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

       Vs.

RESPONDENT: THE STATE OF BIHAR AND OTHERS

DATE OF JUDGMENT: 19/04/1961

BENCH: AIYYAR, T.L. VENKATARAMA BENCH: AIYYAR, T.L. VENKATARAMA DAS, S.K. KAPUR, J.L. HIDAYATULLAH, M. SHAH, J.C.

CITATION:  1961 AIR 1615            1962 SCR  (2)  81  CITATOR INFO :  R          1965 SC1655  (24)  R          1969 SC 556  (3)

ACT: Sales  Tax-Construction works-Interpretation  of  contract-- Supply  of  materials Legality of  tax  thereon-Sales  Tax authorities taking Proceedings to levy tax--Writ Petition to quash  Proceedings Maintainability -Bihar Sales  Tax  Act, 1947 (Bihar 19 of 1947), S.   2-Constitution of India, Arts. 226, 227.

HEADNOTE: On December 19, 1953, the appellant, a company registered in West  Germany,  entered into a contract with  a  company  in India  to  set  up a complete coke oven  battery  ready  for production  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,  and 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 contractor 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 complete the works and  deduct from  the  agreed  price  the  expenses  incurred  in   such completion.  Under cl. 15(ii) of the contract all  materials brought  by the contractor upon the site  shall  immediately become  the company’s property, but 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 byproducts  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  a contract for, execution of works, the materials used 11 82

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therein  are  treated as sold by the contractors  and  their value  is taken as the sale price liable to be  taxed.   The execution of the works was completed in 1955 as provided  in the  agreement  and  on  March  20,  1956,  the  sales   tax authorities  issued a notice to the appellant to the  effect that  it was liable to pay tax for the three years  1952  to 1955,  under  the  provisions of  the  Act.   The  appellant represented 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 a 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. 15(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  a  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 investigate  the facts and upon the proper  construction  of the  contract come to the finding whether and if so to  what extent, the appellant was liable to pay sales tax. Held  (Shah,  J.,  dissenting):  (1)  that  on  its   proper construction  the agreement dated December 19, 1953,  was  a contract  entire  and indivisible for  the  construction  of specified works for a lump sum and not a contract of sale of materials as such and that the sales tax authorities had  no right to impose a tax on the materials supplied in execution of that contract on the footing that such supply was a sale. The State of Madras v. Gannon Dunkerley & Co. (Madras) Ltd., [1959]  S.C.R. 379 and Peare Lal Hari Singh v. The State  of Punjab, [1959] S.C.R. 438, followed. (2)  that  where  proceedings are taken  before  a  tribunal under  a provision of law, which is ultra vires, it is  open to  a 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.  1069, Himmatlal Harilal Mehta  v.  State  of Madhya  Pradesh, [1954] S.C.R. 1122 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 December 19, 953, and on the basis of the legality  of the provisions                              83 of  the  Bihar  Sales  Tax  Act,  1947.   Consequently,  the proceedings  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  a contract for the construction of a  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  without investigation that it was not a part  of  a transaction  of  sale liable to tax.  The  investigation  of facts on the question of liability to pay tax has to be made by  the  taxing  authorities in whom  that  jurisdiction  is

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vested.   Before  these  facts are  ascertained,  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 a pure works or construction contract or was a composite contract.  The High Court was, therefore, right in declining to issue the writ prayed for.

JUDGMENT: CIVIL APPELLATE JURISDICTION: Civil Appeals Nos. 237 and 238 of 1960. Appeals  by special leave from the judgment and order  dated July  8,  1958,  of the Patna High Court,  in  Misc.   Judl. Cases Nos. 713 and 819 of 1958. A.   V.  Viswanatha  Sastri,  S.  R.  Banerjee  and  S.   C. Mazumdar, for the appellants. S. P. Varma, for the respondents. 1961.  April 19.  The judgment of S. K. Das, J. L. Kapur, M. Hidayatullah and T. L. Venkatarama AIyar, JJ., was delivered by Venkatarama Aiyar, J. J.   C.   Shah,  J.,  delivered   a 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 a  company registered   at  Recklinghausen  near  Dusseldorf  in   West Germany,  and  carries on business in  the  manufacture  and erection of plants and machinery.  On December 19, 1953,  it entered  into  a  contract with a  company  called  Sinclair Fertilisers   and  Chemicals  (Private)  Ltd.,   hereinafter referred  to  as the Owner, for assembling  and,  installing machinery, plants and 84 accessories for a coke oven battery and by-products plant at Sindri  in the State of Bihar for an all-inclusive 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  German 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 a 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 agreement,  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 agreement, 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

