SARVAIYA AND CO Vs. STATE O MAHARASHTRA

JUDGEMENT

(1.) THIS is a reference under section 61 (1) of the Bombay Sales Tax Act, 1959, made at the instance of the assessee. The question, which has been referred to us, for our consideration is as follows : " Whether the claim of the applicant that the true nature of the contract between the applicant and the Western Railway was an indivisible works contract and not contract of sale of goods, has been rightly rejected ?" The facts giving rise to the reference are as follows : The relevant period of assessment is 1st April, 1962, to 31st March, 1963. The assessees were contractors. By a contract dated 14th July, 1961, the assessees agreed to supply and lay two underground cables between Grant Road Sub-Station and Parel Meter House and one cable between Bandra Sub-Station and structure No.12/12, as set out in the schedule to the contract upon general conditions of the contract and specifications of the Western Railway in conformity with the drawing annexed to the contract. The contract provided inter alia that the assessees would duly perform their works described in the schedule thereto and execute the same with great promptness, care and accuracy in a workman-like manner to the satisfaction of the railway and would complete the same in accordance with the said specifications and the said drawing and the said conditions of the said contract on or before 15th January, 1962, and would maintain the said works for a period of twenty-four calendar months from the certified date of their completion. The contract further provided that if the assessees duly performed the said works in the manner aforesaid and observed and kept the said terms and conditions, the railway would pay or cause to be paid to the assessees for the work done on final completion thereof the amount due in respect thereof at the rates specified in the schedule annexed to the contract. The description of the items and particulars given in the schedule are as follows : " Name of work : Supply and laying of 2 underground cables 22 KV grade making cable joints, sealing boxes, etc. , between Grant Road Sub-Station to Parel Meter House and 1 cable between Bandra Sub-Station to structure No.12/12. Approximate cost Rs. 6,63,925. Chargeable to DRFH 4112 ----------------------------------------------------------------------- Sl. Schedule of work Approx. Unit Rate No. Qnty. Rs. np. 1. Supply of PILCSWA 12890 Per. Yd. 45 and S 22 KV grade Yds. cable - 3 core 0. 2 sq. inch 2.Supply and commissioning No.1 Each 100 of straight through joint box for one cable near structure No.12/12 3.Terminating cables on Nos. 3 Each 175 existing OCBs at Bandra and Grant Road with existing sealing end box. 4.Making loop connection Nos. 4 Each 200 of cables on existing OCBs at Parel Meter House and Bombay Central Transformer House with existing sealing end boxes. 5.Supply of straight Nos. 42 Each 310 through joint box complete with joining work for item (1 ). Quantity to be filled in by the tenderer. 6.Excavation of trench of 7935 Per 5 adequate width and 3'-6" Yds. Yd. deep laying of cables, protective tiles on cables refilling and remaking the surface including making holes in walls and floors 12890 Per 2 when required. Yds. Yd. ------------------------------------------------------------------------ ------------------------------------------------------------------------ Amount Remarks Rs. np. 5,80,050 Japan make 100 525 800 13,020 39,675 (a) Excavation of all size trenches. 25,780 (b) Laying of cables. -------------- Grand Total 6,92,175 Less Sales Tax 28,250 -------------- Net amount payable 6,63,925 ----------------------------------------------------------------------- The conditions found at the foot of this schedule or accompaniment to the contract show, inter alia, that the assessees guaranteed the cable work, including joining, etc. , for a period of 24 months from the date of commissioning of the cable and agreed that during the guarantee period the assessees would be responsible for any defect in the materials or in the workmanship and further agreed that in the event of any failure of the cable, the assessees would locate the faults and rectify the same with the least possible delay, free of cost to the railway. The conditions also provide that the prices quoted were firm and not subject to variation. The last material condition is that the payment for the work done by the assessees would be made after the inspection and test of installation by an authorised representative of the railway on completion of the work done by the assessees. Pursuant to this contract, the assessees imported cables on the strength of an actual user's licence granted to the railway and supplied and laid cables as provided in the contract. It has also been found by the Tribunal that there were about 300 yards of cables remaining unused and the said railway did not part with the same, having paid for the same. Both the Sales Tax Officer and the Assistant Commissioner of Sales Tax, on appeal, included the amount paid by the railway to the assessees for the supply of cables in the taxable turnover of the assessees. The assessees then went by way of second appeal to the Sales Tax Tribunal. The Tribunal came to the conclusion that the contract between the assessees and the Western Railway was clearly divisible, one part of the contract being for the supply of cables to the railway and the second part of the contract relating to the laying of the underground cables. The Tribunal observed that the fact that 300 yards of cables remaining unused were retained by the railway because it was their property showed that the contract was not merely a works contract. The Tribunal further observed that the charges for the work and labour involved were separately shown and worked out. On these conclusions the Tribunal held that the contract was clearly divisible and upheld the decision of the Assistant Commissioner. THIS reference has been preferred at the instance of the assessees against the decision of the Tribunal.

(2.) THE only question which arises for our consideration is whether the contract between the assessees and the railway was a severable or divisible contract as held by the Tribunal or whether it was an integrated works contract as contended by the assessees. In considering such matters, the question in each case is one about the true agreement between the parties and this contract or agreement must be deduced from a review of all the attendant circumstances. In the first place, we must naturally consider the terms of the contract dated 14th July, 1961. It is significant that in this contract, when read along with the schedule, rates for the supply of cables and for the work to be done in laying the same are mentioned separately and the contract is clearly a rate contract. THE first item of this schedule, which we have already referred to earlier, shows that the rate of Rs. 45 per yard was specifically provided as the charge for the supply of the cables in question and the quantity mentioned was stated to be an approximate quantity. Moreover, item No.6 sets out a separate rate per quantity for the work of excavation of the trenches required for the laying of cables and a separate rate for the laying of the cables. This shows that the assessees and the railway treated the item of supply of cables as a distinct item from the item relating to the work of excavation of trenches and laying of the cables and the contract itself refers separately to the supply and to the laying of the underground cables. THEre is a distinct guarantee given by the assessees to the railway regarding defects in the material and regarding defects in workmanship although both the guarantees are contained in a single condition. THEse terms, in our view, clearly indicate that the contract is a divisible contract and item No.1 relating to the supply of cables can be severed from the rest of the contract. Apart from this, the very fact that 300 yards of excess cables were retained by the railway, is clearly inconsistent with the contract being an indivisible contract of works. Had this been so, then the excess quantity of cables would have been returned by the railway to the assessees. Although Mr. Trivedi, the learned counsel for the assessees, tried to urge that this excess quantity of cables might have been retained by the railway for some special reasons, there is nothing on the record to justify such a conclusion and hence the fact that the said excess quantity of cables has been retained by the railway, shows that the contract in question is a severable one in so far as the supply of the cables to the railway is concerned.

(3.) IN our view, this decision is not of much help in the case before us. IN the first instance, there is nothing in the judgment to show that any specific amount was mentioned as being payable on account of the goods to be supplied. Moreover, the contract in question there was one which involved a very high degree of technical skill and competence, whereas in the case before us, although undoubtedly some skill might be required in the laying of cables there is nothing to show that this skill had to be of a very high kind. Apart from this, we must observe that although whether the contract is one for a lump sum payment or not may not be decisive of the question, as to whether the contract is indivisible or not, this factor would undoubtedly have great relevance in the decision of that question.