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PETITIONER: N.M. GOEL & CO.

       Vs.

RESPONDENT: SALES TAX OFFICER, RAJNANDGAON & ANR.

DATE OF JUDGMENT28/10/1988

BENCH: MUKHARJI, SABYASACHI (J) BENCH: MUKHARJI, SABYASACHI (J) SHETTY, K.J. (J)

CITATION:  1989 AIR  285            1988 SCR  Supl. (3) 657  1989 SCC  (1) 335        1988 SCALE  (2)1313

ACT:     M.P.  Sthaniya  Kshetra  Me  Mal  Ke  Prevesh  Par   Kar Adhiniyam  1976/M.P.  General  Sales  Tax  Act-Sections   3, 6/Section  7- Entry tax/Purchase tax- Assessment  of-  Works contract-   Materials  supplied  by  P.W.D.  and   used   in construction  of  building by assesse-  Prices  of  material deducted from the final bill of contractor- Whether sale  of material-  Assesse-  Whether liable for  entry  tax/purchase tax.

HEADNOTE:     Section  3 of M.P. Sthaniya Kshetra Me Mal  Ke   Prevesh Par Kar Adhiniyam 1976 provides for levy of entry tax on the entry of goods specified in Schedule Il for consumption, use and  sale  therein,  and  on entry  of  goods  specified  in Schedule  III  for consumption or in the execution  of  work contracts but not for sale. Section 6(c) provides that where a  dealer  purchases  goods specified  in  Schedule  II  and Schedule  III in a local area from a person or a dealer  who is  not  a  registered dealer, it is  presumed,  unless  the contrary is proved by him, that the entry of such goods  had been  effected by him into such local area before they  were purchased  by such dealer. Iron and steel are  listed  among other  goods  in Schedule II, and cement  in  Schedule  III. Section  13  provides that certain provisions  of  the  M.P. General Sales Tax Act apply mutatis mutandis to a dealer  in respect of entry tax payable under the Adhiniyam.     The   appellant-company,  a  building   contractor   and registered  as  a dealer under the  Madhya  Pradesh  General Sales Tax Act, entered into a Works Contract with the P.W.D. for   construction  of  foodgrains  godown   and   ancillary buildings.  It  was  on  item  rate  basis.  In  the  tender submitted  by the appellant, the prices of the materials  to be  used for construction including cost of iron, steel  and cement  were included. The P.W.D. had agreed to supply  from its  stores the iron, steel and cement for the  construction work  and to deduct the prices of materials so supplied  and consumed  in the said construction work from and out of  the final  bill of the appellant. Under clause 10 of  the  Works Contract,  the  contractor was ‘bound  to  procure’  certain materials  of  special description, and in order  to  ensure that  quality materials are procured, the PWD  undertook  to

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                                                 PG NO 657                                                   PG NO 658 supply  such  materials  and stores from  time  to  time  as required  by  the contractor to be used for the  purpose  of performing  the  contract.  The value of  such  quantity  of materials and stores so supplied was specified at a rate and got  set-off or deducted from any sum due or to  become  due thereafter  to  the contractor. It also  provided  that  all materials supplied to the contractor, remained the  absolute property  of the Government and could not be removed on  any account from the site of the work and were at all times open to inspection by the Engineer-in-charge. Any such  materials remaining unused and in perfectly good condition at the time of  completion or determination of the contract were  to  be returned  to the Engineer-in-charge. Iron, steel and  cement were supplied by the P.W.D., an unregistered dealer, to  the appellant for the construction of work.     The Taxing authority assessed the appellant to  purchase tax  under s. 7(1) of the Madhya Pradesh General  Sales  Tax Act  and  also held it liable for payment of entry  tax  for iron,  steel and cement, the entry for the same having  been effected  at  the instance of the appellant because  it  had ultimately used the materials for the construction work. The aforesaid  assessment  orders were affirmed  by  the  Deputy Commissioner  of  Sales  Tax  by  dismissing  the   revision petitions of the appellant.     The appellant challenged the aforesaid assessment orders in a writ petition before the High Court, on the ground that the  entry  of  materials  so supplied  by  the  P.W.D.  was effected  by it and not by the appellant and that  as  these materials were used for construction of the building,  there was  no sale as such and consequently no entry tax could  be levied.  On behalf of the Taxing authorities-respondent,  it was argued that since the appellant and purchased the  iron, steel and cement from the PWD and not from the market as per the contract the prices of which had been deducted from  its final bill, the entry of material could be presumed to  have been  made  at  the  instance  of  the  appellant  who   had ultimately used the materials for the construction work, and since  these materials were purchased from the  unregistered dealer,  i.e.,  the  P.W.D., the appellant  was  liable  for payment of purchase tax and entry tax. The Full Bench of the High  Court, which disposed of the writ petition found  that there was ‘sale’ and that the tax was leviable.     In  the appeal by special leave by the assessee to  this Court,  on the question: whether there was sale and  whether the  property  in the goods had passed to the  appellant  or continued  to remain with the PWD, although the PWD  had  in the  final bill debited the prices of the goods so  supplied to the appellant under clause (10) of the contract:                                                   PG NO 659     Dismissing the appeal, this Court,     HELD:  1.1.  Whether  a  contract  for  service  or  for execution  of work involved a taxable sale of goods must  be decided  on  the facts and circumstances of each  case.  The burden  in  such a case lay upon the taxing  authorities  to show that there was a taxable sale, and that burden was  not discharged  by  merely showing that property  in  the  goods which belonged to the party performing service or  executing the contract stood transferred to the other party. [664G-H]     1.2 Even in a contract purely of work or service, it  is possible  that  articles may have to be used by  the  person executing  the  work  and  property  in  such  articles   or materials  may  pass  to the other  party.  That  would  not necessarily  convert the contract into one of sale of  those

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materials.  In  every case, the court has to  find  out  the primary  object of the transaction and the intention of  the parties while entering into it. [667F-G]     1.3 In order to be ’sale taxable to duty’, not only  the property in the goods should pass from the contractor to the Government, or the appellant in the instant case, but  there should  be an independent contract- separate  and  distinct- apart  from  mere  passing of the  property  where  a  party purchases  or  procures  goods  from  the  Government.  Mere passing  of property from the contractor to  the  Government would not suffice. There must be sale of goods. The  primary object of the Bargain judged in its entirety must be viewed. [668B-C]     1.4  In  the  instant case, by  use  or  consumption  of materials in the work of construction, there was passing  of the  property in the goods to the Assessee from the PWD.  By appropriation  and  by the agreement, there was  a  sale  as envisaged  in  terms  of clause (l0) of  the  contract,  and consequently such sale was liable to tax. [669A-B]     The  Government  of Andhra Pradesh  v.  Guntur  Tobaccos Ltd.,  16  STC  240; Hindustan Steel Ltd. v.  The  State  of Orissa, 25 STC 211, The State of Himachal Pradesh & Ors.  v. Associated Hotels of India Ltd., 29 STC 474, relied on.     Brij Bhushan Lal Parduman Kumar etc. v. Commissioner of Income-Tax, Haryana, Himachal Pradesh and New Delhi-III, 115 ITR 524, referred to.                                                   PG NO 660 Construction  Company  Changanacherry  & Anr.  v.  State  of Kerala,  36  STC  320,;  Cementation  Patel  (Durgapur)   v. Commissioner of Commercial Taxes, West Bengal, Calcutta,  47 STC 385, distinguished.