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the value of the materials used by them in the execution  of the works under the contract.  It will be convenient now  to refer to the relevant provisions of the Bihar Sales Tax  Act (Bihar Act No. XXX of 1947), hereinafter referred to as  the Act.   Section2(g)of the Act defines ’sale’ as  including  a transfer of property in goods involved in the execution.  of contract.   ’Contract’ is defined in s. 2(b) as meaning  any agreement for carrying out for cash or 85 valuable  consideration,  the  construction,  fitting   out, improvement or repair of any building, road, bridge or other immovable  property; and ’goods’ are defined in s.  2(d)  as including "all materials, articles and commodities,  whether or  not  to  be  used  in  the  construction,  fitting  out, improvement  or repair of immovable property." ’Sale  price’ is defined in s. 2(h)(ii) as meaning 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.   ’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 a contract.   Section  2(1) defines  ’turnover’ as meaning the aggregate of the  amounts of  sale  prices  received and receivable  by  a  dealer  in respect  of sale or supply of goods or carrying out  of  any contract, effected or made during a given period.  Section 4 is  the charging section, and it provides that every  dealer whose  gross turnover during the accounting period  exceeded Rs.  10,000 shall be liable to pay tax on sales  which  take place in Bihar, and s. 5 provides that the "tax payable by a dealer  under  this  Act  shall be  levied  on  his  taxable turnover  at  such  rate  or  rates  and  subject,  to  such restrictions and conditions 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 a dealer unless he has been  registered under  this Act and possesses a  registration  certificate". Section 13(5) of the Act under which the present proceedings have been initiated 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 86 failed  to apply for registration, the  Commissioner  shall, after  giving the dealer a reasonable opportunity  of  being heard,  assess, to the best of his judgment, the  amount  of tax,  if any due, from the dealer in respect of such  period and subsequent periods and the Commissioner may direct  that the dealer shall pay, by way of penalty, in addition to  the amount  so assessed, a sum not exceeding one and half  times that amount." The  gist of the above provisions is that in a 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, Dhanbad,  the third respondent herein, issued on  March  20, 1956,  a notice to the appellant in Civil Appeal No. 237  of

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1960,  under s. 13 of the Act, stating that  on  information which  had come to his possession 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 directed  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 materials by it, and that the proceedings  for taxing  this  supply of materials as if they had  been  sold were  illegal.  Disagreeing with this contention, the  third respondent directed the appellant to produce all its  books, accounts and documents for purposes of assessment, and  this is  quite understandable, as it was his duty to levy tax  in accordance  with the provisions of the Act.  Thereupon,  the appellant  filed  petitions before the High Court  of  Patna under Arts. 226 and 227 of the Constitution for the issue of appropriate  writs for quashing 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 87 legislature  having authority to enact a law imposing a  tax on the sale of goods was not competent to tax what under the law  was not a sale, and that as the supply of materials  in the course of the execution of works, was not in law a  sale of  those goods, a tax on such supply was unauthorized;  and secondly  that, even if there was a sale of materials,  that was in the course of import from Germany, and a tax  thereon was repugnant to Art. 286(1)(b) of the Constitution. After  taking over the Indian section of the  contract,  the appellant  in  Civil Appeal No. 238 of 1960  had  registered itself  on May 11, 1953, as a dealer under s. 9 of  the  Act and  was  submitting periodical returns as required  by  the certificate  and the Act.  But its contention at  all  times has  been  that  it is not liable to pay sales  tax  on  the transactions  in  question, as there were only  supplies  of materials  in execution of works contract and that they  did not amount to sale of goods.  This contention was  overruled by  the  Superintendent  of Sales Tax,  Dhanbad,  the  third respondent  herein, and the appellant was assessed to  sales tax  successively  for the years 1952-53 and  195354.  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 assessment 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  Constitution, 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 vires. By  the  time the above petitions came up for  hearing,  the decision  of  this Court in The State of  Madras  v.  Gannon Dunkerley  &  Co.  (Madras) Ltd.  (1),  had  been  reported, wherein  it was held that the expression "sale of goods"  in Entry 48 in List II of Sch.  VII to (1)  [1959] S.C.R 379. 88 the Government of India Act, 1935, corresponding to Entry 54 in List 11 of Sch.  VII to the Constitution of India had the

