COMMISSIONER SALES TAX U P Vs. NOORULLAH GHAZANFFURULLAH

JUDGEMENT

(1.) AT the instance of the Commissioner of Sales Tax, Uttar Pradesh, the Additional Revising Authority, Sales tax, Varanasi Range, Varanasi, has submitted this reference under section 11(3) of the U.P. Sales Tax Act for the opinion of this court on the following question of law :

(2.) THE assessee, M/s. Noorullah Ghazanffurullah is a firm of contractors which carries on business at Allahabad. In the assessment year 1958-59, the assessee executed a contract of building railway coaches for the North Eastern Railway on the underframes supplied by the railway. The coaches were to be built according to the specifications and drawings annexed to the agreement on a siding within the railway yard for which the assessee had to pay a nominal rent of Re. 1 per month. The assessee was required to build altogether 14 coaches - eight first-third class coaches and 6 janata tourist cars. The assessee was to receive payment at the rate of Rs. 62,300 for each first-third class coach plus a sum of Rs. 800 for fixing dynamo, suspension, gear etc., and Rs. 57,900 for each C.T.T. coach plus Rs. 800 for fixing dynamo, suspension, gear etc. This was inclusive of the cost of all materials and labour charges for building, furnishing, finishing and polishing. The contract was to be completed within a stipulated time. In the assessment year in question, the assessee received a total payment of Rs. 5,87,265 upon which the Sales Tax Officer levied sales tax at the rate of 3 pies per rupee rejecting the assessee's plea that no sales tax was payable as the payment pertained to a contract of work and labour not involving any sale of goods. The assessee appealed to the Judge (Appeals) but did not succeed. The appellate authority also held the amount in question to be liable to sales tax. The assessee then applied in revision to the Judge (Revisions) who accepted the assessee's plea and held that the contract executed by the assessee did not involve sale of goods but was purely a work contract. The revising authority relied upon the decision of this court in M/s. Kays Construction Co. v. The Judge (Appeals) Sales Tax, Allahabad ([1962] 13 S.T.C. 302). That was also a case of a contract of building of railway coaches for the Northern Railway. The revising authority found that the agreements in the two cases were worded identical. In fact the revising authority found that originally it was one contract a part of which was executed by Kays Construction Co. and the other part was executed by the assessee. In Kays Construction Co. ([1962] 13 S.T.C. 302), this court held the contract to be of works relying upon two decisions of the Supreme Court in the State of Madras v. Gannon Dunkerley and Co. (Madras) Ltd. ([1958] 9 S.T.C. 353) and in Carl Still G.m.b.H. v. State of Bihar and Others ([1961] 12 S.T.C. 449).

(3.) THE case of Haji Abdul Majid ([1963] 14 S.T.C. 435) is also a case relating to the contract of building bus bodies and there also this court after taking into consideration the terms of the contract to be a contract of sale of bodies. The learned counsel for the assessee, on the other hand, has placed reliance upon a more recent decision of the Supreme Court in State of Gujarat v. Kailash Engineering Co. ([1967] 19 S.T.C. 13; A.I.R. 1967 S.C. 547). That was also a case dealing with the contract of building railway coaches. In that case the Supreme Court after considering a large number of clauses of the contract came to the conclusion that the contract was a work contract involving building, erecting and furnishing of railway coaches on the underframes belonging to the railways. The main consideration which prevailed with their Lordships was that the property in the finished coaches passed to the railway administration automatically without any transfer on the part of the contractor. In fact, their Lordships came to the conclusion that the property in the coaches never vested in the assessee at all and continued to vest in the railway even when the coaches were in the process of manufacture. The case of M/s. Patnaik and Co. ([1965] 16 S.T.C. 364; A.I.R. 1965 S.C. 1655) was distinguished by their Lordships on the ground that in that case the property in the bus bodies remained vested in the assessee at all stages until it passed to the Government after paying the price thereof to the contractor. Whether the contract in the instant case is a contract of works or a contract of sale of goods, would depend upon the intention of the parties to be gathered from the terms of the contract. After having a close took at the contract I am of the opinion that the some is more akin to the contract in the case of Kailash Engineering Co. ([1967] 19 S.T.C. 13; A.I.R. 1967 S.C. 547). To begin with, I might reproduce the preamble of the agreement :