 have been filed on certificate by the Commissioner of Cc mm( rcial Taxes
Mysore against the judgment of the Mysore Hi~h Court. The return ·filed by the
assessee-firm for the year 196()..61 showed rece1pt of Rs. 9174,460 on account of
the bus bodies constructed under agreement dated January 23, 1959 between the
assessee-firm .and the Govemment for the construction of bus bOdies on the chassis
D. .
supplied by the Govt, The ·conunercial Tax Officer, held that the said amount
represented the pri~ of the bus bodies received by the assessee and included it in
the taxable turnover under the Mysore Sales Tax Act, 1957. On appeal the Deputy
Commissioner of Commercial Taxes held that the agreement between the assessee
and the Govt. was in the nature of a works contract and as such there was no sale
of bus bodies. The Commissioner in exercise of'his revisional power set aside the
order of the Deputy Commissioner and restored that of ~he Commercial Tax Officer.
In the opinion of the Commi:ssioner, there was a sale of bus bodies by the assessee.
In appeal, the Mysore High Court set aside the order of the. Commissiober and
E
restored that of the Deputy Commissioner. In the opinion of the High Court
the agreement between the as!;essee and the Govt. was for. works contract.
It was contended for the assc:~s'e that the c,cnstructic n cftbe bus bJ"dies and
the supply of the same by the assessees to their customers was in pursuance of
a contract for work and labour.
HELD: (I) The Madra:s General Sales Tax Act, 1939 and. the Mysore Sales
Tax Act, 1957, have been enacted respectively in pursuance of the powers oontained
in entl)' 48, List Jl, Schedule Vll of the Government of India Act 1935, and entry
F
sc. List n1 Schedule VII of the Constitution of Indi~ 1950. It is now settled taw
that the words "sale of goods!• bave·to be construed not in the popular sense but in
their legal sense and should be siven the same meaning which they carry in the Sale
of Goods Act, 1930. The expression '"sale of goods .. is a nomen jlll'ls, its essential
ingredients being an agreement to seD movables for a price and property pas.'liog
thcreiill pursuant to that agreement; (377 F--Ql
.
· The State of MadriU -v. Gmuwn l>unurley & Co. (1958) 9 S.T.C. 353 followed.
(ii) The salient features of the dealings between the two assessees disclose that
G
dle property in the material used by the ~
in oonstructins the bus bodies
never passed to their customers durin& the course of construction. Tt was only when
the complete bus with the body fitted to c;tassis was delivered to the customer that·
the J)lOperty io the bus body passed to the customer. There was nothing to pre\Tcot
the assessee from removing a plank, or other materi~ after fixing it to a chassis.
and using it for a difl'erent purpose or for a difl'erent bus body. The PJ'CSCDt is' also
aot the case wherein the asses.1ee undertakes to construct some building or set ap
D factory wherein the material Used caD be said to become the property of the other
party by invoklns the theory of accretion. It is no doubt true that tho bus bodies
· H
supplied by the aasee:~CCS were not ready made and bad. it""Cftf"Mry, to be C01HtnJC.
ted bit by bit ud pJant by plank, ICCOl'Ctina to sped&atlon. bUc thet &a wc•uld
aot mate u:iy material ditt'c{eDOe. [379-H: 310 A-B)
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T. V, SUNDRAM & SONS v. MADRAs (Khdnno, ]. )
373
Patrtalk and ComJHmy v. The State of Orl.sstZ, (1965) 16 STC 364, and Melcttuit~
Ltd. v. The State of Mahdraslttra (1965) 16 STC 518 followed, Commi3Siolflr of Sales
Tax v. Hazi Abdul Majid, (1963) 14 STC referred to.
:
(I'll) The use of a different nomenclature in describing the assessee would not
affect the basic character of the contract between the parties and justify differen·
!Jation if the terms of the contract in other respects are substantiallY the same. Jt
J.S true that in the present cases there was no express mention of a sale of bus bodies
in the agreement. But it is not necessary that to constitute a sale, tho word ''sale'
has' to be used. [380 D-E]
·
Chandra Bhan Gosoln v. The Sttzte oj Orissa & Ors. (1963) 14 STC 766 refqrecl
to.
.
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(ill) There is nothing in the agrements between the assessees and their customers in the present appeals which vested the ownership of unfinished bodies in
the customers.