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same  meaning  that it has in the Sale of Goods  Act,  1930, that  where  there  is  a  building  contract,  under  which specified work is to be executed for a lump sum, there is no contract  of sale, as such, of materials used in the  works, and that accordingly, a tax on the supply of those materials treating  it  as a sale was ultra vires the  powers  of  the State Legislature under Entry 48 in List 11 of Sch.  VII  to the Government of India Act, 1935.  The learned Judges  were of  opinion that this decision was  distinguishable  because there  was  a  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  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.   I   have   no   doubt               that  in deciding this question the sales  tax               authorities               will keep in view the principles laid down  by               the  Supreme Court in State of  Madras  versus               Gannon Dunkerley and Company (Madras)  Limited               (9 Sales Tax Cases 353)". 89 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 a sale by the appellants  of the materials used in the construction works, apart from the execution of those works.  In The State of Madras v.  Gannon Dunkerley  &  Co.  (Madras) Ltd.  (1),  after  stating  that building  contracts could assume several forms,  this  Court observed as follows:               "It  is possible that the parties might  enter               into distinct and separate contracts, one  for               the   transfer   of   materials   for    money               consideration  and  other for the  payment  of               remuneration  for services and for work  done.               In   such   a  case  there  are   really   two               agreements,   though   there   is   a   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  a  tax  thereon,  cannot   be               questioned  and  will stand untouched  by  the

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             present judgment." The  point for determination, therefore, is whether  on  its true construction, the contract in question is a 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 and indivisible for execution  of  the works.   We  will now refer to the relevant portion  of  the agreement  dated  December 19, 1953.  The  preamble  to  the agreement  states  that  the  Owner  had  agreed  with   the contractor  that  the latter was to set up a  complete  coke oven  battery  ready for production as well  as  by-products plants  according to specifications given therein, that  the installation was to be made at a site selected by the  Owner and  that  the  contractor  was  to  "erect  and   construct buildings,  plants  and machineries and deliver  and  supply accessories and articles from Germany and also locally  from India and render services fully (1)  [1959] S.C.R. 379. 12 90 described  in the First Schedule......... for an  all-inclu- sive  price of Rs. 2,31,50,000." Then cl.  I  provides  that the   contractor  shall  execute  and  complete  the   works mentioned  in the Schedule, and el. 2 that the  Owner  shall pay to the contractor for executing the contract the sum  of Rs.  2,31,50,000.   Clause  4  requires  the  contractor  to "provide  all  labour, materials, machinery,  plant,  tools, tackles  and other implements for performing the works in  a workman-like   manner."   Under  cl.  11,   the   contractor guarantees  "to accomplish full production within 22  months from  the  15th September, 1952" and further  undertakes  to fulfill  the  guarantees prescribed in Schedule  II  to  the agreement "to the satisfaction of the Owner within a  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 materials,  "which will become the property of  the  owner," and complete the works and deduct from the agreed price  the expenses incurred 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 it 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 agreement in question is a contract  entire and indivisible for the construction of specified works  for a lump sum and not a contract of sale of materials as such. Now the contention that found favour with the learned Judges in  the  High  Court was that there was in  the  contract  a clause  that the property in the, materials was to  pass  to the  owner when they are brought on the site, and  that,  in effect,  amounted  to  a  sale of  those  materials  by  the appellant  to  the  Owner.  The clause  in  question  is  as follows:-               "15 (ii).  All materials and plant brought  by               the Contractor upon the site under the  German               and  Indian  Sections in connection  with  the               construction               91               of  the Coke Oven and by-products Plant  shall               immediately  they  are brought upon  the  site               become the Owner’s property and the same shall               not  on any account whatsoever be  removed  or

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             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 rejected by the Owner  in               accordance with the terms agreed upon  between               the  Contractor and the Owner in this  respect               shall  on  such  rejection, cease  to  be  the               Owner’s  property............ The Owner  shall               not be liable for any loss or damage which may               happen to or in respect of such materials  and               plant  by  the  same  being  lost,  stolen  or               injured  or  destroyed  by  fire,  tempest  or               otherwise  for  which the contractor  will  be               liable.........  The Owner agrees  that  after               the Coke Oven and by-products Plants have been               constructed according to the agreed terms, the               Contractor will be entitled to remove from the               site  their tools, tackles, machines,  packing               materials, protection 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  Hagri Singh v.  The  State  of               Punjab (1), 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 become the property of the               Contractor." Discussing  the  question whether by reason of  this  clause there  was  a  Contract  of sale of  the  materials  by  the Contractor,  distinct  from the works contract,  this  Court held that its object was only to ensure that (1)  [1959] S.C. R. 438. 92 materials  of the right sort were used in  the  construction and  not  to  constitute  a  contract  of  purchase  of  the materials  separatism.  In the present case, el. 15 is  even clearer  that 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 be the result if the property is taken  to have   been  absolutely  transferred  to  it,  but  on   the contractor. The  argument based on s. 9 of the Sale of Goods Act is,  in our  opinion, equally unsound.  What that section enacts  is that  where there is a contract of sale of movable  but  the price  is  not mentioned, it has to be fixed either  in  the manner provided in the agreement or by having regard to  the course  of dealings between the parties, and where  that  is not  possible, the buyer has to pay the seller a  reasonable price.  But the section presupposes that there is a Contract of  sale  of goods, and, as held in The State of  Madras  V. Gannon  Dunkerley & Co. (Madras) Ltd. (1), such  a  contract requires that there must have been an agreement between  the parties  for the sale of the very goods in which  eventually

