CARL STILL G. M. B. H. & ANOTHER versus THE STATE OF BIHAR AND OTHERS

2 S.C.R. SUPR:ffiME COURT Rll:POR1'S

quote what we said in Sahi's case (supra), remarkable for their disturbing implications. For these reasons, we allow the application with costs and writ will now issue as directed.

Petition allowed.

Bishan Das v. State of Punjab

S. K. Das j.

CARL STILL G. m. b. H. & ANOTHER

THE STATE OF BIHAR AND OTHERS

(S. K. DAS, J. L. KAPUR, M. HIDAYATULLAH,

J.C. SHAH and T. L. VENKATARAMA ArYAR, JJ.)

Sales Tax-Construction works-Interpretation of contract-Supply of materials-Legality of tax thereon-SaZ.s Tax authoritieJ; taking proceedings to levy tax-Writ petition to ~uash proceedings -Maintainability-Bihar Sales Tax Act, r947 (Bihar I9 of r947), s. 2-Constitution of India, Arts. 226, 227.

On December 19, 1953, the appellant, company registered in West Germany, entered into contract with company in India to set up complete coke oven battery ready for produc-tion as well as by-products plants at Sindri in the State of Bihar, agreeing to erect and construct buildings, plants and machinery and deliver and supply accessories and articles from Germany and also locally from India, an.d render services fully described in the First Schedule, for an all inclusive price of Rs. 2,31,50,000. The contract provided that in case the con-tractor failed to complete the works within the period specified therein the Indian company might take possession of the works and the materials which would become its property and com-plete the works and deduct from the agreed price the expenses incurred in such completion. Under cl. l5(ii) of the contract all materials brought by the contractor upon the site shall im-mediately b.ecome the company's property, hut such of them as during the progress of the works were rejected by the company ceased to be Company's property, and after the coke oven and by-products plants had been constructed the contractor was entitled to remove the surplus materials. The clause further provided that the company shall not be liable for any loss if the materials were destroyed by fire or otherwise. Under the Bihar Sales Tax Act, 1947, in contract for execution of works, the materials used

82 SUPREME COURT REPOHTS [1962]

z96z therein are treated as sold by the contractors and their value is taken as the sale price liable to be taxed. The execution of Carl Still the works was completed in 1955 as provided in the agreement G. m. b. H. and on March 20, 1956, the sales tax authorities issued notice v. to the appellant to the effect that it was liable to pay tax for State of Bihar the three years 1952 to 1955. under the provisions of the Act. The appellant representtd that it had only supplied materials in execution of works contract, that there was no sale of any goods or materials by it and that the proceedings for taxing this supply of materials as if they had been sold were illegal. The sales tax authorities having proceeded _to take further steps to levy the tax in spite of its representations, the appellant filed petition before the High Court of Patna under Arts. 226 and 227 of the Constitution of India for quashing the proceedings. The High Court took the view that under cl. lj(ii) of the contract in question the property in the materials was to pass to the Indian company as soon as they were brought on the site, and that, in effect, amounted to sale of those materials by the appellant to the company. The Court, however, dismissed the petition on the ground that the facts had not yet been fully investigated and that it would be open to the sales tax authorities to investi-gate the facts and upon the proper construction of the contract come to the finding whether and if so to what extent, the appel-lant was liable to pay sales tax.Held (Shah, J., dissenting): (1) that on its proper construc-tion the agreement dated December 19, 1953, was contract entire and indivisible for the construction of specified works for lump sum and not contract of sale of materials as such and that the sales tax authorities had no right to impose tax on the materials supplied in execution of that contract on the foot-ing that such supply was sale.

The State of Madras v. Gannon Dunkerley & Co. (Madras) Ltd., [1959] S.C.R. 379 and Peare Lat Hari Singh v. The State of Punjab, [1959] S.C.R. 438, followed.

(2) that where proceedings are taken befcre tribunal under provision of law, which is ultra vires, it is open to party aggrieved thereby to move the court under Art. 226 for issuing appropriate writs for quashing them on the ground that they are incompetent, without his being obliged to wait until those proceedings run their full course.

The State of Bombay v. The United Motors (India) Ltd., [1953] S.C.R. ro69, Himmatla! Hari!aJ Mehta v. State of Madhya Pradesh, [1954] S.C.R. n22 and The Bengal Immunity Company Ltd. v. State of Bihar, [1955] 2 S.C.R. 603, relied on.

In the present case, the sales tax authorities sought to maintain the liability of the appellant to ·pay tax in respect of materials supplied by it only under the contract dated Decem-ber 19, 1953, and on the basis of the legality of the provisions

2 S.C.R. SUPREME COURT REPORTS

of the Bibar Sales Tax Act, 1947· Consequently, the proceed-ings taken by them must be held to be illegal and must be quashed.

Per Shah, J.--Under the agreement dated December 19, 1953, there was contract for the construction of coke oven battery and by-products plant, and also to deliver and supply accessories and articles. Even if this delivery and supply was incidental to the works contract, it could not be assumed with-out investigation that it was not part of transaction of sale liable to tax. The investigation of facts on the questio~ of liability to pay tax has to be made by the taxing authorities in whom that jurisdiction is vested. Before these facts are ascer-tained, by merely looking at the terms of the written contract and withont any investigation as to the true nature of the tran-saction, the High Court could not decide whether the contract performed \vas pure works or construction contract or was composite contract. The High Court "as, therefore, right in declining to issue the writ prayed for.

CIVIL APPELLATE JURISDICTION: Nos. 237 and 238 of 1960.

Civil Appeals

Appeals by special leave from the judgment and order dated July 8, 1958, of the Patna High Court, in Misc .. Tudl. Cases Nos. 713 and 819 of 1958.

A. V. Viswanatha Sastri, S. R. Banerjee and S. 0. Mazumdar, for the appellants.

S. P. Varma, for the respondents.

April 19. The judgment of of S. K. Das, J. L. K. Das, J. L. Das, J. L. J. L. L.

1961. April 19. The judgment of of S. K. Das, J. L. K. Das, J. L. Das, J. L. J. L. L. Kapur, M. Hidayatullah and T. L. Venkatarama Aiyar, JJ., was delivered by Venkatarama Aiyar, J. J.C. Shah, J., delivered separate judgment.

VENKATARAMA AIYAR, J.-Both these appeals arise out of the same facts and involve the determination of the same question, and this judgment will govern both of them.

The appellant in Civil Appeal No. 237 of 1960 is company registered 11.t Recklinghausen near Duss<eldorf in West Germany, and carries on business in the manufacture and erection of plants and machinery. On December 19, 1953, it entered into contract with company called Sindri Fertilisers and Chemicals (Private) Ltd., hereinafter referred to as the Owner, for assembling and installing machinery, plants and

Carl Still G. m. b. H. v. State of Bihor

Venkatarama Aiyar, ;.

Carl Still G.ni. b. H. v. State of Bihar Venkalarama Aiyar ].

accessories for coke oven battery and by-products plant at Sindri in the State of Bihar for an all-inclu-sive price of Rs. 2,31,50,000. The agreement provides that the appellants were to supply all the materials and labour required for the execution of the works, and that the performance was to be split up into two · categories, the German section and the Indian section, that the German section was to consist of deliveries of materials from Germany Free on Board European ports, cost of technical drawings and services of Ger-man specialists, and that the Indian section was to consist of supply of Indian materials and charges for Indian labour and services to be performed in India. The German section was to be paid out of the lump sum stated above sum of Rs. 1,31,50,000 in pounds sterling in London on account of the appellant, and the Indian section was to be paid the balance of Rs. 1,00,00,000 in Indian currency in this country, and payments were to be made in instalments related to the progress of the contract. Subsequent to the agree-ment, the appellant entrusted the work of the Indian section to an Indian company called the Coke Oven Construction Company (Private) Ltd., and the Owner having accepted this arrangement the said company has become the assignee of the contract in so far as it relates to the execution of the Indian section thereof. It is this company that is the appellant in Civil Appeal No. 238 of 1960. The execution of the works was completed in 1955 as provided in the agreemel)t, and the amounts due thereunder were also paid to the two appellants.

The present dispute between the parties is as to whether the appellants in the two appeals are liable to pay sales tax on the value of the materials used by them in the execution of the works under the con-tract. It will be convenient now to refer to the rele-vant provisions of the Bihar Sales Tax Act (Bihar Act No. XXX of 1947), hereinafter referred to as the Act. Section 2(g) of the Act defines 'sale' as including transfer of property in goods involved in the execu-tion of contract. 'Contract' is defined in s. 2(b) as meaning any agreement for carrying out for cash or

