judgement:
vil Appeal Nos.
2346 47 of 1978 Etc.
From the Judgment and Orders dated 5.8.1976 of the Madras High Court in T.C. Nos. 436 and 437 of 1971.
R. Mohan and R.A. Perumal for the Appellant.
T.A. Ramachandran and Mrs. Janaki Ramachandran for the Respondents.
The Judgment of the Court was delivered by SABYASACHI MUKARJI, J.
Special leave granted in Special Leave Petitions (C) Nos.
10539, 4704 and 92 1 of 1979.
305 These appeals by leave under Article 136 of the Consti tution, are from the orders of the High Court of Madras, involving a common question though for different assessment years.
It would be appropriate to deal with Civil Appeal Nos. 2346 47/78, and the facts in other appeals are essen tially the same.
The assessee in these cases had entered into contracts with the Universities and other educational institutions in the country for printing question papers for the said educa tional institutions.
The assessee in the demand notes pre pared, gave the charges for printing blocks, packing charges, handling charges, delivery charges, postage, value of paper and value of packing materials separately in the relevant assessment years.
The question involved is, whether the taxable turnover should also include the printing and block making charges or not.
It appears from the judgment of the High Court that for the assessment year 1966 67, the printing charges amounted to Rs.99,675.00 and block making charges amounted to Rs.2,923.95, totaling Rs.1,02,598.95.
Similarly, so far as the assessment year 1968 69 is con cerned, the printing charges amounted to Rs. 1,33,137 and blockmaking charges amounted to Rs. 5,361.75 totaling Rs. 1,38,498.75.
The controversy involved in these appeals was, whether these two amounts were includable in the assessable turnover of the respondent in the respective years in question.
The case of the assessee was that the contract entered into between her and the respective educational institutions was a contract of work and labour and in the performance of that contract, incidentally she had to sell paper to them and, hence, except to the extent of the cost of paper, in respect of the other amounts received by her she was not liable to pay sales tax.
On the other hand, the Government 's stand was that the contract was for the sale of printed materials by the respondent to the respective educational institutions and, therefore, the entire amount will have to be taken into account as turnover liable to tax.
In other words, would printing question papers and incidentally supplying the papers upon which such questions were printed, entail the entire cost to be liable to sales tax.
As was put before us, the question is, can one sell printed question papers and charge for the same? The High Court mentioned that till 1963 the assessee was herself doing the printing and the Tribunal held that during that period only the cost of paper was includable in the taxable turnover.
With effect from 3.11.1963 the printing was done by a firm of which the assessee 's sons and daugh ters were partners.
The contract, however, continued 306 to be entered into between the assessee and the respective educational institutions.
According to the Govt.
, as appears from the judgment of the High Court, this made a difference and, as such, the order of the Tribunal in the previous years could not govern the assessment for the respective years referred to above.
The Tribunal, however, held against the revenue holding that only the value of paper was liable to be included in the taxable turnover of the assessee.
The correctness of that decision was challenged before the High Court by two Revision Cases under section 38 of the Tamil Nadu General Sales Tax Act, 1959 (hereinafter called 'the Act ').
The High Court on an analysis of the facts and the several decisions came to the conclusion that printing of question papers involved confidentiality of the materials to be printed, and held that apart from the paper nothing else could be includ ed in the total taxable turnover of the assessee.
The High Court came to the conclusion that the contract entered into between the assessee and the University and other education al institutions was a composite contract i.e., a contract for work and labour, as well as a contract for sale of the paper.
It was contended on behalf of the revenue that in case of sale of all printed materials, the sales tax was liable on the entire work.
In that view of the matter if the liability for sale of printed material would include the entire price then there was no authority, according to the revenue, to treat the question papers differently.
It is, however, clear as the High Court noted, that the printing of question papers of educational institutions was an extremely and highly confidential matter.
This is the first aspect of the matter which must be borne in mind.
It was emphasised that such printing could not be entrusted to any press of one 's choice, and the Universities and other educational institutions were only obliged to enter into such contracts with those in whom they have got the highest confidence so that the printer would not divulge the questions to be printed by him/her and will preserve the confidential nature of the transaction.