JUDGMENT:     CIVIL  APPELLATE JURISDICTION: Civil Appeal No.  340  of 1988.     From the Judgment and Order dated 8.12.1986 in the  High Court of Madhya Pradesh in M.P. No. 1670 of 1984.     R.K. Virmani for the Appellant.     T.C. Sharma for the Respondents.     The Judgment of the Court was delivered by     SABYASACHI MUKHARJI, J. This appeal by special leave  is from the judgment and order of the Full Bench to the  Madhya Pradesh High Court, dated 8th December, 1986.     The Writ Petition in question out of which this Judgment arose,  had been referred to the Full Bench by the  Division Bench on the question whether the petitioner-appellant could be  said  to have effected entry of the goods in  the  local area  and  thereby made it liable for payment of  entry  tax under  Section  3  of the M.P. Sthaniya Kshetra  Me  Mal  Ke Pravesh  Par  Kar Adhiniyam, 1976 (hereinafter  called  ‘the Act’).  I here was conflict between the Division Benches  of the Madhya Pradesh High Court and as a result the matter was referred  to  the  Full Bench. In order  to  appreciate  the controversy and the question, it is necessary to state a few facts.     The  appellant-company  is  a  building  contractor   at Rajnandgaon in Madhya Pradesh and is registered as a  dealer under  the  Madhya  Pradesh  General  Sales  Tax  Act.   The appellant’s tender for construction of foodgrains godown and ancillary  buildings  at  Rajnandgaon was  accepted  by  the Central Public Works Department. It was an item rate tender. In  the tender so submitted by the appellant the  prices  of the materials to be used for the construction including cost

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of  iron, steel and cement were included. The PWD,  however, had  agreed to supply from its stores the said  iron,  steel and  cement  for  the construction work and  to  deduct  the prices   of   materials  so  supplied   and   consumed   the construction  from  the final bill of the  appellant  Clause (10) of the Contract is relevant and was as follows:                                                   PG NO 661     "Clause  10. If the specification or Schedule  of  terms provides for the use of any special description of materials to be supplied from Engineer-in-charge’s Stores, or if it is required that the Contractor shall use certain stores to  be provided by the Engineer-in-charge as shown in the  Schedule of  materials hereto annexed, the contractor shall be  bound to procure and shall be supplied such material and stores as are  from  time to time required to be used by him  for  the purposes  of  the contract only, and the value of  the  full quantity  of  materials and stores to supply  at  the  rates specified  in the said Schedule of materials may be set  off or  deducted from any sums then due or thereafter to  become due  to the contractor under the contract or  otherwise,  or against  or  from the Security deposit, or the  proceeds  or sale  thereof if the same is held in Government  securities, the same or a sufficient portion thereof being in this  case sold  for  the  purpose. All materials so  supplied  to  the contractor shall remain the absolute property of  Government and shall not be removed on any account from the site of the work,  and shall be at all times open to inspection  by  the Engineer-in-charge. Any such materials remaining unused  and in perfectly good condition at the time of the completion or determination  of  the  contract shall be  returned  to  the Engineer-in-charge  at  a  place directed by him,  if  by  a notice  in writing under his hand he shall so  require;  but the  contractor  shall not be entitled to  return  any  such materials  unless with such consent and shall have no  claim for  compensation  on  account  of  any  such  materials  so supplied  to him as aforesaid not being used by him  or  for any  wastage  in or damage to any such  materials.  Provided that  the  contractor shall in no case be  entitled  to  any compensation or damage  on account  of  any delay in  supply or non-supply thereof all or any such materials and  stores. Provided  further  that  the contractor shall  be  bound  to execute the entire work it the materials are supplied by the Government  within the scheduled time for completion of  the work plus 50 per cent thereof (scheduled time plus 6  months if  the time of completion of the work exceeds  (12  months) but it a part only of the materials has been supplied within the aforesaid period, then the contractor shall be bound  to do so much of the work as may be possible with the materials and  stores  supplied  in  the  aforesaid  period.  For  the completion of the rest of the work, the contractor shall be                                                   PG NO 662 entitled  to such extension of time as may be determined  by the  Engineer-in-charge whose decision in this regard  shall be final".     As  mentioned hereinbefore, under the said  clause,  all materials  supplied to the contractor remained the  absolute property  of the Government and could not be removed on  any account from the site of the work and were at all times open to inspection by the Engineer-in-charge. Any such  materials remaining unused and in perfectly good condition at the time of  completion or determination of the contract were  to  be returned  to the Engineer-in-charge at a place  directed  by him by a notice in writing in his hand if he so required but the contractor was not entitled to return any such  material unless  he was required to do so. There was no dispute  that