2 S.C.R. SUPREME COURT REPORTS

valuable consideration, the construction, fitting out, improvement or repair of any building, road, bridge or other immovable property; and 'goods' are defined ins. 2(d) as including "all materials, articles and com-modities, whether or not to be used in the construction, fitting out, improvement or repair of immovable pro-perty." 'Sale price' is defined in s. 2(h)(ii) as meaning the amount payable to dealer as valuable considera-tion for the carrying out of any contract, less such por-tion 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. •Dealer' is defined in s. 2( c) as meaning any person who sells or supplies any goods including goods sold or supplied in the execution of contract. Section 2(i) defines 'turn-over' as meaning the aggregate of the amounts of sale prices received and receivable by dealer in respect of sale or supply of goods or carrying out of any con-tract, effected or made during given period. Sec-tion 4 is the charging section, and it provides that every dealer whose gross turnover during the account-ing period exceeded Rs. 10,000 shall be liable to pay tax on sales which take place in Bihar, and s. 5 pro-vides that the "tax payable by dealer under this Act shall be levied on his taxable turnover at such rate or rates and subject to such restrictions and con-ditions as may be laid down from year to year by an annual Bihar Finance Act." The Bihar Finance Act defines 'taxable turnover' as meaning that part of the dealer's gross turnover on sales which have taken place in Bihar during any period subject to certain deductions. Section 9(1) of the Act provides that "No dealer shall, while being liable under s. 4 to pay tax under this Act, carry on business as dealer unless he has been registered under this Act and possesses registration certificate". Section 13(5) of the Act under which the present proceedings have been initia-ted is as follows:-

"If upon information which has come into his possession, the Commissioner is satisfied that any dealer has been liable to pay tax under this Act in respect of any period and has nevertheless wilfully

Carl Still G. m.b.H. v.

State of Bihar

Venkatatoma Aiyar ].

z961 failed to apply for registration, the Commissioner shall, after giving the dealer reasonable opportu-Ca.Z Still G. m. b. Ii. nity of being heard, assess, to the best of his judg-v. ment, the amount of tax, if any due, from the dea-of Bi"har ler in respect of such period and subsequent periods and the Commissioner may direct that the dealer Venkutarama shall pay, by way of penalty, in addition to the Aiyar J. amount so assessed, sum not exceeding one and half times that amount."

G. m. b. Ii.

State of Bi"har

Venkutarama Aiyar J.

The gist of the above provisions is that in contract for execution of works, the materials used therein are treated as sold by the contractor and their value is taken as the sale price liable to be taxed, and there are provisions for determining that value.

Acting on these provisions, the Superintendent of

Sales Tax, Dhanbrtd, the third respondent J:ierein, issu-ed on March 20, 1956, notice to the appellant ffi Civil Appeal No. 237 of 1960, under s. 13 of the Act, stat-in_,,.,g that on information which had come to his posses-sion he was satisfied that the appellant was liable to pay tax for the periods 1952-53, 1953-54 and 1954-55, that it had wilfully failed to register itself under s. 9 of the Act, and it was direct<ld to show cause why penalty should not be imposed. In response to this notice, the appellant appeared before the third res-pondent and represented that it had only supplied materials in execution of works contract, that there was no sale of any goods or materiftls by it, and that the proceedings for taxing this supply of ma,tol"ials as if they had been sold were illegal. Disagreeing with this contention, the third respondPnt direct.Pd the appellant to produce all its lH>oks, accounts and docu-ments for purposes of a8sessment, and this is quite understandable, as it was his duty to levy tax in accordance with the provisions of the Act. There-upon, the appellant filed petitions before the High Court of Patna under Arts. 226 and 227 of the Consti-tution for t.he issue of appropriate writs for qL1ashing the proceedings before the third respondent and for prohibiting further proceedings under the Act as being wholly :incompetent. The grounds put forward in support of the petition were firstly that the State

legislature having authority to enact \aw imposing tax on the sale of goods wtts not competent to tax what under the law was not sale, and thl1t <ts the supply of materil1ls in the course of the execution of works, was not in 111w 11 sale of thoae goods, t11x on such supply was u nautlwri:r.ed; 11nd secondly th11t, even if there wa.s sale of m1tterials, that was in the course of import from Gerrrmny, and tl1x thereon was repugnl1nt to Art. 286(1)(0) of the Constitution.

After taking over the Indian section of the con-tract, the appellant iu Civil Appeal No. 238 of 1960 h11d registered itself on Ml1y 11, HJ53, as dealer under s. 9 of the Act and Wl1S submitting periodical returns as required by the certificate tH!d the Act. But its contention at a.JI times has twen ~hat iL is not liable to pay sales tax on the transactions in ques~ion, as there were only supplies of nmtcril11s in execution of works contract anJ that thev did not 'mwunt to sale of goodH. This contention v:as overruled by the Superintendent. of Sales Tl1x, Dhanbad, the third respondent herein, and the appellant was assessed to sales tttX successively for the years 1952-53 and 1953-54. While proceedings by way of appeal or revision by the appellant against these orders of assessment were pending, the third respondent issued further notices for <tssessment of tax for the years 1954-55 and 1955-56, and directed the appellant to produce all its books and accounts for the above period. Thereupon the appellant filed in the High Court of Patna, petitions under Arts. 226 and 227 of the Con-stitution, similar to those filed by the appellant in Civil Appeal No. 237 of 1960, for issue of appropriate writs to quash the orders of the Sales Tax authorities on the ground that the provisions of the Act, in so far as they sought to tax supply of materials in works contracts, were ultra vims.

By the t.ime the above petitions came up for hear-ing, the decision of this Court in The State of Madras v. Gannon Dunkerley & Co. (Madra,~) Ltd. ([1]), had been reported, wherein it was held tliat the expression "sale of goods" in Entry 48 in List II of Sch. V to

(1) [1959] S.C.R 379·

Carl Still G.•ni. b. ll. v. State of Hihar Venkatararna Aiyar J.

Carl Still G. m. b.•H. v. State of Bihar Venkataratna Aiyar ].

SS StJPREME COUR'r REPORTS

the Government of India Act, 1935, corresponding to Entry 54 in List II of Sch. VII to the Constitution of India had the same meaning that it has in the Sale of Goods Act, 1930, that where there is building contract, under which specified work is to be executed for lump sum, there is no contract of sale, as such, of materials used in the works, and that accordingly, tax on the supply of those materials treating it as sale was ultra vires the powers of the State Legisla-ture under Entry 48 in List II of Sch. VII to the Government of India Act, 1935. The learned Judges were of opinion that this decision was distinguishable because there was term in the agreement before them that the property in the materials was to pass to the owner as soon as they were brought on the site. Dealing next with the contention of the present appellants that, as there was no agreement for the payment of price for the materials, as such, they could not be held to have been sold, the learned Judges noticed without comment the contention of the Government Pleader for the respondents, based on s. 9 of the Sale of Goods Act, that even though no price had been fixed for the materials, that could be determined from the account books and invoices and the course of dealings between the parties. The learned Judges then proceeded to observe:

"I wish, however, to state that I do not express any concluded opinion on the question whether there is sale of materials liable to be taxed in the present case. The facts have not been fully investigated by the sales tax authorities and the petitioners have not furnished all the account books and documents and other relevant information for the purpose of decid-ing this question. It would be open to the sales tax authorities to investigate the facts: and upon proper construction of the· contract come to the finding whether and if so to what extent, the peti-tioners are liable to pay sales tax. I have no doubt that in deciding this question the sales tax autho-rities will keep in view the principles laid down by the Supreme Court in State of Madras versus Gan-non Dunkerley and Company (Madras) Limited (9 Sales Tax Cases 353)",

2 S.C.R. SUPREME COURT REPORTS

With these observations the learned Judges dismissed the petitions. It is against this judgment that the present appeals by special leave are directed.

The first question that arises for our decision is whether on the construction of the agreement dated December 19, 1953, it could be held that there was sale by the appellants of the materials used in the con-struction works, apart from the execution of those works. In The State of ~Madras v. Gannon Dunkerley & Co. (Madras) Ltd.('), after stating that building contracts could assume several forms, this Court observed as follows:

"It is possible that the parties might enter mto distinct and separate contracts, one for the trans-fer of materials for ·money consideration a.nd other for the payment of remuneration for services and for work done. In such case there are really two agreements, though there is single instrument embodying them and the power of the State to separate the agreement of sale from the agreement to do work and render service and to impose tax thereon, cannot be questioned and will stand untouched by the present judgment."The point for determination, t.herefore, is whether on its true construction, the contract in question is combination of two distinct agreements, one to sell materials and the other to supply labour and services, or whether it is only one agreement entire a.nd indivi-sible for execution of the works. We will now refer to the relevant portion of the agreement dated Decem-ber 19, 1953. The preamble to the agreement states that the Owuer had agreed with the contractor that the latter was to set up complete coke oven battery re:tdy for production :ts well as by-products plants according to specifications given I.herein, that the installation was to be made at site selected hy the Owner and thut t.he contractor was to "erect and con-struct buildings, plants and machineries am! deliver and supply accessories and articles from Germany and also loca,Ily from India and render services fully

(I) (1959} SC I\.. 379•

r96r Carl Still G. m, b. Ti. v. State of Bihar Venkatarama Aiyar ].

Carl Still G. m. b. I-!. v. State of Biha1 Venkatara111a A.iya1· ].

deHcribcd in the :First Schedule ......... for an all-inclu-sive price of Rs. 2,31,50,000." Then cl. 1 provides that the contractor shall execute and complete the works mentioned in the Schedule, and cl. 2 that the Owner shr11! pay to the contractor for executing the contract the sum of H.s. 2,31,50,000. Clause 4 requireB the contractor to "provide all labour, materials, machinery, plant, tools, tackles and other implements for performing the works in workman-like mrmner." Under cl. 11, the contractor guarantees "to accom-pli~h full prod notion within 22 months from the 15th September, l!J52," and further undertr1kes to fulfill the guarantees prescribed in Schedule II to the agree. ment "to the satisfactfon of the Owner within period of three months from the date of accomplishment of full production." Clause 28 provides that in case the contractor fails or is unable to complete the works within the period, the Owner might take possession of the works and of the mr1terials, "which will bocome the property of the owner," and complete the works and deduct from the agreed price the cxpellses incur-red in such completion.