Therefore, in printing question papers entrusted by educational institutions to the printer the value included the price of the confidentiality and the confidence reposed in the printer.
It has to be borne in mind that the price paid for such confidentiality and trust is not the price for the sale of goods.
In case of printing of other materials just like letter heads, bills, account books or even printing works like a novel, story, poem or drama (subject to copyrights), the technical excellence and the professional efficiency of the printer, among other things, might enter into calculation for entrusting the job to a particular printer and the performance thereof.
Howev er, the position is different in case of printing of confi dential matters like question 307 papers of the Universities or other educational institu tions.
The value paid for such printing job includes to a large extent the price of not only the technical and profes sional work but also the value, if it could be measured in terms of money, of the confidence and faith reposed that the printing materials should not be disclosed to anyone save to be returned back to the University or the educational insti tutions to be dealt with in accordance with its obligations.
The High Court noticed these points and came to the conclusion that in view of these peculiar features which will be present in the printing of matters which are confi dential in nature and will not be present in other case the contracts pre dominantly being contracts for work with confidence and faith, should be treated mainly as contracts for labour and not contracts for sale of any goods such as printed materials.
It may be that in the execution of the contracts and for the purpose of completing the work, the parties might enter into the contracts for sale of the paper and in this context, it was a composite contract which can be split up into contract for sale of paper and contract for work and labour.
Relying on a decision of this Court in Govt.
of Andhra Pradesh vs Guntur Tobaccos Ltd., XVI STC 240, the High Court was of the view that the cost of paper shown separately in the contract would be liable to tax and except for that cost of paper and the material supplied in other respect, the contract was a contract for work and labour and there could not be any liability for sales tax.
According to the High Court, this would cover the printing charges.
Blocks, it was found, were destroyed after the question papers had been printed.
Hence, there was no question of sale of blocks or passing of the property.
The High Court so held.
Following the aforesaid position in other matters which are the subject matters of other appeals where the _High Court held accordingly, it dismissed the revision applica tion of the revenue.
Aggrieved thereby, the appellant has come up to this Court by leave.
Our attention was drawn by both Mr. Mohan, learned counsel for the appellant and Mr. Ramchandran, counsel for the respondent to the decision of this Court in Govt.
of Andhra Pradesh vs Guntur Tabacco Ltd., (supra), where this Court laid down that a contract for work in the execution of which goods are used may take one of three forms.
The con tract may be for work to be done for remuneration and for supply of materials used in the execution of the works for a price; it 308 may be a contract for work in which the use of materials is accesssory or incidental to the execution of the work; or it may be a contract for work and use or supply of materials, though not accessory to the execution of the contract, is voluntary or gratuitous.
In the last class there is no sale because though property passed it did not pass for a price.
Whether a contract is of the first or the second class must depend upon the circumstances; if it is of the first, it is a composite contract for work and sale of goods; where it is of the second category, it is a contract for execution of work not involving sale of goods.
In our opinion, the aforesaid tests lay down correct criteria for determining the question.
Mr. Mohan, appearing for the revenue, pressed before us that the said principle requires clarification.
He emphasised that Press has no ownership over the materials or papers upon which the ques tions were printed.
Who then, Mr. Mohan posed, was the owner, author or the paper setter of the University or the educational institution or the printing Press? In our opin ion, when the questions are set on a piece of paper and sent for printing the University remains the owner until it divulges these to the intending candidates or the students.
But that is a matter which is relevant in the method of communication of the questions to the candidates appearing in the examination.
The means employed for such communica tion entail use of mind, confidence, trust for the material, paper and the technical skill of printing.
It is a combina tion of these various factors that results in printing the question papers and the payment made in the process entails a composite payment for all these and can only be dissected and determined in the way laid down by the principle enunci ated in the aforesaid decision.
Our attention was, however, drawn by Mr. Mohan to a decision of the Bombay High Court in Saraswati Printing Press vs Commissioner of Sales Tax, Eastern Division, Nag pur, X STC 286.
There the petitioner Press itself purchased the stationery and did printing work upon it according to the orders of individual customers and supplied the printed stationery to the customers.
It was held that there the petitioner had produced a commercial commodity which was capable of being sold or supplied and when the petitioner sold the printed stationery to its customers, it sold goods to the customers upon which sales tax was leviable.
In those circumstances, it was held that the transactions done by the said petitioner Press were not in the nature of works con tracts but were sales of goods and therefore recourse to rule 5(3) of the rules could not be made.
It was further held that as the petitioner did not immediately dispose of the stationery purchased by 309 it in favour of its constituents, but kept it in the Press and did printing work upon it and then supplied the finished product to its constituents, the provisions of clause (iv) of Explanation I of clause (m) of section 2 were not at tracted.
The High Court relied on the decision of the Allahabad High Court reiterating the principle that it is necessary to determine the substance of the contract, and as the sub stance of the contract is that skill and labour that had been exercised for the production of the article and sale of material is only ancillary to that.
In our opinion, the principle upon which the High Court relied, is not applica ble in case of transactions of printing of question papers.
Question papers as such, after being printed are neither available commercially nor available to any community commercial or otherwise, save under specific circumstances for the candidates appearing at a particular time in an examination.
Mr Mohan also drew our attention to the decision of Andhra Pradesh High Court in State of Andhra Pradesh vs Sri Krishna Power Press, Vizianagaram, XI STC 498.
There, the court reiterated that a transaction which results in the transfer of property in finished goods to another person cannot be described as a works contract.
It was further held that where the assessee Press itself pur chased stationery and did printing work upon it according to the orders of individual customers and supplied the printed stationery to the customers at an agreed price the transac tion was sales liable to sales tax and not works contract.
The fact that the goods prepared by the assessee could not be exhibited for sale to the general public is not decisive of the issue.
According to the High Court the only test is whether the contract is for the sale of finished product.
Mr. Mohan relying on the aforesaid observations submitted that the goods prepared by the assessee could not be sold to other customers, the person who placed order could be com pelled to accept it or claim damages from the printers.
He submitted that even in a case where goods are prepared according to the specific requisition to suit the require ments of individual customer, yet printing materials sup plied thereto have been held to be sale of goods and he drew our attention to the several decisions referred to by the High Court of Andhra Pradesh in aid of his propositions.
Normally, it may be that the goods prepared by the assessee which could not be exhibited for sale, would not be decisive of the matter and could in certain circumstances be sales liable to sales tax, but in all circumstances it depends upon the nature of the sale and the nature of the transac tion involved.
Printing of question papers at the behest of University or educational institutions is rather a delicate and confidential type of work and the price paid for supply ing such printed question 310 papers or printed matters entails primarily the confidence, and secondly the skill and to a very small measure the material.
If that is the position then, in our opinion, it cannot be categorised entailing sale of goods but it is rather a contract for works done.
Mr. Mohan also relied on the decision of the Madras High Court in P.M. Venkatachalam Pillai vs The State of Madras, XXIII STC 72, where it was held that when a transaction is claimed to be a works contract, a decision on the question depends on the particular facts.
The primary point to bear in mind in such cases is what is the intention of the par ties viewing the transaction as a whole; do they intend an apportionment or view the transaction on compartmental basis as that which represents labour and that which represents sale of the materials.
Different tests may be applied in answering such a question as the stage of passing of proper ty, risk and the like.
But all these tests converge towards finding out what is the intention of the parties.
There, the question was whether the assessee 's turnover consisted of the aggregate of labour charges and the cost of materials in printing work or of outright sales of finished commodity.
The assessee relied on certain bills which showed the cost of materials and labour charges but he did not produce order books or other documents.
The Tribunal found that the sepa rate entries were only a make believe apportionment for the purpose of sales tax and that what was sold was only a finished product.
In those findings the Tribunal justified on the materials to uphold the liability for sales tax.
As emphasised by the Division Bench of the Madras High Court, the entire transaction should be viewed and the intention of the parties found out.
Our attention was drawn by Mr. Mohan to the decision of the Orissa High Court in the case of State of Orisssa vs Ramnath Panda, XXVlI STC 98.
There the High Court held that in the case of an assessee, a printer supplying printed materials, where the customers supply paper and the assessee does nothing except printing on it, the contract is one of labour and there is no sale.
Where the customer enters into an agreement that he would separately pay for the paper and the assessee would merely print on it, then also there is no sale.
Where the customer does not enter into any separate agreement but merely asks the assessee to supply the printed materials, the contract is indivisible and the supply of printed materials is a sale liable to sales tax.
In such a case charging separately for the paper and printing in the bill issued to the customer does not alter the essential character of the agreement, which is for the purchase of printed materials.
311 Our attention was also drawn to another decision of Andhra Pradesh High Court in S.R.P. Works and Ruby Press vs State of Andhra Pradesh, XXX STC 195.
There, the petitioner was running a printing press, supplying cinema tickets printed on paper of different colours to the customers.
The customers obtained samples from the petitioner and then placed orders giving specifications.
The petitioner while making out bills, gave break up figures, showing the cost of paper and the cost of printing separately and the total cost.
The assessing authority assessed the petitioner only on the value of the paper for printing the tickets and granted exemption in respect of printing charges on the ground that they represented the cost of labour.
The Deputy Commissioner revised the order and held that the transac tions involved were sales of finished goods, viz., the tickets, and not merely of paper.
The Tribunal agreed with the finding of the Deputy Commissioner and confirmed the order.
On a revision it was held by the High Court on a consideration of some of the orders placed by the customers, that the orders were specifically for printing and supply of tickets.
The fact that break up figures were given in the bills was not decisive or conclusive in determining the question whether there were two contracts one for supply of paper and the other for printing.
We agree that the transaction under its true perspective must be viewed and the intention of the parties must be found out.
Our attention was drawn to the decision of the High Court of Kerala in The Sales Tax Officer, Special Circle 11, Palghat vs 1.
V. Somasundaran, 33 STC 68.
In that case by printing something on paper, as in .the cases of printing letter heads, invitation cards, wedding invitations, judg ments of courts, or ration cards, the printed matter does not become "paper products" within the meaning of that expression in item 42 of Schedule I to the Kerala General Sales Tax Act, 1963.
The High Court found that in such a case a further question arises as to whether it was sale of goods which could be taxed at all points.
In order to spell out a contract of sale there must be an agreement which may be express or inferred from the circumstances.
There can be an agreement for work and labour or there can be one for sale of goods.
If essentially the agreement is one for work and labour, complete exemption from taxation should be allowed.
If, on the other hand, it is a contract for sale, the whole turnover should be taxed.
A contract for printing of judgment of courts is essen tially a contract for work and labour and there is no justi fication for bifurcating that contract into two different contracts, one for cost of labour and 312 the other for sale of paper.
Imposition of sales tax on the turnover relating to printing of judgments of courts is, therefore, unwarranted.
In the case of contracts relating to the printing of ration cards, it is in the nature of job works and it is essentially a contract for the sale of finished articles.
In P.T. Varghese vs State of Kerala, 37 STC 171, the assessee who was conducting a press and printing bill books, vouchers, receipt books, letter heads, question papers and notices as ordered by his clients contended that he only executed a works contract for which he used his own paper, that the sale of paper used for printing could not be taxed under the Kerala General Sales Tax Act, 1963, as he was not the first seller of paper in the State, and that the remu neration received by him from his clients for the work and labour could not also be taxed under the Act.
It was held that the question really was whether the contract was for the sale of paper as well as for work and labour or whether it was a contract for printed materials as such or whether it was a contract for work and labour.
If it was a contract for sale of paper and for work it would be a composite contract where it might be possible to separate the sale from the work.
If, on the other hand, it was a contract for printed materials, what was sold was not paper, but printed materials.
If the contract was for work and labour, in which the use of materials was merely accessory or incidental, it would be a works contract which would not involve any sale and the charges received would not be assessable to tax under the Sales Tax Act; and that the assessee 's contract with the customers was not a contract for sale of paper in which labour was also involved making it a composite trans action which was capable of bifurcation into a contract for sale of materials and a contract for work and labour.
What was sold was something other than paper.
It could not be said that printed materials such as bills books, vouchers and the like were mere paper or products of paper.
Hence, the supply of bills books, vouchers etc.
was liable to be taxed under the Act as finished products.
It was further held that the question papers, however, were the subject matter of a contract for work and labour and the charges realised by the assessee for printing them were not liable to tax.