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for the construction the appellant was supplied iron,  steel and  cement by the PWD and it had purchased other  materials from  the  market.  The prices of  iron,  steel  and  cement supplied  to the appellant for the work were  deducted  from its final bill.     On  22nd September, 1982 the appellant was  assessed  by the  respondent for entry tax for the period 7th June.  1979 to 31st March, 1980 to a tax of Rs.11,292 including  penalty of  Rs.  2,000 and by an order dated 5th  October  1982  the appellant  was assessed for the period from 1st April,  1980 to  31st  March,  1981  for the  entry  tax  of  Rs.  23,393 including  penalty  of  Rs.  4,500.  The  appellant  was   a registered dealer under the Madhya Pradesh General Sales Tax Act and had been assessed to purchase tax under Section 7(1) of  the Act and was as such liable for payment of entry  tax for  iron, steel and cement, the entry for the  same  having been  effected at the instance of the appellant  because  it had ultimately used the material for the construction work.     The   appellant  filed  revisions  before   the   Deputy Commissioner  of  Sales  Tax  who  affirmed  the  assessment orders. The appellant then filed a writ petition challenging the  assessment of purchase tax under Section 7(1)  of   the Madhya  Pradesh General Tax Act and assessment of entry  tax under  Section 3(1) of the Act saying that the entry of  the materials so supplied by the PWD was effected by it and  not by the appellant and it further contended that as there  was no sale of these materials and that as these materials  were used for construction of the building, there was no sale  as such  and so no entry tax could be levied. It was  contended that  since the appellant had purchased the iron, steel  and cement  from  the  PWD and not from the market  as  per  the                                                   PG NO 663 contract  the  prices of which had been  deducted  from  its final bill, the entry of material could be presumed to  have been  made  at  the  instance  of  the  appellant  who   had ultimately used the materials for the construction work, and since  these materials were purchased from the  unregistered dealer,  i.e.  the PWD, the appellant was  held  liable  for payment of purchase tax and entry tax.     Section  3  of the Act is the  charging  section.  Under this,  entry  tax is levied on the entry in  the  course  of business  of  a dealer of goods in local area  specified  in Schedule II for consumption, use and sale therein and on the entry   of   the  goods  specified  in  Schedule   III   for consumption,  use  of  such goods as  raw  materials  or  as packing materials or in the execution of work contracts  but not for sale therein. Iron and steel are in Schedule II  and cement is in Schedule III and these are assessable to  entry tax at the rate of 1.5 per cent and 1 per cent respectively. Under Section 6(c) of the Act where a dealer purchases goods specified  in Schedule II and Schedule III in a  local  area from a person or a dealer who is not a registered dealer, it is presumed, unless the contrary is proved by him, that  the entry of such goods had been effected by him into such local area  before they were purchased by such dealer. It was,  in those   circumstances,  presumed  that  the  appellant   had effected  the  entry of iron, steel and  cement  which  were supplied  by  the PWD for the construction of  work  in  the local  area  for  consumption, use and  sale  therein.  This position was conceded on behalf of the appellant before  the Full  Bench of the High Court. The PWD is not  a  registered dealer,  and therefore, Section 6(c) of the Act  applied  to the  appellant.  Under  Section  13  of  the  Act,   certain provisions of the M.P. General Sales Tax Act applied mutatis mutandis  to a dealer in respect of entry tax payable  under

