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(b) A works contract is a contract to execute works and encompasses a wide range of contracts. The expression works contract is not restricted to building contracts having only two elements viz. the sale of material and goods and the supply of labour and services;

(c) The well settled connotation of the expression works contract is that a building contract may also involve in certain situations a sale of land;

3. The Trade Circular and the amendment to Rule 58(1A) are only clarificatory in nature.

9. The rival submissions now fall for consideration.

Gannon Dunkerley

10. The position in Indian law prior to the enactment of the Forty Sixth Amendment to the Constitution was elaborated upon in the judgment of the Supreme Court in State of Madras Vs. Gannon Dunkerley & Co. (Supra). By an Amending Act of 1947 the State Legislature enlarged the definition of the expression sale in the Madras General Sales Tax Act to include a transfer of property in goods involved in the execution of a wp-2022-2007 group works contract. The Supreme Court, while interpreting the provisions of Entry 48 in List II of Schedule VII of the Government of India Act, 1935, which dealt with taxes on the sale of goods held that since those words had in law acquired a definitive and precise meaning, it was that meaning which would have to be adopted. The expression sale of goods in Entry 48 of List II was hence required to be construed in the sense which it has in the Sale of Goods Act. The Supreme Court held that in order that there should be a sale of goods, there must be an agreement between the parties for the sale of the very goods in which the property passes eventually. In a building contract the agreement between the parties is that the contractor should construct a building according to the specifications contained in the agreement in consideration of payment to be made and in such an agreement there is neither a contract to sell materials used in the construction nor does property pass as movables. However, it was asserted on behalf of the States that even if the supply of materials under a building contract cannot be regarded as sale of goods under the Sale of Goods Act, the contract is nonetheless a composite agreement, to contribute labour and produce the construction and it would be open to the State to split up that agreement into its constituent parts to impose tax on the component involving supply of materials. The Supreme Court rejected that contention holding that if in a works contract there is no sale of materials as defined under the Sale of Goods Act, then a disintegration of the building contract cannot yield a sale element which could be taxed under Entry 48. Moreover, property in the execution of a building contract does not pass to the other party to the contract as movable property and the materials which are used in the execution of the wp-2022-2007 group construction become the property of the other only on the theory of accretion. In this view of the matter the Supreme Court held as follows:

wp-2022-2007 group Whatever might be the situational differences of individual cases, the constitutional limitations on the taxing-power of the State as are applicable to 'works-contracts' represented by "Building-Contracts" in the context of the expanded concept of "tax on the sale or purchase of goods" as constitutionally defined under Article 366(29-A), would equally apply to other species of 'works contracts' with the requisite situational modifications."

22. Hudson's Building and Engineering Contracts9 contains an instructive elucidation of a building or engineering contract:

"A building or engineering contract may be defined, for the purposes of this book, as an agreement under which a person, in this book called variously the builder or contractor, undertakes for reward to carry out for another person, variously referred to as the building owner or employer, works of a building or civil engineering character. In the typical case, the work will be carried out upon the land of the employer or building owner, though in some special cases obligations to build may arise by contract where this is not so, for example, under building leases, and contracts for the sale of land with a house in the course of erection upon it."