Government Of Madras v. Simpson And Company Limited

SIKRI, J.

These two appeals by special leave are directed against the judgment of the High Court of Madras, dated January 18, 1963, in Tax Cases Nos. 189 and 192 of 1961. The respondent, M/s. Simpson & Co. Ltd., hereinafter referred to as the assessee, is a dealer in motor-cars, motor parts, and accessories and it also dealt with the sale of Perkins Diesel Engines. For the assessment year 1950-51, the assessee was assessed to sales tax under the Madras General Sales Tax Act, 1939, hereinafter referred to as the Act, on a taxable turnover of Rs. 10, 55, 070-4-0 representing 70 per cent. of the value of the said diesel engines supplied and fitted to the chassis of the customers' vehicles. For the assessment year 1954-55, the disputed turnover in respect of diesel engines was Rs. 5, 23, 380 representing the value of the Perkins Diesel Engines. The assessee appealed to the appellate authority, Appellate Assistant Commissioner of Commercial Taxes, without any success. The assessee then filed a second appeal to the Sales Tax Appellate Tribunal. The Tribunal heard these appeals together with other appeals of the assessee for the years 1951-52, 1952-53 and 1953-54. All the appeals were disposed of by a common order dated February 14, 1961.

The Appellate Tribunal repelled the contention of the assessee that the turnover relating to the fitment of Perkins Engines to the vehicles of the customers was really the turnover arising from "works contract" within the decision of Sundaram Motors (Private) Ltd. v. The State of Madras ([1958] 9 S.T.C. 687). The Tribunal held :

"In our opinion, however, this was a case where the engines as such were sold to customers but were fitted on to the vehicles of the customers, some charge being made for the fitment, and therefore it cannot be said that this was a works contract."

It further observed :

"As a matter of detail we may point out that it was stated by the State Representative, and the files confirm it, that the appellants separately exhibited the cost of the engines and the cost of fitment in the bills for the years 1951-52, 1952-53 and 1953-54, but so far as the years 1950-51 and 1954-55 were concerned, they did not split them up and made only a consolidated charge; but for the purpose of assessment the departmental officer called upon the appellants to give the cost of labour separately for the two years 1950-51 and 1954-55 also. Accordingly the appellants showed the cost of labour separately and what was subjected to tax was only the cost of the engines."

The Tribunal referred to some typical bills for the years 1950-51 and 1954-55 and concluded that there was a sale of the engines as such, and, therefore, the benefit of the decision in Sundaram Motors v. State of Madras ([1958] 9 S.T.C. 687) could not accrue to the assessee.

The assessee then filed revisions under section 38 of the Madras Act I of 1959 before the High Court. The High Court partly accepted revision No. 108 of 1961 (Tax Case No. 189 of 1961) arising out of the assessment for 1950-51. The High Court observed :

"In our opinion, there is no reason to disbelieve the version of the petitioner that in regard to these contracts, they were not truly sales of engines to the customers, but that they really amounted to works contract under which for a consolidated amount the engines were fitted into the vehicles. The fact that the petitioner is not able to produce an agreement for each and every one of the transactions would not really affect his contention. In the very nature of things, it is impossible to produce a written contract in respect of each transaction. The customer goes to the petitioner and wants an engine to be fitted into his vehicle and the petitioner quotes a figure which no doubt includes the value of the engine as also the cost of fitting. But the true nature of the transaction is however that of an ordinary works contract."The High Court felt that that the fact that a consolidated bill was submitted helped the assessee. It observed that "the subject-matter of the levy is the transaction, taken as a whole and not a transaction which can be disintegrated and from and out of which a component called a sale may be extracted." The revision was partly allowed because it was conceded before the High Court that out of the turnover of Rs. 10, 55, 070 a turnover of Rs. 62, 092 represented the value of spare parts and extras supplied by the assessee to the customer. A similar order was passed by the High Court in Revision No. 111 of 1961 (Tax Case No. 192 of 1961) in respect of the assessment year 1954-55.

The learned Advocate-General who appears for the appellant contends that on the facts of this case it is quite clear that there was contract to sell Perkins Engines and fit these on the chassis. The learned counsel for the respondent contends that it was a works contract and relies on the decisions in Sundaram Motors v. State of Madras ([1958] 9 S.T.C. 687), Clark v. Bulmer ((1843) 152 E.R. 793) referred to in State Of Madras v. Gannon Dunkerley & Co., (Madras) Ltd. ([1959] S.C.R. 379 at p. 419; 9 S.T.C. 353), and the decision of this Court in the State of Gujarat v. Kailash Engineering Co. ([1967] 19 S.T.C. 13).

In Sundaram Motors v. State of Madras ([1958] 9 S.T.C. 687), the Madras High Court took as a sample the supply and fixing of four king pin bushes which were specially fabricated by Sundaram Motors for the customer. The Court held that on the facts

"it was a manufacture of the material occasioned by reason of the undertaking to repair the car and not one done as part of a commercial undertaking; to quote the words of the learned Advocate for the petitioners, it was 'an ad hoc manufacture in connection with the repair of the car'."

In State Of Madras v. Gannon Dunkerley & Co., (Madras) Ltd. ([ 1959] S.C.R. 379 at p. 419; S.T.C. 353 at p. 382), this Court at page 419 discussed Clark v. Bulmer ((1843) 152 E.R. 793), in the following words :

"In Clark v. Bulmer ((1843) 152 E.R. 793), the plaintiff entered into a contract with the defendant 'to build an engine of 100 horse power for the sum of Pounds 2, 500, to be completed and fixed by the middle or end of December'. Different parts of the engine were constructed at the plaintiff's manufactory and sent in parts to the defendant's colliery where they were fixed piecemeal and were made into an engine. The suit was for the recovery of a sum of Pounds 3, 000 as price for 'a main engine and other goods sold and delivered. The contention of the defendant was that there was no contract of sale, and that the action should have been one for work and labour and materials used in the course of that work and not for price of goods sold and delivered. In upholding this contention Parke, B., observed : 'The engine was not contracted for to be delivered, or delivered, as an engine, in its complete state, and afterwards affixed to the freehold; there was no sale of it, as an entire chattel, and delivery in that character; and therefore it could not be treated as an engine sold and delivered. Nor could not different parts of it which were used in the construction, and from time to time fixed to the freehold, and therefore become part of it, be deemed goods sold and delivered, for there was no contract for the sale of them as movable goods; the contract was in effect that the plaintiff was to select materials, make them into parts of an engine, carry them to a particular place, and put them together and fix part to the soil, and so covert them into a fixed engine on the land itself, so as to pump the water out of a mine.'"

In our opinion, these cases are distinguishable. In the present case the assessee does not manufacture or fabricate Perkins Engines. The learned Advocate-General brought to our notice a sample of the bills made out by the assessee. This bill reads :

"To cost of supplying and fitting to your Dodge 192" WB Bus MDB, 1021, one new Perkins P6V Exh. type engine S. No. 3161322 CAV Pump No. R261 BU complete with one set Dodge 48/51 model conversion kit and flywheel including labour and batteries 9, 505 0 0

Less 5% discount on engine price of Rs. 7, 215 361 0 0

9, 144 0 0

This bill, in our view, evidences an agreement to sell a particular diesel engine, the price of which is separately mentioned in the bill, and to fit it in the customer's Dodge bus. In other words, this engine was contracted to be delivered as an engine and afterwards affixed to the customer's Dodge bus.

The case of State of Gujarat v. Kailash Engineering Co. (Pvt) Ltd. ([1967] 19 S.T.C. 13) also does not assist the assessee. In that case this Court held that the respondent-engineering company, under the terms of the contract, was not to be the owner of the ready coach bodies and that the property in these bodies vested in the Railway even during the process of construction. No such terms exist in the present case.

It seems to us that the Appellate Tribunal was right in its conclusion that there was no works contract in this case. In the result the judgment of the High Court is set aside in both the cases and the order of the Appellate Tribunal restored. The High Court had not awarded costs to the assessee. In the circumstances there will be no order as to costs.

Appeals allowed.