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property passes.  If, as held by 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  can have no  application.   The  contention, therefore,  that  el. 15 of the agreement could be  read  as amounting  to a contract of sale of materials, and that  the price  therefor  could be fixed as provided in s. 9  of  the Sale  of Goods Act by recourse to the account books  of  the appellants or the invoices or the course of dealings between them  and  the  owner, must be rejected  as  untenable.   It follows that the agreement dated December 19, 1953, being  a contract for the construction of works, one and indivisible, the  respondents have no right to impose a tax on the  mate- rials supplied in execution of that contract on the  footing that such supply is a sale. It is next contended for the respondents that, whatever  the merits  of the contentions based on the construction of  the contract, the proper forum to agitate (1)  [1959] S.C.R. 379. 93 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  entertain the present petitions.  It is true that if a statute sets up a  Tribunal  and confides to it  jurisdiction  over  certain matters  and if a proceeding is properly taken before it  in respect  of  such matters, the High Court will not,  in  the exercise  of its extraordinary jurisdiction under Art.  226, issue a prerogative 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 a Tribunal under a provision of law,  which is ultra vires, it is open to a 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.  That has been held by  this court in The State of Bombay v. The  United  Motors (India)  Ltd. (1), Himmatlal Harilal Mehta v. The  State  of Madhya Pradesh (2). and The Bengal Immunity Company  Limited v.  The  State of Bihar (3).  The position that  emerges  is that,  if the proceedings before the Sales Tax  Officer  are founded  on the provisions of the Act, which authorizes  the levy  of the tax on the supply of materials in  construction contracts,  then  they must in view of the decision  in  The State of Madras v. Gannon Dunkerly & Co. (Madras) Lid.  (4), be  held  to  be  incompetent  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)  [1955] 2 S.C.R. 603, 617-619, 764-766. (4)  [1959] S.C.R. 379. 94 before  the  authorities under the Act and  the  application under Art. 226 must fail. We must now examine the true scope of the proceedings before the Sales Tax Officer in the light of the above  principles. We start with this that the Act contains provisions imposing

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a  tax  on  the supply of  materials  under  a  construction contract.   The  appellants  were  indisputably  engaged  in construction  works under the agreement dated  December  19, 1953, and it is not suggested that they were carrying on any independent  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  tinder  Art.  226  for   quashing   the proceedings,  they urged that the provisions of the Act,  in so  far as they purported to impose a 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 materials  were effected outside the contract, it was their duty to have put that  case  forward  in answer to the  petition.   They  did nothing  of  the kind.  They did not file  even  a  counter- statement.  At the time of the argument, when faced with the decision of this Court in the case of The State of Madras v. Gannon Dunkerley & Co. (Madras) Ltd. (1), their entire  case was  that  the  agreement  between  the  parties  should  be construed  as involving a 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 agreement 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.                              95 tax  authorities must be as regards their liability  to  pay sales  tax  "upon proper construction of the  contract."  In this Court also, the respondents seek in their statement  to maintain  the liability of the appellants 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 appellants 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 a 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   decors   the agreement, and it is significant that at no stage have  they alleged   any  such  facts.   We  are  satisfied  that   the proceedings have at all stages gone on the footing that  the liability 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  supplies  of materials by the appellants, pursuant to the contract  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

