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Accordingly the Supreme Court held that the provisions of the Madras Act, so far as they purported to tax works contract on the basis of a notional sale, were ultra vires. It must be remembered that the Supreme Court only negatived the power of the State to tax a works contract as such. That the levy of sales tax on a works contract, if it includes sale o£ goods, would be proper, is clear from several passages in the judgment of the Supreme Court in AIR 1958 SG 560 (supra).

The works contract considered by the Supreme Court related to the construction of a building and the question was whether the value of certain material used by the assessee in the execution of the building contract was liable to sales tax on the basis that the material was sold by the assessee to the party who had employed the contractor for the construction of a building on his own land. The agreement between the parties in the case before the Supreme Court was that the contractor should construct a building according to the specifications contained in the agreement and in consideration thereof receive payment as provided therein. While dealing with such an agreement, the Supreme Court first pointed out the essentials of 'sale'. Venkatarama Aiyar, J., delivering the judgment of that Court said:

Venkatarama Aiyar, J., expressed the view that in a building contract, where the agreement between the parties is that the contractor should construct a building according to the specifications contained in the agreement and in consideration therefor receive payment, there is neither a contract to sell the materials used in the construction nor does the property pass (herein as movables, and that, therefore, it is impossible to maintain that there is implicit in a building contract a sale of materials as understood in law. The building contract in the case before the Supreme Court was regarded as single and indivisible. On the question of the splitting up of a building contract, the Supreme Court said:

"Another difficulty in the way of accepting the contention of the appellant as to splitting up a building contract is that the property in materials used therein does not pass to the other party to the contract as movable property. It would so pass if that was the agreement between the parties. But if there was no such agreement and the contract was only to construct a building, then the materials used therein would become the property of the other party to the contact only on the theory of accretion. The position is thus stated by Blackburn, J., at pp. 659-660 in (1867) 2 CP 651, Appleby v. Myers:

The Supreme Court thus stated that when the work to be executed is a building, construction imbedded on the land becomes an accretion to it and it vests in the other party not as a result of the contract of construction but as the owner of the land, and accordingly there can be no question of title to the materials passing as movable in favour of the other party to the contract.

8. The Supreme Court, however, made it clear that even in regard to building contracts there may be an agreement to pass ownership in materials as materials or qua materials for an agreed price. This is clear from the following observations in paragraph 45 of the judgment of the Supreme Court: