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The validity of the Forty Sixth Amendment : Builders' Association

13. In Builders Association of India Vs. Union of India3 the validity of the Forty Sixth Amendment was upheld by a Constitution Bench of the Supreme Court. The Supreme Court rejected the contention which was urged on behalf of the States to the effect that in the case of a works contract the transfer of property in goods passes as a conglomerate and that it would not be possible to disintegrate the contract into a contract for sale of goods and a contract for work and labour. A submission was made on behalf of the States that consequently the State should not be subjected to the discipline of Article 286 of the Constitution. The Supreme Court

7. (1979) 1 SCC 487 wp-2022-2007 group tests is that formulated by this Court in Commissioner of Sales Tax, Madhya Pradesh v. Purshottam Premji...."

The principal test, therefore, which was accepted by the Supreme Court, is whether the contract is principally for the transfer of a property in a chattel as a chattel to the buyer or whether it is for carrying out work by the bestowal of labour and service and materials are used in the execution of the work. The subsequent judgment of the Constitution Bench of the Supreme Court in Builders' Association of India (Supra) adverts to the infinite variety of the manifestation of works contracts. The judgment in Builders Association also takes note of the principle that ordinarily unless there is a contract to the contrary, in the case of a works contract the property in the goods used in the construction of a building passes to the owner of the land on which the building is constructed when the goods or materials used are incorporated in the building. Hence, even the principle of accretion, which ordinarily applies, is subject to a contract to the contrary.

20. The judgment of the Supreme Court in Builders' Association underlines the principle that the ambit of the expression "works contract"

cannot be restricted to a particular category of works contracts. The judgment of the Supreme Court in Builders' Association emphasises this principle in the following observations:

"...We, however, make it clear that the cases argued before and considered by us relate to one specie of the generic concept of 'works-contracts'. The case-book is full of the illustrations of the infinite variety of the manifestation of 'works-contracts'.

9. Eleventh Edition, Page 3.

wp-2022-2007 group The extract from Hudson is indicative of the fact that in a typical case work will be carried out upon the land of the employer or building owner though in some special cases an obligation to build may arise by contract where this is not so. The author cites the illustration of building leases and contracts for the sale of land with a house in the course of erection upon it. The elaboration of the concept in Hudson is indeed on the same lines as the judgment of the Supreme Court in Builders' Association which notes the variations implicit in the notion of works contracts. Therefore, as a matter of first principle, it cannot be postulated that a contract would cease to be a works contract if any more than only two elements are involved in its execution viz. (i) a supply of goods and materials; and (ii) performance of labour and services. In the modern context and having regard to the complexity of work, it would be simplistic to reduce the connotation of works contracts to contracts only involving the aforesaid two elements. When the Forty Sixth Amendment was enacted, no decided case had reduced the substratum of a works contract only to contracts involving the aforesaid two elements. As a matter of principle it would not be permissible to constrict or restrict the scope of works contracts and to exclude from their purview contracts involving situational modifications. Indeed, as Hudson's treatise notes, a works contract may even involve a factual situation of a building lease or a contract for the sale of land with house in the course of erection upon it.