·
The State of Gujarat v. Kallash Elflineering Co. (Pvt.) Ltd., (1967) 19 STC 13
distinguished. The Stall of Madra~ v. Riclrordson & Cruddas Ltd., (1968) 21 STC
~S, State of Rajasthan & Anr. v. Man Industrial Corporation Ltd., (1969) 24 STC
349, State of Rajasthan & Ors. v. Nenu Ram (1970) 26 STC 268, State of.Himaclull,
Praitesh & Ora. v. Associated Hotels oj India Ltd. (1972) 29 STC 474, Commissioner
tl/ Commercial Taxes, Mysore Banga/ore v. Hindustan Aeronautics Ltd. (1972) 29
STC 438 and Anglo Egyptian Nenigation Co. v. Rennie, (1875) LR 10 CP 271 referred
to, Bajorla Halwasiya Service Station v. State of Uttar Pradesh&: Anr., 26 STC 108
and Pothular Subba Rao '· Thl State of Andltr11 Pradesh 30 STC 69 approved,
C VIL APPELLATE JuJtSDICTION : . Civil Appeal Nos. 2229 to 2231
of 1969 and Civil Appeals Nos. 290·291 of 1970.
·
Appeals from the Judgment & · Order dated the 29th September
1967 of the Madras High Co~rt in Tax Case Nos. 164-166 of 1965.
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S. Swaminathan and S. Gopalakrishnan, for the appelJants (in C.
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As. Nos .. 2229-2231 /69.)
H. B. Darar and M. Veeroppa, for the appellant "(in C. As. No. 290
of 1970)~-
M. VeerappQ, for the appellant in C.A. No 291/70.
S. T. Dtsai, 4. V Rangam and A. Subhashini, for ihe respondent
in C.As. 2229-2231/69.
s. Swaminathan and S. Gopalakrishnan, for the respondents
(in C.A. No. 290-291/70).
.
The Judg~ent of the ·court was delivered by
KHANNA, J. Whether the supply for consideration by an assessee
of bus bodies constructed and fitted to chassis provided by the custo~
mers amounts to sale chargeable to sates tax is the short question which
arises for df.termination in these five civil appeals Nos. 2229. 2230
and 2231 of 1969 and 290 and 291 of 1970. Appeals Nos. 2229. 2230
and 2231 of 1969 have been filed on certificate by T. V. Sundram
Iyengar & Sons Pvt. Ltd. Madurai agajp.st the judgment ohbe Madras
High Court. The other two apreals have been filed on certificate b.Y
the- Comm;ssioner of Commercial Taxes Mysore aga;nst the judgment
of tho Mysore High Court. This judgment would dispose of all the
five appe~ls.
374
SUPREME COURT REPORTS
[1975) 2 S.C.R·
The matter relates in the three appeals against the judgment of the
Madras High Court to assessment years 1955-56, 1956-57 and 1957-58.
The Appellate Assistant Commissioner and the Appellate Tribunal
held that the appellant company was lia.ble to pay sales tax under the
Madras General Sales Tax Act, 1939 in respect of bus bodies constructed and fitted by it to chassis proviued by the customers. On
the matter having been taken up in revision by the~ppellant company
to the High Court, the High Court referred to the fact that no con-
. tracts or agreemt;nts as such were produced by the appellant com·
pany. It was observed that the nature of the- transactions relating to
the supply of bus bodies had to be d(;termined on the basis of forms
of "repair orders" which the appellant company usf~d to get filled in
by its customers. On the basis of the material on rf'cord, the High.
Court agreed with the conclusion arrived at by the Tribunal. The
matter was, however, remanded to the Tribunal to enable the appe·
llant ..company to produce the actual agreements., if any, between the
appellant company and hs customers. The High Court in this context observed as under :
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"As the evjdence stands, we accept the conclusion rightly
arrived at by tne Tribunal on this question. It is not clear
whether there were actually contracts entered into by tht- assessee
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with tne c:ustomers and. if they wt·re so, why they were not pro~
duced. Any way, in tho interests of justice we are inclined to
think that tho question may be r~-oxamined by· the Tribunal
if the contracts are filed before it. If none is filed. the \iew that
the trat\sactions are sales j~f goods will stand."
·
Mr. Swaminathan who appears fot· the asscssoes in all the fi\e
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appeals subtnits that after the remand order or the High Court1 no
agreements between the appellant company and it!; customers we-re
filed by the appellant company before- the Tribunal and, as such, the
Tribunal reiterated the liabilit)· of the apJ)rllant company for the"
payment of s~les tax in respect of the above itf'm. Although revision
petition has been filed by the appellant company against the order of
the Tribunal afteli thf remand to the High Court, the real gr~evance
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of the aJ'p<llant company, according to Mr. Swaminathan, is against
the judgment of the High Court apt:ealed again~t as the question of
the liability of the appellant company to pay sales tax in the ab~ence
of a formal agreement has been detcrmin~d by this judgment.