It is clear from the above clauses that the subject matter of the agreement was the installation of the coke oven battery and iLs accessories, that the sum of Rs. 2,31,50,000 was the price agreed to be paid for the execution of those works, and that there was no agreement for the sale of materials, as such, by the appellants to the Owner. In other words, the agree-ment in question is contract entire and indivisible for the construction of specified works fo1· lump snm and not contract of sale of materials as such.

Now the contention that found favour with the learned LTuJges in the High Court was !hat there was in the contract clause that _the property in the rnateri.iJs was to pass to the owuer when they are brought on the site, and thr1t, in effect, amounted to sale of those materials by the 11ppellant to the Owner. The clause iu question is as follows:-

" 15 (ii). All mitterials and plant brought by the Contracto1· upon the site under tho German and Indian 8eclim1A in counect.iou with tlrn nmrntruc:tion

2 S.C.R. SUPREME COURT REPORTS

of the Coke Oven and by.products Plant shall im-mediately they are brought npon the site become the Owner's property and the same shall not on any account whatsoever be removed or taken away by the Contractor or by any other person without the Owner's prior authority in writing. Such of them as during the progress of the works will be reje<lted by the Owner in accordance with the terms agreed upon between the Contractor and the Owner in this respect sh11ll on such rejection, ce11se to be the Owner's property ............ The Owner shall not be liable for any loss or dam11ge which may happen to or in respect of such materials 11nd plant by the s11me being lost, stolen or injured or destroyed by fire, tempest or otherwise for which the contractor will be liable ......... The Owner agrees th11t after the Coke Oven and by-products Plants have been con-structed according to the agreed terms, the Contrac-tor will be entitled to remove from the site their tools, tackles, machines, packing materials, protec-tion roof and other materials as are surplus to the requirements of the normal operation of the Coke Oven and by-products Plant provided that no claim for increased cost is made in respect of anything so removed."

In Peare Lal Hari Singh v. The State of Punjab('), a, building contract contained the following clause:-

" All stores and materials brought to the Site shall become and remain the property of Government and shall not be removed off the Site without the prior written approval of the G. E. But whenever the works are finally completed, the contractor shall at his own expense forthwith remove from the Site all surplus stores and materials originally sup-plied by him and upon such removal, the same shall revest in and b0come the property of the Contractor."

Discussing the questio11 whether by reason of this clause there was contract of Ha,Je of Uie materials by the Contractor, distinct from the works contract, this Court held that its object was only to ensure that (1) [I959] S.C. R. 438.

Carl Still G.tn.b H. v.

;:;tate of Bih.ar

Venkatai'ama Aiyar ].

materials of the right sort "·c·re 1ised in the construc-tion and not to constitute contrnct of purchase of • the materials separatim. In the . present case, ol. 15 is e·ven clearer·t,hat no sale of materials, as such, was intended, because it expressly provides that if they were destroyed by fire, tempest or otherwise, the loss would fall not on the owner, which must bo the result if the property is taken· to have been absolutely trans-ferred to it, but on the contractor.

Ca,l S:ill G. 1n. b. H. v. State of Biha( Venkalatama Aiyar ].

The argument basecf on s. 9 of the Sale of Goods Act is, in our opinion, equally unsound. What that section enacts is that where ~hero is contract of sale of movables but the pricc)s not mentioned, it has to be fixed either in the manner provided in the agree-ment or by hav;ing regard to the course of dealings between the pa:rties, and where that is not possible, the buyer has 'to pay the seller reasonable price. But the- section presupposes that there is contract of sale of goods,-and, as'held in The State of Mddras v. Gannon Dunkerley & Co. (Madras) Ltd.('), such con-tract, requires that there must have been an agree-ment between the parties for the Aale of the very goods in which eventually property passes. If, -as held hy us, cl. 15 does not embody an agreement for the sale of materials as such, there is no contract of sale with respect •to them and s. 9 of the Sale of Goods Act crin have no ripplication. The contention, there-fore, that cl. 15 of the agreement could be read as amounting to contract of sale of m11.t.erialR, ancl that the price t.herefoi; could be fixed-as provided ins. 9 of the Sa.le of Goods Aci; by reoourse t.o th'3 account bookrl' of -the <•pp<'llrints or the im·okcs or the course of dc.alings between t.hpm and Lhe owner, must be reject0 ris unt-0un,ble. lt follows that the agreement dated J)ecember 19, l!J53, bejng contract for the construction of works, one and indivi~ible, t.he res-pondents have no right to impose tax on the mate-riah supplied in cxeoution of tha:. cop.tract on the footing that such supply is sale .

