A A JARIWALA Vs. STATE OF GUJARAT

JUDGEMENT

(1.) The question arising in this reference is whether the contract between the applicants and their customers, Messrs Pacific Traders, amounts to a works contract or whether it was a composite contract involving sale by the applicants to their customers of embroidery materials and of doing embroidery work. The reference arises out of an application made by thee applicants to the Deputy Commissioner under S.27 of the Bombay Sales Tax Act, 1953 in respect of a bill No.94 dated 6th February 1953.

(2.) Sixty-six sari pieces were sent to the applicants by Messrs. Pacific Traders of Bombay for getting embroidery work done on them. Prior to the despatch of these saris, Messrs. Pacific Traders had given specific instructions to the applicants as to the designs and the type of work of embroidery which they required on these saris. On the arrival of the saris at Surat, the applicants paid the requisite octroi duty and delivered the sari pieces to embroidery workers who were to be paid piece rates according to the work done by them. The jari materials were supplied by the applicants to these workers and after the embroidery work was completed, the saris were returned to Messrs. Pacific Traders. The cost of the jari materials used in the embroidery work came to about thirty per cent of the total charges charged by the applicants. The applicants thereafter sent one consolidated bill to Pacific Traders for the entire work done by them also showing the rates per sari. In their application to the Deputy Commissioner dated 17th February 1958, the applicants stated that they were engaged in carrying out embroidery work and that in the course of that business, they used to give specific instructions with regard to the designs they wished to be exhibited on the saris. The agreement used to be oral and the charges payable to them also used to be determined orally. They also stated that the remuneration payable to them under such contracts would be supported by bills issued by them to their customers which bills they used to record in their books of account. The modus operandi adopted by the applicants, as stated by them in their application, was as follows: "In the execution of the said contracts for the job work, after receiving the saris we deliver them to several workers who are (well) experts in the work of embroidery and they are instructed by us to carryout the customers. These artisans are carrying out the job works in their own houses as we are not having any factory of our own. These artisans are not known to the customers who are giving their work for the purpose of embroidery. If they know nay artisans they are free to give such work direct to them. These artisans who are receiving the work from us are supplied the necessary materials for the job they are given. They are concerned with the bare wages for the work done. After such saris having been receive form the artisans the customers is advised and delivered the saris duly embroidered and our bill is also sent to him. In our bill we quote only the rate for the embroidery work settled to karigars. Since we to receive the work from the customers for the embroidery, we, in the execution of the said works contract, becomes karigars to the said customer. The customer is free to give us the materials for the worked given but generally due to usage and custom and mostly the trust we possess of them in us that we are not charging anything higher in the materials used in the job work than the market price, we assume the category of the agent to the customer in the matter of the use of the articles. We, therefore, in the said job work only get benefits in the nature of commission, which includes correspondence charges, travelling, upkeep of the office, contract with artisans and interest involved in the nature of investment in the materials purchased for and on behalf of the customers which are used in the job work. These materials are sometimes purchased after the work is received". To the application, the applicant annexed a letter recived from Messrs Pacific Traders dated 29th January 1858,the municipal octroi receipt dated 30th January 1958, the receipt of charges paid to the Angada who brought the goods from Bombay, the details the cost of work involved in the supply of e3 work, and lastly, their bill dated 6th February 1953, bearing on the basis of which the said application was made. The details of the cost of the work involved in embroidering these sixty-six saris were produced before the Deputy Commissioner, presumably to enable him to appreciate the type of work executed by the applicants, but they were not intended to represent the actual bill sent to the customers. Th actual bill sent to the customers was a consolidated bill No. 94 dated 6th February 1953 which was one bill for a total amount of Rs. 258/-and which consisted different charges per sari according to the three designs required by the customer. On these materials, the Deputy Commissioner, by his order darted 30th January 1962, held that the intention of the parties in entering into the contract was to transfer for a price the property in the jari materials in which the customer had previously no property and that therefore, the contract was a contract of sale of jari materials.

(3.) The contention of Mr. Mody was that the contract between the parties was one and indivisible, that the intention of the parties was not that the applicants should sell jari materials to the customer and the property in the jari materials necessary to execute the embroidery work passed to the customer as accretion. Mr. Mody argued that it was only when these materials were stitched to the saris that property in those materials passed to the customer. The work to be executed by the applicants was one and integral, namely to execute embroidery worked on the sari cloth supplied by the customer, and to use during that work such embroidery materials as were necessary for the execution of the work. He contended that this was clear from the fact that the workmen engaged by the applicants wer4e to be supplied by the applicants embroidery materials on an estimate of the quantum of such materials necessary for each design and that the workmen were to return to the applicants such surplus of materials as remained unutilised. Besides, there was no ascertainment by the parties of the pride of the jari materials at any time. There was no delivery of he goods to the customer and finally, it was not as if property in these materials passed to the customer before they were affixed to the sari pieces. We therefore, urged that there was no sale of he jari materials to he customer and the work was one and the indivisible, the applicant agreeing to use these materials as part of the contract to execute the e3 work. He urged that the essence of the contract therefore was work and labour and not sale of the jari material and therefore, was no justification to split up the contract into one for work and labour and the other for the sale of materials and to call it a composite contract. The learned Advocate General, on the other hand, urged that the true test of ascertaining whether the contract was a contract one, was one of intention of the parties. He argued that such an intention could be seen from the fact as to how the applicants dealt with the materials they were said to have sold. He emphasized before the Deputy Commissioner a representative sale and the breakup of charges thereof. That break-up showed the value according to the applicants of the various item, labour charges, cost of the jari materials necessary for every design ordered by the customer and finally, the commission which the applicants on the work as a whole expected to earn. The break-up thus showed clearly that the parties were well aware how many jari materials would be necessary for the embroidery work on such of the three designs required by the customer and though the bill was a composite bill consisting of the cost of labour, the cost of the jari materials, the other expenses that the applicants would have to incur in executing the work and provides for the commission they were to earn in each case, that bill, he urged, showed that the contract was not one and indivisible but a compromise one consisting (1) of the contract of work and labour, and (2) the contract of sale of the jari materials, and therefore the Deputy Commissioner and the Tribunal were right in their view that the applicants would be chargeable to sales tax on the sales of thee materials.