Introduction

• This case deals with the sale of railway coaches liable to sales tax or it would include under works contract.

Facts

• The respondent was a company which dealt in the construction of railway coaches. An order was placed by the railway board to the respondent assessee of the manufacture and supply of certain coaches.
• The Commercial Tax Officer, by assessment order dated March 28, 1964, in respect of the assessment year 1958-59, included the turnover in respect of the supply of these coaches.
• The Sales Tax Officer rejected the contention of the assessee that there was no sale involved in the execution of the works-contract.
• In appeal, the Deputy Commissioner of Commercial Taxes confirmed the order. The assessee then made an appeal to the High Court of Mysore under Section 24(1) of the Mysore Sales Tax Act read with Section 9(3) of the Central Sales-tax Act.
• The High Court allowed the appeal and set aside the order including the turnover relating to the construction of railway coaches.
• Hence, an appeal was preferred before the Supreme Court.

Issue Involved

• Whether there was a sale of railway coaches liable to sales tax or only a works contract?

Observations

• The Court discussed the terms and conditions of the contract and observed the following points: -
  • The Railway books capacity of the assessee for the purpose of construction of railway coaches.
  • Advance on account is made to the extent of 90% of the value of the material on the production of a certificate by the inspecting authority.
  • The material used for the construction of coaches before their use is the property of the Railway.
  • It seems that there is no possibility of any other material being used for the construction as is borne out from the report written by the Commercial Tax Officer.
  • As far as the coaches of models 407 and 408 are concerned, the wheelsets and underframes are supplied free of cost.
  • In the order the words used are "manufacture and supply of the following coaches”.
• The Court said that the answer to the question whether it is a works contract or is a contract of sale depends upon the construction of the terms of the contract in the light of the surrounding circumstances.
• The Court further said that on these facts it seems to us that it is a pure works contract. They are unable to agree that when all the material used in the construction of a coach belongs to the Railways there can be any sale of the coach itself. The difference between the price of a coach and the cost of material can only be the cost of services rendered by the assessee.

Conclusion

• The Court dismissed the appeal with costs.