. rt is next contended for·the responden_ts that, what-ever the merits of the'contentions base4,. on the con-struction of the contract"the proper forum to agitate (I) [z959) S.C.R. 379.

them would be the authorities constituted under the Act to hear and decide disputes relating to assessment of tax, that it was open to the appellants to satisfy those authorities that there have been no sales such as are liable to be taxed, that indeed they were bound to pursue the remedies under the Act before they could invoke the jurisdiction of the court under Art. 226 and that the learned Judges of the High Court were, therefore, right in declining to en-tert11,in the present petitions. It is true that if statute sets up Tribunal and confides to it jurisdiction over certain matters and ,if proceeding is properly taken before it in respect of such matters, the High Court will not, in the exercise of its extra-ordinary jurisdiction under Art. 226, issue preroga-tive writ so as to remove the proceedings out of the hands of the Tribunal or interfere with their course before it. But it is equally well settled that, when proceedings are taken before Tribunal under pro-vioion of law, which· is ultra vires, it is open to party aggrieved thereby to move the court under Art. 226 for issuing appropriate writs for quashing them on the ground that they are incompeteu I., without his being obliged to wait until those proceedings run their full course. That has been held by 1his court in The Sfate of Bombay v. The United :JJiotors (India) Ltd.('), flim-matlal llarilal :JJiehta v. The State of Madhya Pradesh('). and The Bengal Immunity Company Limited v. 'l.'he State of Bihar ('). The position that emerges i5 t.hat, if the proceedings before the Sales Tax Officer n,re founded on the provisions of the Act, which autho-rizes the le\'_\' of the tax on the supply of mate-rials in contruction contracts, then they must in view of the dtecision in The Slate of Madras v. Gann on Dunkerly & Co. (Madras) Ltd.('), be held to be incom-petent and quashed. But if the proceedings relate to any extent to sales otherwise than under the contract, then the enquiry with respect to them must proceed

(1) [1953) S.C.R. 1069, 1077.

(2) [1954] S C.R. 1122, 1127.

(3) [r955] 2 S C.R. 603. 6'7-619, 764-766.

(4) [1959] S.C.R. 379.

Carl ,\till G. »I. b. H, v. State of Bihar Venkatarama Aiyar ].

Carl Still G.m.b.H. v. Slttte of Bihar Yenleatara1na Aiyar ].

before the authorities under the Act and the applica-tion under Art. 226 must fail.

We must now examine the true scope of the pro-ceedings before the Sales Tax Officer in the light of the above principles. \Ve start with this that the Act contains provisions imposing tax on the supply of materials under construction contract. The appel-lants were indisputably engaged in construction works under the agreement dated December 19, 1953, and it is not suggested that they were carrying on any in-dependent business as dealers in the State of Bihar. Presumably, therefore, when the sales tax authorities took proceedings against them, it was in respect of materials supplied by them under their contract dated December 19, 1953. When the appellants, in response to the notice issued by the third respondent, contested their liability to be taxed, it was on the ground that the supplies of materials under the contract were not sales. When the appellants next moved the court under Art. 226 for quashing the proceedings, they urged that the provisions of the Act, in so far as they purported to impose tax on the materials supplied in the performance of the contract, as if they were sold, were ultra vires. If the respondents sought to tax the appellants on the footing that sales of mate-rials were effected outside the contract, it was their duty to have put that case forward in ans\\:er to the petition. They did nothing of the kind. They did not file even counter-~tatement. At the time of the argument, when faced with the decision of this Court in the case of The State of ~Ilfadras v. Gannon Dun-kerley & Co. (Madras) Ltd.('), their entire case was that the agreement between the parties should be construed as involving sale of materials, and that their value could be ascertained from the invoices, account books and the course of dealings between the parties. No contention was urged that there were sales of materials which fell outside the argeement between the appellants and the Owner. The learned Judges of the High Court in dismissing the petitions made it clear that the investigation before the sales (1) [1959) S.C.R. 379.

2 S.C.R. SUPREME COURT REPORTS

lJl.l

tax authorities must be as regards their liability to pay sales tax "upon proper construction of the con-tract." In this Court also, the i·espondents seek in their statement to maintain the liability of the appel-lants only on the basis of the contract, reliance being placed on cl. 15 already referred to and on s. 9 of the Sale of Goods Act. There is no claim that the appel-lants are liable on the basis of sales falling outside the agreement. It was stated before us for the appellants, and not contradicted by the respondents, that the Sindri Fertilisers and Chemicals (Private) Ltd., is company controlled by the Government. If that is so, the respondents were at all times in possession of facts which would have shown whether the appellants entered into any transaction de hors the agreement, and it is significant that at no stage have they alleged any such facts. We are satisfied that the proceedings have at a.II stages gone on the footing that the liabi-lity of the appellants arose under the contract and not otherwise. In that view, we must hold, following the decision in The State of Madras v. Gannon Dunkerley & Co. (Madras) Ltd. ([1]) that the proceedings taken by the respondents for imposing sales tax on the suprfies of materials by the appellants, pursuant to the con-tract dated December 19, 1953, are illegal and must be quashed. In the result, the appeals are allowed and appropriate writs as prayed for by the appellants will be issued. The appellants are entitled to their costs throughout.SHAH, J.-In my view these appeals must fail.

