EASTERN ENGINEERS Vs. STATE OF BOMBAY

JUDGEMENT

(1.) THE applicants who are a firm of engineers known as Messrs. Eastern Engineers, Bombay, were assessed to special tax under Section 6 of the Bombay Sales Tax Act of 1946 in respect of the period 1st January, 1950, to 31st March, 1951, on account of certain passenger lifts installed by them at a number of premises at Bombay. The entry in Schedule I to the said Act under which they were so assessed is entry 21, which reads thus : "Domestic electrical appliances other than torches, torch cells, filament lighting bulbs and fans." 20 per cent of the total costs incurred on the said installation was deducted as representing the labour charges, etc. In the appeal from the order of assessment made by the Sales Tax Officer it was argued on behalf of the applicants that passenger lifts not being specifically mentioned in entry 21 and lifts not being domestic electrical appliances, the assessing officer had wrongly applied the said entry 21. The Assistant Collector dismissed the appeal, holding that passenger lifts were covered by the said entry. On an application in revision made to the Additional Collector, it was contended that the word "domestic" had a particular relation to dwelling places only, whereas passenger lifts were largely supplied to industrial houses or factories, but the Additional Collector held that the expression "domestic" should be broadly interpreted and that a lift was a domestic electrical appliance. Shri Patel who appeared for the applicants also contended that the installation of a lift did not amount to a sale, and that, therefore, his clients were not liable to any sales tax at all. He relied in support of this contention on the case of Gannon Dunkerley and Co. v. The State of Madras [1954] 5 S.T.C. 216. This contention was rejected on the ground that that case, which had to do with the passing of property in materials used in constructing buildings, bridges, etc., had no direct bearing on the facts of this case. The Additional Collector observed "In a sense the lift may be said to be a finished article only requiring to be installed at a particular place. Some of the bills issued by the applicant produced to me also show that the sales tax was charged by them on the cost of the lift. From this it would be clear that what they had undertaken to supply was a lift and then to install it at a particular place. In view of this it must be held that there is a clear sale of the lift to be installed in this case, as what is done by the applicants is to supply the lift first and then to install it in a particular place. As the lift is finished article, I do not see any objection to the transaction being treated as a sale". The revision application was, therefore, dismissed.

(2.) SHRI Patel who appears before us for the applicants has relied mainly on the second argument based on the decision in Gannon Dunkerley's case [1954] 5 S.T.C. 216. The assessment in the case dealt with there by the High Court of Madras had been made under the Madras General Sales Tax Act (IX of 1939). By an amending Act of 1947, the definition of "sale" had been extended by the addition of the following words: "includes also a transfer of property in goods involved in the execution of a works contract". A new clause had also been introduced in Section 2 which defined "works contract" as meaning "any agreement for carrying out for cash or for deferred payment or other valuable consideration, the construction, fitting out, improvement or repair of any building, road, bridge or other immovable property or the fitting out, improvement or repair of any movable property." In the definition of "turnover" an explanation had been added relating to works contracts. Similarly, the original Bombay Sales Tax Act, 1946, contained certain provisions analogous to these definitions as amended, which were deleted by Bombay Act XXV of 1947. Those provisions were as follows: "Contract" was defined as any agreement for carrying out for cash or deferred payment or other valuable consideration, the construction, fitting out, improvement or repair of any building, road, bridge or other immovable property; the definition of "goods" included the following words at the end of the present definition : "whether or not to be used in the construction, fitting out, improvement or repair of immovable property"; the definition of "sale" had the words : "including a transfer of property in goods involved in the execution of contract" immediately before the words "but does not include a mortgage, hypothecation, charge or pledge"; the definition of "sale price" included the amount payable to a dealer as valuable consideration "for the carrying out of any contract, less such portion as may be prescribed, of such amount representing the usual proportion of the cost of labour to the cost of materials used in carrying out such contract"; and the definition of "turnover" included the following words at the end : "or carrying out of any contract, effected or made during a given period." These parts of the several definitions were deleted as stated above by the Bombay Act, XXV of 1947. The deletion of these passages from the definitions concerned, according to Shri Patel, was based on the view that the carrying out a contract for the construction, fitting out, improvement or repair of any building, road, bridge or other immovable property did not contain any element of the sale of goods, thus giving effect to the principle embodied in the decision of the Madras High Court in Gannon Dunkerley's case [1954] 5 S.T.C. 216, which of course was decided later on the 5th April, 1954.

(3.) THAT was a case of certain building contracts entered into by the assessees with the State Government and other parties for the execution of certain works specified in the plans annexed to the agreements for which they were to be paid a lump sum subject to revision in case there were alterations, omissions, deductions or additions. Their Lordships observed that such contracts were always considered in law as entire and indivisible contracts in the sense that the complete fulfilment of the promise by one party is a condition precedent to the right of the other to call for the fulfilment of any part of the promise by the other. It was further held that there was no element of sale of the materials in such a contract, as the contract is not in substance and in effect a contract to sell the materials as goods for a price stipulated between the parties, the ownership in which is to pass in accordance with the principles applicable to them and laid down in the Sale of Goods Act. Their Lordships observed : "The ultimate result of executing a contract is to bring into existence immovable property and not movable property, and the contract therefore does not become a contract relating to sale of goods but is only a contract to build." At page 238 they observed : "It is clear from the foregoing discussion that there is no element of sale of the materials in a building contract and that the contract is one and entire and is indivisible. Unless the work is completed, the builder is not entitled to the price fixed under the contract or ascertainable under the terms of the contract. It does not imply or involve a contract of sale of the materials for a price stipulated. The property in the materials passes to the owner of the land not by virtue of the delivery of the materials as goods under and in pursuance of an agreement of sale which stipulates a price for the material. The property in the materials passes to the owner of the land because they are fixed in pursuance of the contract to build, and along with the corpus, which ultimately results by the erection of the superstructure, the materials also pass to the owner of the land".