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the Act. The question, therefore, was whether there was sale of  iron, steel and cement by the PWD while supplying  those materials  for  the  construction  work  undertaken  by  the appellant.  If supply of these materials is sale within  the meaning  of Section 2(n) of the M.P. General Sales  Tax  Act then the appellant would be liable for payment of entry  tax as it has been assessed. The question, therefore, is whether there  was  sale and whether the property in  the  goods  in question passed to the appellant or continued to remain with the  PWD although the PWD had in the final bill debited  the prices  of  the  goods so supplied to  the  appellant  under clause (10) of the contract. The Full Bench found that there was sale and as a result of that the duty was leviable.     The  question, therefore, is whether there was  sale  of goods in view of the contract between the parties whereunder the  custody and control of the goods remained with the  PWD                                                   PG NO 664 and  goods  were  only used in the  construction  under  the contract.     This  question has been considered by this Court in  The Government of Andhra Pradesh v. Guntur Tobaccos Ltd., 16 STC 240.  There, the majority of the judges in a Bench of  three learned  Judges, viz., Justice Shah and Justice  Sikri  held that  although in the execution of a contract for work  some materials were used and property in the goods so used passed to  the  other person, the contractor undertaking  the  work would  not necessarily be deemed, on that account,  to  sell the materials. This Court observed that a contract for  work in the execution of which goods were used might take one  of the three forms. It was indicated that the contract might be for  the work to be done for remuneration and for supply  of materials used in the execution of the works for a price, it might  be  a  contract  for work in which  the  use  of  the materials  was necessary and incidental to the execution  of the  work  or it might be a contract for work  and  use  and supply  of materials, though not accessory to the  execution of  the contract, was voluntary or gratuitous. In  the  last class there was no sale because though the property  passed, it  did not pass for a price. Whether a contract was of  the first   or   the   second  class  must   depend   upon   the circumstances;  if  it  was  of  the  first  class,  it  was composite contract for work and sale of goods; where it  was of  the second category, it was a contract for execution  of work  not  involving  sale of goods.  The  majority  of  the learned  Judges  was of the view that in  order  that  there should  be a sale of goods which was liable to sales tax  as part  of a contract for work under a statute enacted by  the Provincial or State Legislature, there must be a contract in which there was not merely transfer of title to goods as  an incident  of  the contract, but there must  be  a  contract, express  or  implied, for sale of the very goods  which  the parties  intended should be sold for a money  consideration, i.e.,  there  must  have been in the contract  for  work  an independent term for sale of goods by one party to the other for a money consideration. The question in each case was one about  the true agreement between the parties and the  terms of  the agreement must be deduced from a review of  all  the attendant circumstances. But from the mere passing of  title to goods either as integral part of or independent of goods, it  could not be inferred that the goods were agreed  to  be sold,  and  the prices were liable to sales tax.  Whether  a contract  for  service or for execution of work  involved  a taxable  sale  of  goods must be decided on  the  facts  and circumstances  of each case. The burden in such a  case  lay upon the taxing authorities to show that there was a taxable

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sale,  and that burden was not discharged by merely  showing that  property  in  the goods which belonged  to  the  party performing   service   or  executing  the   contract   stood transferred to the other party. In that case, the  assessee-                                                   PG NO 665 company was a dealer carrying on the business of redrying in its  factory raw tobacco entrusted to it by  its  customers. The  assessee  redried  the tobacco, packed  it  in  packing materials purchased from the market and delivered it to  the customers.  For redrying each bale of tobacco  the  assessee had  charged  the customers a certain sum but there  was  no separate charge for the value of the packing materials used. The  assessee  was assessed to sales tax  under  the  Madras General  Sales  Tax Act, 1939, on the value of  the  packing materials on the ground that there was a sale of the packing materials.  The  High Court found that the  packing  of  the redried tobacco and its storage for the requisite period was an integral part of the redrying process and held that there was  no sale of packing materials. On appeal in  that  case, this Court by majority held that the finding recorded by the High  Court  that it was intended by the  parties  that  the packing material should form an integral part of the process of  redrying the without the use of the  "packing  material" redrying process could not be completed, and that there  was no  independent contract for sale of "packing material".  It was  only as an incident of redrying process and as  a  part thereof  that  the assessee had to seal up  the  package  of tobacco,  after  it  had  emerged  from  the  reconditioning chamber, with a view to protect it from atmospheric  action. In  the absence of any evidence from which contract to  sell "packing material" for a price might be inferred, the use of the  "packing material" by the assessee must be regarded  as all  execution of the works contract and the fact  that  the tobacco delivered by the constituent was taken away with the "packing material" would not justify an inference that there was an intention to sell the "packing material". Mr. Justice Subba  Rao,  as the Chief Justice then was,  held,  however, that  all the ingredients of the charging Section read  with the  definition of "sale" were satisfied. He  observed  that unless  it could be said that the material used for  packing was transformed into some other commodity not covered by the definition  of "goods", it could not be held that there  was no  sale  of  the material. The  packing  material  remained distinct  from the dried tobacco. Property in it  passed  to the  customer,  who  had paid for it. On the  basis  of  the practice   prevailing  in  the  factory  of  the   assessee, contracts for sale arose easily by implication and therefore the Sales Tax Authorities had rightly assessed the  turnover in regard  to the packing materials.     In  Hindustan Steel Ltd. v. The State of Orissa, 25  STC 211,  this Court was concerned with Section 9(1)  read  with Section 25(1)(e) of the Orissa Sales Tax Act, 1947.  Penalty was imposed therein for failure to register as a dealer. But the liability to pay penalty did not arise merely upon proof                                                   PG NO 666 of  default  in registering as a dealer. An  order  imposing penalty for failure to carry out a statutory obligation  was the result of a quasi-criminal proceeding and penalty  would not  ordinarily  be  imposed. Between  1954  and  1959,  the appellant-company  was  erecting factory buildings  for  its steel  plant,  residential buildings for its  employees  and ancillary  work  such as roads, water supply  and  drainage. Some construction work was done departmentally and the  rest through contractors. The company supplied to the contractors for use in construction bricks, coal, cement, steel etc. for