The High Court at page 176 of the report observed: "Only in respect of those goods to which title has passed as a result of contract, can it be said that the goods have been sold.
Where a person buys a "Picasso" or a "Ravi Varma", he does not intend to buy or pay for the canvas or the paint, although canvas and paint are involved in the production of 313 the painting, and title to such materials is transferred to him.
But such transfer of title to the materials is not pursuant to any agree ment for the sale of the materials as such.
It would never have been in his mind to pay separately for the materials and for the labour.
What the buyer buys is a finished product which is a work of article On the other hand, when a person gets his manuscript print ed as an article or a book of verses, the printer does no more than a mechanical or technical job.
The printer does not create the article or the poem, but merely renders his services to print which is in the nature of a job work.
The manuscript as such is the result of the skill, industry and scholarship of the author.
In such a case, there is no sale of the article or book by the printer; nor would it be possible in such a case to spell out an agreement for the sale of materials such as paper or ink, which may have been incidentally used in the production of the printed work.
While the painter sells a finished product which is a work of art, quite distinct and different from the materials used in its pro duction, the printer merely does a job work involving no sale; one is the work of an artist who is endowed with the finer qualities of imagination and taste and the other that of an artisan who is trained as a mechanic or technician A printer of judgments, for exam ple, does not produce and sell them; his work is purely that of a technician.
This court has therefore held that printing of judgments is only a works contract.
The work of a printer in certain cases may involve more than print ing; he may be a producer of finished articles such as bill books, vouchers and the like.
When such articles are printed and sold to the customers, what is sold is not paper or paper products but printed materials which are finished products.
Such contracts cannot be considered as contracts for the sale of paper coupled with an agreement to render service.
The sale of paper had never been the subject matter of the agreement between the parties.
Like in the case of painting which is a fin ished product being a work of art, the bill books and voucher are new products being printed materials; and the sale of such goods does not involve a composite contract which can be bifurcated into an agreement for the sale of goods be they canvas and paint or paper and ink and an agreement for work." 314 In our opinion, the High Court tightly applied the test in that case.
Further, our attention was drawn by Mr. Mohan to a decision of the Madras High Court in A.S. Hameed Bha rath Press vs State of Tamil Nadu, 54 STC 379.
There, the Tribunal found that the contracts between the assessee and his customers were indivisible contracts under which the assessee undertook to deliver printed material in accordance with the customer 's instructions and therefore considered the receipts in the assessee 's business as representing turnover in sales of goods taxable under the Tamil Nadu General Sales Tax Act, 1959, and that the order form was a make believe and did not reflect the real nature of the transactions between the assessee and his customers.
It was held that given the finding by the Tribunal, the printed conditions in the order form were not to be accepted at face value and that the transactions between the assessee and the customers involved only the supply of printed material at a price.
The High Court held that the decision of the Tribunal that the entire receipts in the assessee 's business must be held to be sales turnover liable to tax under the Act must be upheld.
As mentioned hereinbefore, the High Court was dealing entirely with sample printed materials of order forms of bill books.
The Allahabad High Court had to consider this question in Commissioner of Sales Tax vs Uma Art Press, 56 STC 300.
The decision in that case rested on the facts of that case and in the nature of the contentions urged before us in this case, it would not be relevant to discuss the said decision in greater details.
In Chandra Bhan Gosain vs The State of Orissa & Ors., XIV STC 766 at 769, it was reiterated that in case of a composite contract how to determine whether there was sale of goods or there was works to be done depended upon the facts of each case, and the intention of the parties, what was the essence of the contract has to be found out.
This court had to consider in C.S.T., Gujarat vs M/s. Sabarmati Reti Udyog Sahakari Mandali Ltd., 38 STC 203, whether the contract was a works contract or contract for sale.
There the assessee had entered into a contract with the Public Works Department of the Govt.
of Gujarat for the manufacture and supply of kiln burnt bricks to that department.
The contract was found to be in a tender "for supply of materi als" containing a memorandum of the conditions.
The nature of the work was described as "manufacturing and supplying kiln burnt bricks for construction".
In the tender the assessee stated the condition and analysing the decision in the light of Chandra Bhan Gosain 's case, this Court held that the contract was one for sale and not a works contract.