We may s.et out the mode of dealings between the appellant company and its cu5torna rs in the three appeals mentioned above. As
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stated aheady, no formal agreemtrts were produced by the assessee
and the. nature of transactions relating to the supply of bus bodies
has bel."n fou.nd on the basis of "repair Qrders". The repair order,
to take a typical case, lxsidlls containing the name of the appellant
company, gives tne date of the order, name and address of the custo- ·
mer, the make, model and condition of chassis supplied by the custo·
mer. Apart from other de·tails, the repair order contains a columJn,
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according to which the assessee appellant unbertook "to construct
and mount ona semi saloon mofussil type bus bddy, with 7 plywood
for the floor, a11y wood for sidrs and frames". in another column
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T, V. SUNDRAM & SONS V~ MADRAS (KhanY'a, ],)
37 5
dealirg with amount billed to the customer a sum of Rs. 9 000 is men ..
tioned. The fo11owing is written und(.r the head "Description" :
"Alumi~ium Sheets & Amminium Beadlings for panels,
r~bber cush10n for seats, rubber sq. wab for back all covered
wrth green leather cloth with seating capac3ty 51 in all 4 seats
extra"
for all of which a sum of Rs. 450 is charged.
Se~eral specific items
pr(lvide for windshield glass; rubber squbas; handles for entra.nces;
help~r c~nva_ss; elec~ric buzzer.; invoice lamp and roof lamps. Other
spectfic Items mentioned are leather cloth; protective flaps for curtains; felt cover for engine and electric wiper. The total bill comes
to Rs. 10,171·50. Signatures of customers were also obtained under
the following writing :
·
"I hereby agree and definitely understand that M/s. T. V.
Sundram Iyengar & Sons Private ltd. assu·me no responsibility for loss or damage by whatever means to vehicles or sparts
placed with· them for storage; sale or repair. The above
vehicle/spares. left in your nremises or driven b~ your employees
.is entirely at my .employer's! owner's risk as regards accidents;
damage by fire or any other causes."
.
The ·Tribunal on consideration of the material on the record recorded
the following finding : ·
"On an overall consideration of the entire material be-fore
us, we are inclined to hold that tho predominating element in
the transactions was the sale of built body, that lhe work and
labour were only subsidiary, that it was immaterial whether a
body was ·prepared in accordance with· the specifications gi\len
by the customer, then and there and fitted on the chassis or the
body had been already prepared prior to the order and was
readiJy fitted witli the chassis, that the sale of the property was
the predominating element, that the use of labour and skill was
only incidental and that therefore, the element of sales predominated over the element of .contr~ct of work and labour!'
The High ·Court in this context observed as under :
"The terms as far as we are able to gather from the limited
material before us disclose that the property in the completed bus
body passed only at the time of the delive!Y there of•such ~s
specific chattel though fitted on to the chassts. There 1s no evidence that the property in the materials passed to the customer
as and when they were worked into the chassis in the process
of body building. The provision as· to insurance of risk a!so
confirms this 'iew. In, some of the appeals, we find that spec11ic
articles are mentioned the prices of which ar~ gi~n separa~ely.
As the evidence stands, ~e accept the concluston nghtly arr1ved
at by the Tribunal· on this question.,
We may no~ set out the facts giving rise to ci-vil appeals Nos~ 290
and 291 of 1970 which relate to assessment years, 1960-61 and 1961-62·
376
SUPR.BME COUJlf REPORTS (1975] 2 S.C.l·
The Store l~rcliase Committee on behalf of tho State of Mysore called
for tenders from persons who were willing to construct bus bodies
on the chassis supplied by the Government. Condition (8) of the
tender was that the rate quoted should be per bus body. Tender of
. the assessee-firm; M. G. Brothers Automob'le Dealers Bellary; who
along with others submitted tenders,. was accepted. Agreement dated
January 23, 1959 was thereafter executed by the assessee arid the State
Government. Some of the important ela-pses of the agreement were
as under:
"(6) Tho contractors shall not. be entitled to claim any
sort of concession whatever on account of the rise in prices of
raw materials or cost of labour due to whatsoever causes during
th(, contract period.
·
(6) The contractors shall agree to keep up the delivery
period strictly otherwise the penal cJause shall be enforced and
if there should be undue delay it would be open to the Mysom
Government Road 1'ra~port Department to cancel tho order
or remaining portion of the order as .a last resort .