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a  consideration which in addition to the cost price of  the appellant-company  included  some additional  amounts  which were charged by the appellant. The question was whether  the supply  of  building materials amounted to  "sale"  and  the appellant-company was a dealer for the purpose of sales  tax under  the Orissa Sales Tax Act, 1947. It was held that  the supply  constituted  "sale".  It  was  further  held   that, however,  the company had charged a fixed  percentage  above its  cost  price only for storage, insurance and  rental  or other  incidental  charges, it could not be  said  that  the company was carrying on business of supplying materials  and it  would not be a "dealer". In other words, it  is  clearly held by this Court in the Hindustan Steel Ltd. case  (Supra) that where company supplies to the contractor for use in its construction   coal,   steel   and   cement   etc.   for   a consideration,  it  amounts  to a  "sale"  and  the  company becomes  a  "dealer"  for  the purpose  of  sales  tax.  The provisions were similar to that of the present Act. In  Brij Bhushan  Lal Parduman Kumar etc. v. Commissioner of  Income- Tax,  Haryana, Himachal Pradesh and New Delhi-III,  115  ITR 524,  the question arose in the context of income  tax.  The appellant  therein,  a  registered  firm,  was  a   Military Engineering Services contractor carrying on the business  of executing  contracts and works on behalf of the  Government. For the execution of the works undertaken by the  appellant, certain  materials,  such as cement, coal, steel  etc.  were supplied  by the Government at the fixed rates specified  in the  respective  contract.  Such materials,  though  in  the custody  of  the  appellant, remained the  property  of  the Government  and  any  surplus  had to  be  returned  to  the Government,  and the Government was to give credit  therefor at   fixed  rates  at  which  they  were  supplied  by   the Government. After rejecting the book results, the Income-Tax Officer sought to estimate the profits of the appellant at a percentage  of  the  net  cash  payments  received  by   the appellants against the contracts as well as the cost of  the materials   supplied  by  the  Government.   The   Appellate Tribunal,  however,  held  that the cost  of  the  materials supplied by the Government could not be added to the  figure of  cash  payments received by the appellant as  no  profits could have arisen therefrom. On a reference, the High  Court held  that the cost of materials was liable to  be  included                                                   PG NO 667 before applying a flat rate to the appellant’s receipts.  On appeal, this Court reversing the decision of the High  Court held  that since in substance and in reality  the  materials supplied  by the Government always remained the property  of the  Government  and the appellant merely  had  custody  and fixed  or  incorporated them into the works, there  was  not even  a  theoretical possibility of any  element  of  profit being  involved in the turnover represented by the  cost  of such  materials. Though, ordinarily, when a  works  contract was  put through or completed by a contractor,  profit  from the contract was determined on the value of the contract  as a whole and not by considering the several items that  would go  to  form such value of the contract, where, as  in  that case,  materials  were  supplied  at  fixed  rates  by   the Government to the contractor solely for being used, fixed or incorporated  in  the  works on the terms  that  they  would remain the property of the Government and any surplus should be  returned to the Government, and the real total value  of the  entire  contract would be the value minus the  cost  of such  materials so supplied. Since no element of profit  was involved  in  the turnover represented by the  cost  of  the materials  supplied by the Government to the appellant,  the

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income  or  profits  derived  by  the  appellant  from  such contracts had to be determined on the basis of the value  of the  contracts represented by the cash payments received  by the  appellant from the Government exclusive of the cost  of the materials received for being used, fixed or incorporated in  the  works.  There the question was  whether  there  was profit  taxable to income-tax on the sale of the  materials. There was none and it was so held.     This Court again examined the question in the context of a  sale of meals and amenities by a hotelier in the case  of The State of Himachal Pradesh & Ors. v. Associated Hotels of India  Ltd.,  29 STC 474, where this Court  reiterated  that mere  passing of property in an article or commodity  during the  course  of  the performance of a  transaction  did  not render  it  a transaction of sale. For, even in  a  contract purely of work or service, it is possible that articles  may have  to  be  used  by the person  executing  the  work  and property in such articles or materials may pass to the other party. That would not necessarily convert the contract  into one of sale of those materials. In every case, the court has to  find out the primary object of the transaction  and  the intention of the parties while entering into it. It may,  in some  cases, be that even while entering into a contract  of work  or  even service, parties might  enter  into  separate agreements,  one of work and service and the other  of  sale and  purchase  of  materials to be used  in  the  course  of executing the work or performing the service. In such  cases the transaction would not be one and indivisible, but  would form two separate agreements- one of work or service and the other of sale.                                                   PG NO. 668     Therefore,  from the above decisions it follows that  in order  to be sale taxable to duty, not only the property  in the goods should pass from the contractor to the Government, or  the  appellant  in  this case but  there  should  be  an independent contract- separate and distinct- apart from mere passing of the property where a party purchases or  procures goods from the Government. Mere passing of property from the contractor  to the Government would not suffice. There  must be sale of good. The primary object of the bargain judged in its  entirely  must be viewed. In the instant  case,  clause (10) is significant as we have set out hereinbefore. For the purpose of performance, the contractor was bound to  procure materials. But in order to ensure that quality materials are procured,  the  PWD undertook to supply such  materials  and stores as from time to time required by the contractor to be used  for the purpose of performing the contract  only.  The value  of such quantity of materials and stores so  supplied was specified at a rate and got set off or deducted from any sum  due or to become due thereafter to the contractor.  Mr. Virmani,  appearing  for the appellant submitted  before  us that in the instant case, there was no such independent  and separate  sale.  But we are unable to accept. Though,  in  a transaction  of this type there is no inherent sale; a  sale inheres from the transaction. Clause (10) read in the proper light indicates that position.     Our  attention  was  drawn to a Bench  decision  of  the Kerala High Court in Construction Company, Changanacherry  & Anr.  v.  State  of  Kerala,  36  STC  320,  wherein  on   a consideration  of  the  contract  the  Court  came  to   the conclusion  that the consideration stipulated to be paid  to the  petitioner  in  that case was for the  work  which  the petitioner had undertaken to perform and not by way of  sale price  of  the  poles to be produced and  delivered  by  the petitioner.  Therefore, it was held that the petitioner  was

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not liable to sales Tax. Mr. Virmani also drew our attention to  a Division Bench decision of the Calcutta High Court  in Cementation  Patel (Durgapur) v. Commissioner of  Commercial Taxes,  West  Bengal,  Calcutta, 47 STC  385.  There,  on  a consideration  of the transaction entered into  between  the parties  the Court came to the conclusion that the  property in  the materials all along remained with the Government  of India  and  whatever  was  the  nature  of  the  transaction involved between the assessee on the one hand and the  other members  of  the consortium or the  sub-contractors  on  the other, the same did not and could not amount to sale as  the assessee  could not in the facts of that case  transfer  the                                                   PG NO 669 property therein. In the instant case, by use or consumption of materials in the work of construction, there was  passing of  the property in the goods to the assessee from the  PWD. By  appropriation and by the agreement, there was a sale  as envisaged  in  terms of clause (10)  set  out  hereinbefore. Therefore, in our opinion, there was a sale which was liable to tax.     The Full Bench was right in its conclusion. The  appeal, therefore, fails and is accordingly dismissed. There will be no order as to costs. R.P.D.                            Appeal dismissed.