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It was accordingly held that the supply of bus bodies by the assessees after fitting them to the chassis supplied by the customers amounted to sale of goods.

13. Similar controversy again came up before the Supreme Court in Union of India v. Central India Machinery Manufacturing Co. Ltd. [1977] 40 STC 246. In that case, the assessee-company entered into a contract with the Union of India through the Railway Board for the manufacture and supply of wagons to the railways for a price which was fixed taking the wagon as a unit. The contract was governed by the general conditions of contract in so far as they were not inconsistent with the special conditions attached as an annexure to a letter of the Railway Board. The standard condition regarding payment of the price provided that as soon as a vehicle had been completed the company would get it examined by the Inspecting Officer and submit to the purchaser an "on account" bill for 90 per cent. of the value of the vehicle and within 14 days of the receipt of such bill together with the certificate of the Inspecting Officer, the purchaser would pay 90 per cent. of the bill, and on such payment, the vehicle would become the property of the purchaser. The balance of 10 per cent. was to be paid after delivery of the vehicle. The special conditions of contract provided, inter alia, that "on account" payment up to 90 per cent of the value of the "steel and other materials" procured by the company for the order would be made against such materials on production of a certificate from the officer of the Inspection and Liaison Organisation and on furnishing the necessary indemnity bond to the paying authority. "On account" payment was not, however, permissible against steel procured by the company from a source other than the floating stock held by the railways, except when an offer to procure it from that source was refused. The company was to be supplied with wheel sets and axle-boxes free of cost f.o.r. against a proper undertaking for their safe custody. The assessee-company was obliged to hold as trustee for Government "any raw materials for the execution of the contract" procured with the assistance of Government either by issue from Government stock or purchase under arrangement made or permit or licence and to use such materials economically and solely for the purpose of the contract against which they were issued and not to dispose of them without the permission of the Government. One of the clauses in the indemnity bond provided that the company should hold at its works the stores and articles of the railways in respect of which advance might be made to the company. The special conditions also provided that "on account" payment was part of the "full contract price" for each completed wagon and that the Government had the pre-emptive right to purchase all surplus or unserviceable materials from the company on its being paid such price as the Government might fix with due regard to the condition of the materials. The clause relating to sales tax provided that if and when State and inter-State sales tax on the stock or order became payable under law such payments would be reimbursed by the Railway Board, but no sales tax on materials including steel or components would be reimbursed by the Railway Board. On a consideration of the terms and conditions of the contract, the High Court took the view that the contract was a contract for the manufacture and sale of wagons to the Union of India by the assessee-company and, as such, sales tax was payable on the transactions. On appeal to the Supreme Court, it was contended for the assessee company that since the raw materials and components used in the manufacture of wagons under the terms of the contract belonged to the Railway Board, the wagons produced had, at the time of its completion and delivery, no individual existence as the sole property of the assessee-company and therefore the contract was a contract for work and labour and not a contract for sale of goods. The Supreme Court did not accept this contention. It was observed that in deciding the question whether the contract was a works contract or a contract for sale of goods the substance of the documents constituting the contract and not merely the form which had to be looked into. The Supreme Court held that the terms and conditions of the contract, read as a whole, indubitably led to the conclusion that the property in the materials procured or purchased by the assessee-company against 90 per cent. value of which advance was taken from the railways, did not before their use in the construction of the wagons pass to the railways. With the exception of a relatively small proportion of the components supplied by the railways, the entire wagon including the material at the time of its completion for delivery was the property of the assessee-company. As the bulk of the materials used in the construction of the wagons belonged to the assessee company, which sold the wagons for a price, the contract was held by the Supreme Court to be a contract for the sale of wagons and not a works contract.

"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 supplied by him and upon such removal, the same shall revest in and become the property of the contractor."

It was argued that the true effect of this provision vesting the materials in the Government was that those materials must be taken to have been sold to it. Repelling this argument, the Supreme Court observed (at page 425) :

"......... Terms such as these and those in rule 33 quoted above are usually inserted in building contracts with the object of ensuring that materials of the right sort are used in the construction and not with the intention of purchasing them. If rule 33 is to be construed as operating by way of sale of materials to the Government when they are brought on the site, it must follow that the surplus materials remaining after the completion of the work must be held to have been resold by the Government to the contractor, and that is not contended for."

It was there held that rule 33 of the general conditions of contract issued by the Government did not have the effect of converting what is a lumpsum contract for construction of a building into a contract for the sale of materials used therein.

25. In Carl Still G. m. b. H. v. State of Bihar , following clause appeared in the contract :

"15. (ii) All materials and plant brought by the contractor upon the site under the German and Indian sections in connection with the construction 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 taken away by tile 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."