. (1) The contractors shalt make good to Government . any
loss, which may arise from the failure to accompJish the work
satisfactorily in time or in accordance with required specifica··
tions as noted in the order or by Government havi g to get the
work done from other sources at rates higher than those cort ..
ra~ted for due to the rtegligenqe, delay or incomplete workman ..
ship on the part of the contractors.
(8) Tho contractors shall insure the· chassis at their cost
for safe: custody of the same at their premises.
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(10) The contractors agree to give a warranty of 6 months
in respect of each and every bus built by them against all
defects in the construction of the body. If any defects are
found or dewlop in tho bus built by the contractors dUrillg the
cou~se of the warranty peri~ of 6 months from the date the~·
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are handed over to our uruts, the contractors hereby agree· to
rectify the same by deputing their own representatives with sufli ..
cient tools and materials ·as required to the operating centres
of the buses, free of cost..
(11)' The contractors shall sepd the bills of cost in lriplicate
to the General Manager, Mysore Government RoaEI Trans)X'rt
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DeJ?artnient, ~angal~re, who will arrange payment of 90%
agamst the delivery of complete bus and the balance of 10% after
completion of the entire order."
0
The return filed by th.e assessee-firm for the year ·1960-61 showed
receipt of Rs. 9,74,460 on account· of the bus bodies constructed un:der
tho above agreement. The Commercial Tax Officer held that the said
amount represented the prices of the bus bodies re~ived by the asses·
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see and included it in the taxable turnover under tho Mysore Sales
Tax Act, 1967. On appeal tho Deputy Commissioner of Com.mer·
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1. V. SUNDilAM &1:. SONS v. MADW (KhamuJ, /.)
377
cial Taxes held that the agreoment between the assejsce and tho Gov ..
ernment was in the nature of a works contract and as such there was
no sale of the bus bodies. The Commissioner in exercise of his revisional power set aside the order of the Deputy Commissioner and
restored that of the Commercial Tax Officer. In the opinion of tho
Commissioner, there was a sale of bus bodies by the assesseo. The
matter was then taken up by the assessee in appeal to the Mysore High
Court. The High Court set aside the order of the Commissioner and
restored that of the Deputy Commissioner. In the opinion ot the
High Court, the agreement between the assessee and the Government
was for works contract. The High Court in this context gave certain
reasons to which reference would be made at the appropriate stage
hereafter.
The question with which we are concerned, as would appear from
the resume of facts given above, is whether the constructic.n of the
bus bodies and the supply of the same by the asses~ees to their custcmers was in pursuance of a contract of sale as distinguishtd frcm a
contract for work and labour. The distjnction between the two contracts is often a fine one. A contract of sale is a contract who$e main
object is the transfer of the property in arid the. delivery of the possession of, a chattel as a chattel to the buyer. Where the main object
of work undertaken by the payee of the price is· not the transfer of a
chattel qrJa chattel, the contract is one for work and labour. The
test is whether or not the work and labour bestowed end in anything
that can properly become the subject of sale, neither .the ownership
of the materials. nor the value of the skill and labour as ccmparul
with the value of the materials, is conclusive, althou~h such matters ·
may be taken into consideration in determining in the circumstances
of a particular case, whether the contract is in substance one for work
and labour or Cine for the sale of a chattel (see lfalsbury's Laws of
England, Vol. 34, p. 6, Third Edition).
The Madras General Sales Tax Act, 1939 (Madras Act 9 of .1939).
was enacted in pursuance of the powers contained in entry 48 of List
)I of Seventh Schedule of the Government of India Act, 1935 wl ich
deals with sale of goods. The corresponding entry. in the Constitution is entry No. 54 :in List n of Seventh Schedule'; ··It was in ezerd&e
of the powers under this entry that the Mysore Sales ·Tax Act, 1957
(Mysore Act No. 25 of 1957) was enacted. It is no~ settled law that ·
the words .. sale of goods"' have to be construed not in the popular
sense but in their legal sense and should be given tke' same· u:.eaning
which they carry in the Sale of Goods Act, 1930. The expression
"sale o( goods .. is a nomen juris, its essential ingredienJs being .an
agreement to sell movables for a price and pr~perty paning tberein
pursuant to that agreement (see The State of Madras v. Gannon
Dunkerley & Co. (Madras) Ltd. (1). This Court in that case was
concerned with a building contract which was one and indivisible .
. It was held that in the case of such a contract, the property in mate.
rials used does not pass to the other party to the contract as movable
(1) (19,8)9S.T.C. 3S3.
