A A JARIWALA AND BROS Vs. STATE OF GUJARAT

JUDGEMENT

(1.) THE question arising in this reference is whether the contract between the applicants and their customers, Messrs Pacific Traders, amounts to a works contract or whether it was a composite contract involving sale by the applicants to their customers of embroidery materials and of doing embroidery work. THE reference arises out of an application made by the applicants to the Deputy Commissioner under section 27 of the Bombay Sales Tax Act, 1953, in respect of a bill No. 94 dated 6th February, 1958.

(2.) SIXTY-six sari pieces were sent to the applicants by Messrs Pacific Traders of Bombay for getting embroidery work done on them. Prior to the despatch of these saris, Messrs Pacific Traders had given specific instructions to the applicants as to the designs and the type of work of embroidery which they required on those saris. On the arrival of the saris at Surat, the applicants paid the requisite octroi duty and delivered the sari pieces to embroidery workers who were to be paid piece rates according to the work done by them. The jari materials were supplied by the applicants to those workers and after the embroidery work was completed, the saris were returned to Messrs Pacific Traders. The cost of the jari materials used in the embroidery work came to about thirty per cent. of the total charges charged by the applicants. The applicants thereafter sent one consolidated bill to Pacific Traders for the entire work done by them also showing the rates per sari. In their application to the Deputy Commissioner dated 17th February, 1958, the applicants stated that they were engaged in carrying out embroidery work and that in the course of that business, they used to receive saris from customers who used to give specific instructions with regard to the designs they wished to be exhibited on the saris. The agreement used to be oral and the charges payable to them also used to be determined orally. They also stated that the remuneration payable to them under such contracts would be supported by bills issued by them to their customers which bills they used to record in their books of account. The modus operandi adopted by the applicants, as stated by them in their application, was as follows :- "In the execution of the said contracts for the job work, after receiving the saris we deliver them to several workers who are (well) experts in the work of embroidery and they are instructed by us to carry out the job in terms of the work received from the customers. These artisans are carrying out the job work in their own houses as we are not having any factory of our own. These artisans are not known to the customers who are giving their work for the purpose of embroidery. If they know any artisans they are free to give such work direct to them. These artisans who are receiving the work from us are supplied the necessary materials for the job they are given. They are concerned with the bare wages for the work done. After such saris have been received from the artisans the customer is advised and delivered the saris duly embroidered and our bill is also sent to him. In our bill we quote only the rate for the embroidery work settled amounting to wages as it were given to karigars. Since we receive the work from the customers for the embroidery, we, in the execution of the said works contract, become karigars to the said customers. The customers are free to give us the materials for the work given but generally due to usage and custom and mostly the trust we possess of them in us that we are not charging anything higher in the materials used in the job work than the market price, we assume the category of the agent to the customer in the matter of the use of the articles. We, therefore, in the said job work only get benefits in the nature of commission, which includes correspondence charges, travelling, upkeep of the office, contract with artisans, and interest involved in the nature of investment in the materials purchased for and on behalf of the customers which are used in the job work. These materials are sometimes purchased after the work is received."

(3.) AGGRIEVED by this order, the applicants filed an appeal before the Sales Tax Tribunal. The Tribunal rejected the applicants' contention that the contract was a purely service contract and also rejected another contention of the applicants that they were the agents of the customers in the matter of the supply of the jari materials. The Tribunal observed that if the applicants were the agents of the customers, Messrs Pacific Traders, then they would have been liable to render an account of the materials supplied to the workmen and used in the work and that since no account was in fact rendered by the applicants to their customers, there was no question of the applicants being the agents of the said Messrs Pacific Traders. They also held that the supply of the materials to the workmen was made by the applicants as principal to principal and before these jari materials were affixed to the saris, they had already become the property of the customer and, therefore, there was no question of the transfer of ownership in the materials on the theory of accretion. The conclusion reached by the Tribunal was that the contract in question was, firstly, a contract for the supply of the materials for a price and secondly, to get embroidery work done by workmen, and that the property in the materials passed to the customer before the materials were affixed to the saris. AGGRIEVED by this order, the applicants applied for a reference to this Court, and the question that is referred to us for our opinion is :- "Whether on the facts and in the circumstances of the case the agreement with Messrs Pacific Traders was works contract or it was a composite agreement, one for the sale of jari materials and another for doing work ?"