The appellants claim that they are not liable to be taxed in respect of the transaction dated December 19, 1953, because it is not sale within the meaning of the. Bihar Sales Tax Act, 19 of 1947, but is con-tract to ftssemble and install machinery, plants and accessories of coke oven battery and other plants which under the principle of the decision of this Court in The State of Madras v. Gannon Dunkerley & Co. (Madras) Ltd. ([1]) is not subject to sales-tax.

The Act defines "sale" as meaning--omitting parts not material-any transfer of property in goods for (1) [1959] S.C.R. 319.

Carl Stil~ nz. b. J!. v.

State of Bihar

Venktitarama Aiyar ].

Shah].

Ca,z Still G. tn, b. H. v. Slate of Bihar

Shah ].

cash or deferred payment or other valuable conside-ration, including transfer of property in goods in-volved in the execution of contract. "Contract''' is defined as meaning any agreement for carrying out for cash or deferred payment or other valuable consi-deration, the construction, fitting ont, improvement or repair of a,ny building, road, bridge or other immovable property. The expression "goods" means all kinds of movable property other than action-able claims, stocks, shares or securities and inclndes all materials, articles and commodities whether or not to be used in the construction, fitting out, improve-ment or repair of immovable property. "Sale price" means the amount payable to dealer as valuable consideration for-(1) the sale or supply of any goods, less any sum allowed as cash discount according to ordinary trade practice, but including any sum charg-ed for anything done by the dealer in respect of the goods at the time of, or before, delivery thereof, other than the cost of freight or delivery or the cost of in-stallation when such cost is separately charged; or (ii) the carrying out of any contract, less such portions a~ay 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.

These definitions in so far as they seek to treat goods supplied or used in the execution of works or construction contract, :i.s sold and liable to sales-tax under the Act, must, on t.he decision of this Court in Gannon Ditnkerley's ca.se (1) be regarded as beyond the legislative competence of the State Legislature. In Gannon Dunkerley's case('), this Court held that in building contract, the contractor constructs the bnild-ing arcording to the specifications contained in the agreement and in consideration therefor receives pay-ml'nt as provided therein, and in such an agreement, there is rieither contract to sell the materials used in the construction, nor does property pass therein as moveables, and accordingly in building contract which is one, entire and indivisible, Uwre is no sale of goods and it is not within the competence of the Pro-vincial Legislature nnder Entry 48 in List II in (1) [1959] S.C.R. 379.

2 S.C.R. SUPREME COURT REPORTS

Sch. VII of the Government of India Act, 1935, to impose tax on the supply of the materials used in such contract treating it as sale. Relying upon the decision of this court in Gannon Dunkerley's case('), the appellants contend that the amount received by them under the contract <lated December 19, 1953, is not liable to be :issessed to sales-tax. But the question whether the contract is pure works con-tract or composite contract has never been investi-gated. Undoubtedly, the formal document evidencing the contract suggests, prima facie, that it is works contract, but in assessing liability to tax, the taxing authority is not restricted merely to the letter of the document: he has to enquire into the true nature of the transaction on all the relevant materials and to ascertain whether it partakes of the nature of the tran-saction which the statute renders taxable. He is, in as-certaining the true nature of the contract, also entitled to consider how the contract was performed. The Act entrusts power to ascertain the facts on which the liability to tax depends to the taxing authorities and in that behalf, the Act is exhaustive in scope <tnd content. The appellants in approaching the High Court by petitions under Arts. 226 and 227 of the Constitution sought to eliminate the entire procedure and machi-nery set up by the Act for ascertaining facts on which the liability to tax depends.

I strongly deprecate the practice of the taxpayer being permitted to invoke the jurisdiction of the High Court to issue high prerogative writs on certain assumed facts-facts the truth of which has never been subjected to scrutiny in the only manner in which the la.w provides they should be scrutinised. The power to assess the facts on which the decision as to the true nature of the ta..:rnblA transaction depends by the statute lies solely with the taxing authorities: it does not lie with any other bndy or tri-bunal. Invoking the jurisdiction of the High Court to adjudicate upon the facts, directly or indirectly, on which the liability to tax depe11dA, in my view, Ir) [1959] S.C.R. 379.