315 Mr. Mohan further drew our attention to the observations of the English decision in Marcel (Furriers) Ltd. vs Tapper, There, the defendant, on behalf of his wife, ordered from the plaintiffs, a firm of furriers, a mutation mink coat.
The defendant 's wife selected skins of the colour she desired and specified the style of the coat she required, directing that it should be made with the skins running horizontally.
Her instructions were carried out, but the coat was eventually rejected by her.
The plain tiffs brought an action against the defendant claiming Pound 950 for work done and materials supplied in the making of the coat.
By his defence the defendant pleaded that the contract was one for the sale of goods of the value of Pound 10 or over and was unenforceable pursuant to section 4 of the Sale of Goods Act, 1893 of England by reason of the fact that there was no note or memorandum in writing of the contract signed by the party to be charged or his agent.
It was held that although a high degree of skill and craftsman ship might be required in making of the coat, the contract was no more than one for the making of an article for the special use of the customer by someone whose business it was to make it.
The nature of the transaction, therefore, was that it was one for the making and supply of a particular article at a price and not one for work and labour done and materials supplied, and there being no memorandum in writing to satisfy the requirements of section 4 of the Sale of Goods Act, 1893, the contract was unenforceable.
Hence, the principle following from the decision is that the nature of transaction has to be found out, whether it is making and supply of particular article or printing material.
Mr. Ramchandran, however, submitted before us that in view of the principles laid down by this Court in The State of Madras vs Gannon Dunkerley & Co. (Madras) Ltd., IX STC 353 and Hindustan Aeronautics Ltd. vs State of Karnataka, 55 STC 314, the High Court was right.
He submitted that the contract in essence was for supply of question papers which are not commercial commodities.
The blank papers ceased to be the property of the dealer, the moment questions were printed on these.
These are the exclusive properties of the University or other educational institutions, and were to be kept secret until the University chose to divulge these at the time of the examinations.
The dealer cannot deal with the printed question papers.
Upon printing he lost his capacity to contract, ceased to be the sole owner, and could not sell to anybody he chose.
He had to hand over the entire question papers to the University.
It was a special kind of job entrusted for confidence reposed and for the delicate matter of the job to be performed.
The work in connection therewith was predominantly 316 in the transaction.
The material and the skill in doing so, both are incidental.
In that view of the matter he submitted that the High Court was right, and indeed a contract for sale pre supposes the capacity in the dealer to contract with regard to the finished item.
For this, reliance was placed on the observations of this Court in The State of Madras 's case (supra), and also on Hindustan Aeronautics Ltd 's case (supra) at pages 320, 323 & 327.
The thing pro duced must have individual existence as the sole property of the party who produced it, which can be passed on for a price, in order to be a sale.
Reliance was placed on the observations in Patnaik & Co. vs The State of Orissa, XVI STC 364 and T.V. Sundram lyengar & Sons vs The State of Madras, 35 STC 24.
The test is whether work and labour are bestowed on anything that can properly become the subject of sale.
The court has to find out the primary object of the transaction and intention of the parties.
In this connec tion, it is necessary to rely on the observations of this Court in Hindustan Aeronautics Ltd 's case (supra) at pages 327,333 334 of the report.
The primary difference between a contract for work or service and a contract for sale is that in the former there is in the person performing or rendering service no property in the thing produced as a whole, notwithstanding that a part or even the whole of the material used by him may have been his property.
Where the finished product supplied to a particular customer is not a commercial commodity in the sense that it cannot be sold in the market to any other person, the transaction is only a works contract.
See the observation in The Court Press Job Branch, Salem vs The State of Tamil Nadu, 54 STC 383 and Commissioner of Sales Tax, M.P. vs Ratna Fine Arts Printing Press, 56 STC 77.
In our opinion, in each case the nature of the contract and the transaction must be found out.
And this is possible only when the intention of the parties is found out.
The fact that in the execution of a contract for work some materials are used and the property/goods so used, passes to the other party, the contractor undertaking to do the work will not necessarily be deemed, on that account, to sell the materials.
Whether or not and which part of the job work relates to that depends as mentioned hereinbefore, on the nature of the transaction.