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it  is not a sale within the meaning of the Bihar Sales  Tax Act,  19 of 1947, but is a contract to assemble and  install machinery, plants and accessories of a 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. 379. 96 cash  or deferred payment or other  valuable  consideration, including  a transfer of property in goods involved  in  the execution of contract.  "Contract" is defined as meaning 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 expression "goods" means all  kinds of  movable property other than actionable  claims,  stocks, shares  or securities and includes all  materials,  articles and   commodities  whether  or  not  to  be  used   in   the construction,   fitting  out,  improvement  or   repair   of immovable  property.  "Sale price" means the amount  payable to  a 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 charged  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 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. These  definitions  in so far as they seek  to  treat  goods supplied or used in the execution of a works or construction contract,  as  sold and liable to sales-tax under  the  Act, must,  on the decision of this Court in  Gannon  Dunkerley’s case (1) be regarded as beyond the legislative competence of the State Legislature.  In Gannon Dunkerley’s case (1), this Court  held  that  in a building  contract,  the  contractor constructs  the  building according  to  the  specifications contained  in  the agreement and in  consideration  therefor receives  payment  as  provided  therein,  and  in  such  an agreement, there is neither a contract to sell the materials used in the construction, nor does property pass therein  as moveables,  and accordingly in a building contract which  is one,  entire and indivisible, there is no sale of goods  and it   is  not  within  the  competence  of   the   Provincial Legislature under Entry 48 in List 11 in (1)  [1959] S.C.R. 379. 97 Sch.  VII of the Government of India Act, 1935, to impose  a tax  on the supply of the materials used in such a  contract treating  it as a sale.  Relying upon the decision  of  this court in Gannon Dunkerley’s case (1), the appellants contend that  the amount received by them under the  contract  dated December  19, 1953, is not liable to be assessed  to  sales- tax.  But the question whether the contract is a pure  works contract  or  a composite contract has never  been  investi- gated.   Undoubtedly,  the formal  document  evidencing  the contract suggests, prima facie, that it is a 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

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of  the nature of the transaction which the statute  renders taxable.   He  is, in ascertaining 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  and 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 machinery 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 law provides they  should  be scrutinised.   The  power to assess the facts on  which  the decision  as to the true nature of the  taxable  transaction depends   by  the  statute  lies  solely  with  the   taxing authorities:  it  does not lie with any other body  or  tri- bunal.   Invoking  the  jurisdiction of the  High  Court  to adjudicate upon the facts, directly or indirectly, on  which the liability to tax depends, in my view, (1)  [1959] S.C.R. 379. 13 98 amounts to inviting the High Court to exercise  jurisdiction which it does not possess.  This is however not to say  that the  jurisdiction  of  the High Court to  issue  a  writ  of prohibition restraining the levy of tax under a statute  can never  be  entertained.  If, for instance,  the  statute  is beyond  the  legislative competence of  the  legislature  or defies   a   constitutional  restriction  or   infringes   a 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 permitted by the statute, or the taxing  authority threatens to recover tax on an interpretation of a statutory provision  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 a transaction, because that  jurisdiction  is vested elsewhere. The  contract in question is principally a  works  contract. The preamble states that the appellants had agreed with  the Sindri  Fertilizers and Chemicals Ltd. to set up a  complete coke  oven  battery  ready for production  as  well  as  by- products  plant  on  the site  specified  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  schedule  for an all-inclusive price  in  accordance with  the  preliminary site plan.  It is manifest  from  the preamble that there is a contract for the construction of  a 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

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first schedule.                              99 The contract in so far as it relates to the installation  of plant and construction of building was a works contract  and notwithstanding  the definition of "sale" and "contract"  in the  Act,  was  not taxable but  the  contract  contemplates delivery  and  supply by the appellant  of  accessories  and articles.   Even if this delivery and supply of  accessories and articles is incidental to the works contract, it  cannot be assumed without investigation that it was not a part of a transaction of sale liable to tax.  The appellants asked the High  Court  to assume that the contract in question  was  a 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 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  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  authorities  have made  no assessment; they merely issued a notice  purporting to  do  so  under  s. 13(5) of  the  Act  and  required  the appellants to produce their 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 jurisdiction 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 a pure  works  or construction  contract or was a composite contract.  It  was urged  that in the petition filed by the  appellants  before the High Court, an affidavit 100 in  rejoinder  challenging the correctness of  the  averment made  in the petition that it was a 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 state  of  facts which  was not and could not be within their 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 tax has to be made  by the taxing authorities in whom that jurisdiction is  vested. Before  the facts on which the liability to tax depends  are ascertained,  the  High Court could not be asked  to  assume that  the  transaction  was in the nature of  a  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  decision of this court in Gannon Dunkerley’s  case  (1) after the true nature of the transaction is ascertained. In  my view, the High Court was right in declining to  issue

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the writ prayed for. By  COURT: In accordance with the opinion of  the  majority, 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. (3) [1959] S.C.R. 379. 101