DEPUTY COMMISSIONER OF SALES TAX LAW BOARD OF REVENUE TAXES ERNAKULAM Vs. RUBY ENGINEERING AND BOAT BUILDING CORPORATION

JUDGEMENT

(1.) THE Revenue is the petitioner. THE respondent is an assessee on the files of the Sales Tax Officer, 2nd Circle, Mattancherry. THEy were engaged in building boats and selling them When they produced their books of accounts for verification for the purpose of assessment for the year 1973-74, the assessing authority found that they had built 22 hulls as per agreement executed with the Director General of Supplies and Disposals, Government of India, and sold them to the Indian Navy for a sum of Rs. 5,55,000. THE assessing authority sought to assess the said turnover to tax under the Central Sales Tax Act. THE assessee objected to the said assessment contending that the agreement entered into with the Director General of Supplies and Disposals was in the nature of a contract for work and labour and did not evidence a contract for sale of goods. THE objection raised by the assessee was overruled and assessment was made on the said turnover. On appeal, the Additional Appellate Assistant Commissioner of Agricultural Income-tax and Sales Tax, Ernakulam, agreed with the assessing authority and dismissed the appeal filed by the assessee. THE assessee took up the matter in second appeal before the Sales Tax Appellate Tribunal. THE Tribunal by its order dated 25th September, 1982 took the view that the contract entered into between the assessee and the Director General of Supplies and Disposals, Government of India, cannot be held to be a contract of sale. Accordingly it directed the assessing authority to delete the disputed turnover and to give them appropriate reliefs including refund of excess tax if any paid. This order of the Sales Tax Appellate Tribunal is under challenge.

(2.) WE heard learned counsel appearing for the Revenue, Sri T. Karunakaran Nambiar. The assessee-respondent is not represented in this Court.

(3.) THE relevant clauses in the contract entered into between the assessee and the Director General of Supplies and Disposals, Government of India, are extracted in extenso in the order of the Tribunal. In the contract the Government of India has been described as the "purchaser" and the assessee as the "contractor". THE construction of hull is to be carried out under the strict supervision of the Inspector of Shipping. He had the power to instruct the contractor to make variations during the execution of the contract. THE contractor was obliged to provide adequate opportunity to the Inspector of Shipping to supervise the execution of the contract at all stages of the work. If the Inspector finds any work to be defective, the purchaser had the right to reject the same and to get it substituted at the cost of the contractor. THE contract further enabled the purchaser to declare the same to have come to an end in case it is found that the contractor is unable to perform the work. Clause 18 of the contract enjoined the contractor to take insurance in the name of the purchaser. Under clause 19, the contractor is bound to provide for the care and protection of the work, machineries, etc. As per clause 20, after the completion of the work the purchaser is to take over the craft on issue of a taking over certificate. Clause 22 related to the ownership of materials on payment of first instalment, etc. After considering these clauses in the contract, the Tribunal came to the following conclusion : " When we analyse the terms and conditions of the agreement executed between the original assessee and the Director General of Supplies and Disposals, we have to come to the conclusion that here also, the principal object is to construct the crafts under the direct control and supervision of the authorities concerned and even the raw materials and part of manufactured craft have been remaining the property of the Government of India and not the contractor. So, the principles laid down in Patnaik and Company's decision [1965] 16 STC 364 (SC) has little application here while the other rulings especially the Hindustan Aeronautics' case [1984] 55 STC 314 (SC) and Variety Body Builders' case [1976] 38 STC 176 (SC) (quoted above) are applicable to the facts of the case before us. THE Supreme Court itself has distinguished and has summed up the difference in their observations in Variety Body Builders' case [1976] 38 STC 176 (SC) quoted above. So, we have to come to the conclusion that the nature of the contract is one of work and labour. THE other terms and conditions are only ancillary to the main object of the contract and as such the transactions are not exigible to tax under the Central Sales Tax Act, even though there is movement of goods from one State to another. " We are unable to agree with the above conclusions for the following reasons.