A contract for work in the execu tion of which goods are used may take any one of the three forms as mentioned by this Court in The Government of Andhra Pradesh vs Guntur Tobaccos (supra).
317 In our opinion, the contract in this case is one, having regard to the nature of the job to be done and the confi dence reposed, for work to be done for remuneration and supply of paper was just incidental.
Hence, the entire price for the printed question papers would have been entitled to be excluded from the taxable turnover, but since in the instant case the deemed notes prepared by the assessee showed the costs of paper separately, it appears that it has treated the supply of paper separately.
Except the materials supplied on the basis of such contract, the contract will continue to be a contract for work and labour and no liabil ity to sales tax would arise in respect thereof.
The High Court was, therefore, fight in the view it took in Civil Appeals Nos. 2346 2347/78.
The facts in the other appeals are identical.
All these appeals are dismissed accordingly but without, in the facts and circumstances of the case, any order as to costs.
G.N. Appeals dismissed.

summary/full:
The respondent had entered into contracts with Universi ties and other educational institutions for printing of question papers for them.
In the demand notes prepared the respondent gave the charges for printing, blocks, packing handling, delivery, postal and also value of paper and value of packing materials separately in the relevant assessment years.
On re examination the Assessing Officer noticed that printing charges and block making charges escaped assessment and brought them to tax.
In respect of subsequent assessment also claims for exemption towards printing charges and block making charges were disallowed.
The appeals preferred by the Respondents were dismissed by the Appellate Assistant Commissioner, who reached a finding that the contracts were only for supply of printed question paper as a finished product and that there was no scope to disintegrate cost of paper with separate charges for printing and block making though the bills were made out in a different way.
The respondent preferred appeals to Sales Tax Appellate Tribunal.
The Tribunal held that the respondent was assessa ble only on the sale value of paper and that printing and block making charges were not to be included in the assess ment.
Against the Tribunal 's Orders, the appellant preferred tax cases before the High Court.
The High Court dismissed the cases and held that the contract between the assessee and the Universities is of highly confidential nature and that the printing of question papers could be entrusted only to those in whom the institutions got the highest confi dence, and that the price paid for such confidentiality and trust is not 302 the price for the sale of goods.
The present appeals by Special Leave are against the High Court 's Orders.
In this appeal, it was argued on behalf of the appellant that printing charges and block making charges are includi ble in the assessable turnover of the Respondent.
On behalf of the Respondent it was argued that the contract entered into between her and the educational institutions was a contract of work and labour and in the performance of the contract, indicentally she had to sell paper to them and hence except to the extent of the cost of paper she was not liable to pay sales tax in respect of the other amounts receive by her.
Dismissing the appeals, HELD: 1.1 Contract for work in the execution of which goods are used may take one of three forms.
The contract may be for work to be done for remuneration and for supply of material used in the execution of works in which the use of materials is accessory or incidental to the execution of the work; or it may be a contract for work and use or supply of materials, though not accessory to the execution of the contract, is voluntary or gratuitous.
In the last class there is no sale because though property passed it did not pass for a price.
Whether a contract is of the first or the second class must depend upon the circumstances; if it is of the first, it is a composite contract for work and sale of goods; where it is of the second category, it is a contract for execution of work not involving sale of goods.
[307H; 308A B] 1.2 In each case the nature of the contract and the transaction must be found out.
And this is possible only when the intention of the parties is found out.
The fact that in the execution of a contract for work some materials are used and the property/goods so used, passes to the other party, the contractor undertaking to do the work will not necessarily be deemed, on that account, to sell the materi als.
Whether or not and which part of the job work relates to that depends on the nature of the transaction.
[316G H] 1.3 Normally, it may be that the goods prepared by the assessee which could not be exhibited for sale, would not be decisive of the matter and could in certain circumstances be sales liable to sales tax, but in all circumstances it depends upon the nature of the sale and the nature of the transaction involved.
Printing of question papers at the 303 behest of University or educational institutions is rather a delicate and confidential type of work and the price paid for supplying such printed question papers or printed mat ters entails primarily the confidence, and secondly the skill and to a very small measure the material.