·
37$
SUPREME COURT REPOl\TS [1975] 2 S.C.R.
property. It would so pass if that was the agreement between t:h.e
parties. If there was no such agreement and. the contract ~as only
to construct a building, in that case the matel'lals used therem would
become the property of the other party only on the theory of accret~on.
There are two cases wherein this Court was concerned with the
cpnstruction of bus bodies and fitting of the same to the chassis supplied by the customers. The cases were heard by the Constitution
Bench and the Court considered the question. whether: the party constructing the bus bodies and fitting the same to the· chassis supplied by
the customers did so in pursuance of a co11tract of sale or a works
contract. The two cases which were decided on the same day are
Patnai'K. a1d Company v. The State of Orissa(l)and McKenzies Ltd. v.
The State of Maharashtra.(2) main judgment was given_ in the case of
Patnaik and Company by Sikri J. (as he then was) on behalf of the
majority. The appellants in that case entered into an agreement with
the State of Orissa for the construction of bus bodies on the chassis
supplied by the Governor. The agreement provided, inter alia, that
the appellants were responsible for the safe custody of the chassis
from the date of their receipt from the Governor till their delivery to
the Governor and that they had to insure their premises including the
chassis against fire, theft, damage and riot at their own cost. The
appellants had to construct the bus bodies in the most substantial and
workmanlike manner, 'both fLS regards material and otherwise in every
respect in strict accordance with the specifications and were to deliver
the bodies to the Governor on or bef9re the dates specified in the
agreement. The appellants guaranteed the durability of the body for
two years from the date of the delivery. The agreement also provid£d
that the work should throughout the stipulated period of the contract
be carried on with all due diligence, that the appellants were liable to
pay to the Governor a certain sum as liquidated damages for every
day that the work remained unfinished after the date fixed, that all
works under the contract should be open to inspection by the Controller or officers authorised by him in that behalf, that the) had the
right to stop any work which had been executed badly or with materials of inferior quality and that on receipt of a. written order the appe ..
llants had to dismantle or replace such defective work or material ai
their own cost. The appellants were entitled to SO per cent of the cost
of body-building at the tiJne of delivery and the rest within one month
thereafter. In answering the question whether the agreement wa.os a
contract for work or a contract for sale of goods, the majorit) con ..
sisting of Gajendragadkar C.J., Hidayatullab, Sikri and Bachawat, JJ.
(Shah J. dissenting) held. that the contract ali a whole was a contract
for sale of goods and therefore the appellants were liable to sales tax
on the amount received from the State of Orissa for the construct•on
of the bus bc>dies. In arriving at the above conclusion, Sikri J. speaking for the majority obsrned as under :
"~n, looking at the ·contract as a whole, what was the
real intention of tho: parties? It wiJI be notiml that the bus
· ,(1) (196S) 16 S.T.C. 364,
(2) (1~$) 16 S.T.C. 518.
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T. V. SUNDRAM & SONS ·V. MADRAS (Khanna, /,)
37 9
bodies are throughout the. contract spoken of as a unit or as a
composite things to be put on the chassis, and this· composite
body consists not only of things actually fixed on the chassis but
. movable things like seat cushions, and other things th<iugh
fixed but which can be verY. easily detachtd, e.g., roof lamps,
wind screen wipers, luggage carrier, tool box, box for first aid
equipment, etc. ·
The next point to be noticed is that under the contract the
property in the bus body does not pass to the Governme,nt tin
the chassis with the bus bcdy is delivered at the destination or
destinations. to be namtd by the Controller' except in the case
contemp~ated in clause 6 of the agreement. That clause pro·
vides that if some work is not satisfactoriJy done and t~e B.cdy
Builder on· receipt of a written order does not dismantle or
. replace such defective work or material at his own cost within
seven days, the Controller would be entitled to get the· balance
of the work done by another agency and recover the difference
in cost from the Body Builder. The ·eontroller is entitled
for this purpose to take delivery of the unfinished bc.dy. But
even in this case the property in the unfinished bcdy would
not pass to the Government ti11 the unfinished body is seized.
Suppose a fire were to take place on the pre·mi~e-s of the·
appellant and before delivery the bus bcdies were destroyc.d.or
·Spoilt. On whom would the Joss fall? ·There can only l:e
one answer to this question and that is that the loss wculd fall
on the appeiJant. Clause I of the agreement provides for
~nsurance of the. chassis but there is no provision reJ,atdin.g
ms:urance of bus. bodies. Therefore, it follows that tdl debvery is made, the bus bodies remain the property of the appe~ ·
Uant. It could, if-it chose to do so, replace parts or whole of
the body at any time before delivery. It seems to us that this
is an important indication cf the intention of the parties. If
the pro pert) passes at delivery, what does that pa!'s in? Is
it movable property or immovable property? It will not l:e
denied that the pro pert} passes in movable property. Then
was this the very goods contracted for? Here again the answer
iS ~Jainly in the .affirmative."
·
The dictum laid down . by this Court in the case of Patnaik and
Company (s~pra), 'i.n our opinion, fully applies to the case. of the two
assessees With which we are concerned in these five appeals. We
agree with the ·High Court in the· case of T.V. Sundram Iyengar &
Sons that the property in the completed bus body passed only at the
time of the delivery thereof as specific chattels fitted on to ·chassis.
_Same is also true, in our opinion, of the bus bodies constructed by
M.G. Brothers.
The salient features of t'he dealings between the two assesEees with
whom. ~-~r~- con~rncd ·and their custo~ers as the) emerge from
.the facts J&ven above .are,that_the pr~perty 10 the material u£ed by the
assessees 1n constructmg the b'hs bochcs never passed to their customers
380
SI.T.PRBMB ~T
JlBPOI't! [1975]2 S.C.lt·
during the course of construction., It was only when tho complete
A.
bus with the ·body fitted to the chassis· was delivered to the customer
that tho property in the bus body passed to the. customer. -There was
nothi~g to pre~nt ~he assessee.s from r~mo.vmg a ~lank, or oth~r
matcnal after fiXIng 1t to a chassJs, u.d us1.ng 1t for a different purpo~e,
or for a different bus body. The present 1s also not the case wherem
tho aasossec undertakes·to construct some building or set up a factory
plant wherein the material used can be said to become the property
B
of the other party by invoking the theory of accretion. lt is no doul>t
true that the bus bodies supplied by the asscssee.s were not readymadc
and had, if necessary; to be constructed bit by b1t and plank by _pla~,
~rding to specifications, but that fact would not. make any ~atenal
dift'orence. The o~senaHon of the Allahabad High. Court ·n Com·
mlslloner o/$ales Taxv. Hqji Abdul M_ajid(l) t~atit makes no diff~nc.-e
whether an article is readymade artu~le or 1s prepare.d accordmg t~
C
the CUStomer's specifications as also Wh~ther the assesEeC prepare~ lt
separately from the tbir.g and then fixes 1t on o~ does the preparatton
and the fixation simultai'eousl) in ant cperat1on ~as express]) ap~
· prom! by this Court in the case of Patnaik ond Comptldy (supra).
:In holding that the case was not covered by the dict1,1m lafd down
in Patnaik and Compan~' s case, the Mysore High Court referred to tho
D
fact that the assessee was describ~ in the agreement entered into with
the Go;ernment as a contractor, while in the case of Patnaik and
Company the assessee was described as a body builder. The use of a
different noDlenclature ·in descri&Jing the assessee would· not; in our
opinion, affect the basic character of the contract between tbe parties
and justify differentiation jf the terms of tt-e contract in other res•
pects are substantially the same. Another ground on which the High
E
Court aistingui · hed the ca.c;e of the asses~ee · from Patnaik and Company
was that in the case of Patnaik and Company the bus bodies were to be
delivered as a unit, while this was not so in the case of the assessee
firm. We are unable to agree witb the High· Court in this respect
because the terms· of the agreement show that the assessee h~ t.o
construct ancl ~uppl} the 'bus body fitted to the chassis provided by the
Government. Clause II expressly refers to the dehvery of a complete
F
bus. The prices whtch were ~uoted were also for each bus bod).·
It can, therefore. be said that the bus body was delivered as a unit.
Th~ High Court has also referred to the fact tbat'tbere was no 'express
!llention of 1;he sale of bus bodies in the agreement. This fact by
Itself is not of much significance. In the case of Chandra BhiJ!n
Gosai~ v. Thf State of. qn"Jsa & 9rs.(2) the -appellant manufactured and
supplied .large quant1t1es of bncks to a company under a oontract.
G
There was a clause in the contract pro'\riding that "lana will be-· given
free" by tl!e company. The appellant contenaed that the contract
was only for labour or for work .dene and material found. and that
there was really no sale of an~ goods on which sales tax could be leviecl.
It was bela by this Court that the eP.sence of the contract was the delivery of the bricks and that it was a contract for the transfer of chattels
qua chattels. Argument was advanced in that case that the contract
H
(J) (1963) 1~ S.T.C. 435.
(l) (1963) 14 S.T.C. 166,
.A
B
D
E
1'. V. SUNpltAM & SONS v. MADRAS (KJumna.J.)
. 381
nowhere used the word "sale, in connection with the supply of bricks.
Thi~ contention was repelled and it wru: observed that
"it is not neces9ar} that to constitute a sale, the word 'sate• hu
to be used. We have said onough to show that under the contract there was a transfer of property in the bricks for consi-·
deration and. therefore, a sale notwithstanding thtlt the word
'sate• was not used.'•
·
Mr. Swaminathan on. behalf of the assessees 'has referred to the.
case of The State· of Gujarat v. Kailash Engineering Co. (Pvt.) Ltd.(l)
The respondent in that case was an engineering roncera. It constructed three coaches over the chassis supplied by the Western Railway A<1ministration and r~ived money therefor. It was provided
iJ> the contract between the parties that as soon as the plant and
matc;rials were brought on the side where the coaches were to be constructed, the. ownership in t.llem would vest in the Railway. The co.ach
bodies were not separately described as units or components to be
supplied b} the respondent to the Railway. The dut} of the respon~
dent was· described throughout the contract to be that of .constructing, erecting and furnishing coach bodies on the underframes sup_plied . . · At no stage did the contract men6on that ready coach bodies
were to be delivered by· the respondent to the Railway. from the
earliest stage during the process of construction of the coach bodies.
the unfinished bodieS in the process of erection were treated. under
. the terms· of ~ contract, as the property "f the Railwa~· . Since
those unfinished· bodies were to be in the. charge of the respondeQt
during Construction. the respondent was made liable under the contract to reimburse the Railway for los.'! by flre. · It was held t~at as the
term, of the contract indicated that the respondent was not to be the.
owner of the ready coaches and that the property in those bodie& vested
in the Railway even during the pro~ -of construction,.the t~ansacti?n
was a works contract and did not 1nvolve any sale. No assiStance, m
our opiniont can be derived by the assessees in these appeals from the
case of Kai!tJJh Engineering Co. As has been. pointed out above. the
F · ownership in the material brought on the site under the terms of the
oontract was to vest in the ·Railway in the case of Kailash Engineering
Ql. The same cannot be said of the material tised for the construction of. the bus· bodies by the two assessees with whom we· are ~n-
. cernod. Unlike the terms of the contract in the case of Kailash Engi·
G
H.
nt.erir,g 9o. th~ was nothing in the ag~ments between the. assess~~:
. and thetr customers in. the present appeals .which vested the ownershtp ·
of 1infiniShed bOdies in the customers. It may be mentioned that the'
case of PatncJk qnd. Compt~~ty (supra) was cited· ·before ·this Court in
the case .of KDJI~h Engmeering Co.· Shah J. speaking.for the Court
poirited out the essential differences between . the two cases. The
· case of the assessees in these appeals, as mentioned earlier, falls squa..
rely within the rule laid down" in 'tho case of Patnafk and
Company~
·
. 1b~ case of K.IIash Engineering Co. -unnot. therefore, be of much·
8SS1Stal1CO tO the 8SSeS$CCS • .
.
~· . .
(l) (IM7).t9 S.T.C.'l3.
382
SUPREME COURT REPORTS [1975] 2 S.C.R.
Equally of no assistance to the assessees are the four cases, The State
of Madrt.s v. Richardson & Crudda..r;; Ltd.(l) State of Rr...jasth(m & / nr.
v. Man Ind£!Sirfal CorpJration Ltd.(Z), State of Rajasthan~ Ors. v. M.?nuh.
&m(3) and State of Himachal Prade:,h & Ors. v. Assocrated H~te1s oj
India Ltd.(4) to which reference has.been made .b) Mr. Swammathan
on behalf of the assessee~. The case of Richardson & Cruddas Ltd.
-related to a contract for th~: fabrication supply and er~ction of steel
structures for a sugar factory. This Court on consideration of the
material produced on record held that the contract was for a works
·contra..;t and not one for sale. The case Man Industrial Corporation
Ltd. related to a work for fabricating and fixing certain windows in
accordance with specifications designs drawing and inc;tructions.
The windows were to be fixed to the building with rawl plugs in cut
stone work~. It was held that the window leaves did not pass under
the terms of the contract as wjndow leaves and that only on the fixing
of the 'Yindows as stipulated could the contract be fully executed.
·The propert} in the windows it was observed passed on the completion of the work and not before. The contract was, therefore, held
w be a contract for execution of work and not for sale of goods.