Car! Still r;. m. b. H. v, State of Bifiar Shah j.

Carl Still G. m. b. H. v. State of Bihar Shah ].

amounts to inviting the High Court to exercise juris-diction which it does not possess. This is however not to say that the jurisdiction of the High Court to issue writ of prohibition restraining the levy of tax under statute can never be entertained. If, for instance, the statute is beyond the legislative compe-tence of the legislature or defies constitutional res-triction or infringes fundamental right or the taxing authority arrogates to himself powers which he does not possess or attempts to levy tax more than once in respect of the same transaction when it is not permit-ted by the statute, or the taxing authority threatens to recover tax on an interpretation of statutory pro-vision imposing tax which is on the face of the statute erroneous, jurisdiction to issue writ of prohibition from the High Court may properly be invoked. But the High Court cannot be asked to ascertain disputed facts bearing upon the taxability of transaction, because that jurisdiction is vested elsewhere.The contract in question is principally works con-tract. The preamble states that the appellants had agreed with the Sindri Fertilizers and Chemicals Ltd. to set up complete coke oven battery ready for pro-duction as well as by-products plant on the site speci-fied and to construct buildings, plants and machineries and deliver and supply accessories and articles and to render services fully described in the first schedule, subject to the guarantees to be fulfilled on the part of the appellants and terms and conditions mutually agreed and settled and mentioned in the second sche-dule for an all-inclusive price in accordance with the preliminary site plan. It is manifest from the pre-amble that there is contract for the construction of coke oven battery and by-products together with the plant, and also to deliver and supply accessories and articles. Undoubtedly, the price agreed to be paid is an "inclusive price" in respect of the entire contract, but that does not affect the nature of the contract to deliver and supply accessories and articles. The appellants have undertaken, subject to the terms and conditions mentioned in the contract, to execute and complete the works mentioned in the first schedule.

2 S.O.R. SUPREME COURT REPORTS

The contract in so far as it relates to the installation of plant and construction of building was works con-tract and notwithstanding the definition of "sale" and "contract" in the Act, was not taxable but the con-tract contemplates delivery and supply by the appel-lant of accessories and articles. Even if this deliverv and supply of accessories and articles is incidental to the works contract, it cannot be assumed without in-vestigation that it was not part of transaction of sale liable to tax. The appellants asked the High Court to assume that the contract in question was pure works contract, but the High Court declined to make that assumption. Ramaswami, C. J., in dealing with that plea observed:

"I wish, however to state that I do not express any eoncluded opinion on the question whether there is sale of materials liable to be taxed in the present case. The facts have not been fully investi-gated by the sales tax authorities and the petitioners have not furnished all the account books and docu-ments and other relevant information for the pur-pose of deciding this question. It would be open to the sales tax authorities to investigate the facts and upon proper construction of the contract come to the finding whether and if so to what extent, the petitioners are liable to pay sales tax."

In my view; the learned Chief Justice was right in so approaching the question. The sales tax authori--ties have made no assessment; they merely issued notice purporting to do so under s. 13(5) of the Act and required the appellants to produce j;heir books of account and records for ascertaining whether the transaction or any part thereof was in the nature of sale of goods. The sales tax authorities had jurisdic-tion to do so and by merely looking at the terms of the written contract and without any investigation as to the true nature of the transaction the High Court could not decide whether the contract performed _was pure works or construction contract or was compo-site contract. It was urged that. in the petition filed by the appellants before the High Court, an affidavit

CarJ Still G. m.b. H. v.

State of Bihar Shah ].

Carl Still G.m.b. H. v.

St1de of Bihar

Shah ].

in rejoinder challenging the correctness of the aver-ment made in the petition that it was pure works contract was not filed by the taxing authorities and therefore the High Court was bound to decide the dispute on the footing set up by the appellants. But the taxing authorities could not be expected without investigation to assert a. stale of facts which was not and could not be within t.heir knowledge, and their statutory authority could not, because of their failure to so assert, be nullified.

As I have already observed, the investigation of facts on the question of the liability to pay t.r.x has to be made by the taxing authorities in whom that juris-diction is vested. Before the facts on which the li1>bi-lity to tax depends are ascertained, the High Court could not be asked to assume .that the transaction was in the nature of pure works contract and to decide the question as to the liability of the appellants on that footing. There is no ground for assuming that the taxing authorities will not give effect to the deci-sion of this court in Gannon Dunkerley' s case (1) after the true nature of tile transaction is ascertained.

In my view, the High Court was right in declining to issue the writ prayed for.

BY COURT: In accordance with the opinion of the ma.jority, the appeals are allowed and it is directed that appropriate writs as prayed be issued. The appellants are also entitled to their costs throughout.

Appeals allowed.