Ntnu Ram's case related to a work of supplying and fixing wooden
wi11dows and. doors together with frames. The windows had alro
thereafter to be painted. It was held that under the contract th-e
goods were not sold as movable and that the property therein passed
only when tb.e windows and frames were fixed on the site. The lia··
bility to pay sales tax was consequently not attracted. The question
which arose for determination in the case of Associated Hotels ofbrdia
Ltd. was whether a hotelier was liable to pay sales tax in respect of
meal!= served to the guest comin~ there for stay. It was held that the
hotelier served meals a~ part of the amenities incidental t'o the services.
The revenue was held not entitled to split up the transaction into two
parts, one of service and the other of sale of foodstuff. No liability
t0 pay sales tax could consequently be fastened on the hotelier.
It is plain that there is no parallel between the facts of the present
appeals and those of the above mentioned four cases.
The case of Commissioner of Commercial Taxel, Myaore, BanKJ!lore
v. }Iindu.stan Aeronautics Ltd.(S) related to the Manufacture and supply
of three models of railway coaches to the Railwa} Board. Advan(:e
.. 'on account" payment to the extent of 90 per cent of the material to
be used was made to the assessee on production ot the inspection
-certificate. The stores were held as tbe ptoperty of the President and
in trust for him on account of the advance. The property in tbe
materials which were used for the construction of ilie coaches became
the property of the President before they were used. The construction
was done at a separately located shed and no ·other construction was
undertaken therein.
Therl~ was no possjbilit) of any material for
· which advance was not drawn being used for the construction of the
(l) (1968) 21 S.T.C. 24S,
(2) (1969) 24 S.T.C. 349.
(3) (1970) 26 S.T.C. 268.
(4) (1972) 29 S.T.C •. 474.
(5) (1972) 29 S.T.C. 431.
.
A
B
c
D
'
G
H
A
B
·C
D
E
F
\
T. V. SUNDRAM & SONS v. MADRAS (Khanna, 1.)
383
'
I
coaches. It was held that the transaction for the manufacture and
supply of the coaches was a pure works contract. When all the
materials ·used in the t9nstruction of a coach belonged to the railways, there could be no sale of the coach itself. The difference between the price of a coach and the cost of material could only be the
.cost of the services rendered by the assessee. Bare narration c.f the
facts of the above case would show the difference between this case
and the cases which are the subject matter of these appeals.
Reference has also been made by Mr. Swaminathan to observations on page 167 of Benjamin on Sales (8th Editio~) which were
ba5~d on the case of Anglo-Egyptian Navig(4tion CtJ. v. Renni~.(1) Those
observations·were also referred to in the ca~e of Patnaik and Company
(supra). Sikri J. then dealt ·with the fac~s of the case of A.nglo-Egyp:..
rian Navigation C41, and hel~ that th~t ca~ was not. authority for the
proposition th!l~ . whenever a contra~t provides for the fiXing of a
chattel to another chattel, there is no' sale Qf goods. Tl;le learned
Judge in this connection gave an illustration of a dealer fitting tyres
supplied by him {o the. car of the customer. Could anyone deny
that there had been sale of the tyres by the dealer to the customer,
even though the fitting of the tyres was not an easy ope-rat~on ar.d
n~d.ed an expert. hand 1
It may also be mentione.d that the Allahabad H:gh Ceurt in the
case of B~!oria Halwasiya Service Station v. Thtt Stott. of Uttar Pradesh·
& Anr.(2) and Andhra Pradesh High Court in the ca~e of Pothultl Subba
Rllov. the-State of ~.P.(3) hav~ held that a transaction relating to the.
CQnstruction of-the bus bodies by the assessee on chassis supplied b}
customers ~nstitutes a contract of. · ale of gooos.
As a result of the above, we hold that the. suppl} of the bus bodies.
b) the assessees in these. five appe? Is after fitting them to the chassis.
supplied by the customers amounts to sale of goods for whkli the
assessees would be liable to pay sales tax. · We accordingly dismiss.
· ch·il appeals Nos. 2229,2230 and 2231 of 196~· with costs. We accept
civil appeals Nos. 290 and 291 of 1970 with costs. set aside the judg·
ment of the High Court and restore that of the Commissioner of Commercial Taxes_ Mysore.. One hea.ri~g iee.
·
· · .
V.M·.K.
(1) (t8'i5)L~ll, lO C.P. 271. ·
·<2> 26 s.T .e. ~tos.
(3 )30 S.T.C •. 69.
C; As. Nos.· 2229·2231 ·of 1969dismlssed.
(;.As. Nos. 290·291 oi 1970 atlowtd~