If that is the position, it cannot be categorised as entailing sale of goods but it is rather a contract for works done.
[309G H; 310A] Government of A.P. vs Guntur Tobaccos Ltd., XVISTC 240 relied on.
Hindustan Aeronautics Ltd. vs State of Kerala, [1984] ISCC 706 and P.T. Varghese vs State of Kerala, 37 STC 1171 approved.
Saraswati Printing Press vs CST, Eastern Division Nag put, X STC 286 and State of A.P. vs Sri Krishna Power Press, Vizianagaram, XI STC 498.
P.M. Venkatachalam Pillai vs State of Madras, XXIII STC 72; State of Orissa vs Ramnath Panda, XXVII STC 98; S.R.P. Works and Ruby Press vs State of A.P., XXX STC 195 and STO, Special Circle 11, Palghat vs I. V. Somasundaram, 33 STC 68.
A.S. Hameed Bharath Press vs State of Tamil Nadu, 54 STC 379; CST vs Uma Art Press, 56 STC 300; Chandra Bhan Gosain vs State of Orissa, XIV STC 766; CST vs M/s Sabarmati Reti Udvog Sanakari Mandali Ltd., 38 STC 203 and Marcel (Furri ers) Ltd. vs Tapper, referred to.
2.1 The primary difference between a contract for work or service and a contract for sale is that in the former there is in the person performing or rendering service no property in the thing produced as a whole, notwithstanding that a part or even the whole of the material used by him may have been his property.
Where the finished product supplied to a particular customer is not a commercial com modity in the sense that it cannot be sold in the market to any other person, the transaction is only a works contract.
[316E] 2.2 When the questions are set on a piece of paper and sent for printing, the University remains the owner until it divulges these to the intending candidates or the students.
But that is a matter which is relevant in the method of communication of the question to the candidates appearing in the examination.
The means employees for such communication entail use of mind, confidence, trust for the material, 304 paper and the technical skill of printing.
It is a combina tion of these various factors that results in printing the question papers and the payment made in the process entails a composite payment for all these.
Question papers as such, after being printed are neither available commercially nor available to any community commercial or otherwise save under specific circumstances for the candidates appearing at a particular time in an examination.
[308D E; 309C] Court Press Job Branch, Salem vs State of Tamil Nadu, 54 STC 382 and CST vs M.P.V. Ratna Fine Arts Printing Press, 56 STC 77 approved.
State of Madras vs Gannan Dunkerlay & Co. (Madras) Ltd., IX STC 353; Patnaik & Co. vs State of Orissa, XVI STC 364 and T.V. Sundaram lyengar & Sons vs State of Madras, 35 STC 24 referred to.
The contract in the present case is one, having regard to the nature of the job to be done and the confi dence reposed, for work to be done for remuneration and supply for paper was just incidental.
Hence, the entire price for the printed question papers would have been enti tled to be excluded from the taxable turnover, but since the demand notes prepared by the assessee showed the costs of paper separately, it appears that it has treated the supply of paper separately.
Except the materials supplied on the basis of such contract, the contract will continue to be a contract for work and labour and no liability to sales tax would arise in respect thereof.
[317A C]


judgement:
ivil Appeal No. 1524 of 1982.
From the Judgment and Order dated 5.9.1977 of the Hima chal Pradesh High Court in F.A.O. No. 8 of 1975.
A.B. Rohtagi, Mrs. Urmila Kapoor, Miss section Janani and Naresh K. Sharma for the Appellant.
Miss A. Subhashini for the Respondents.
The Judgment of the Court was delivered by RANGANATHAN, J.
The appellant Vishwanath Sood undertook the construction of a Farmers ' Community Centre Building at Thanedhar by an agreement entered into with the Union of India and the State of Himachal Pradesh dated 20.6.1968.
Certain disputes arose between the parties to the agreement and in terms of clause 25 of the agreement, they were re ferred to a sole arbitrator.
The contractor submitted a claim of Rs. 1,28,000 while the respondents also submitted a counter claim.
By an award dated 20.3.1972, the abritrator awarded an amount of Rs.31,932 to the contractor and a sum of Rs.21,504 to the respondents.
The award was filed in the court.
The contractor filed an application in the court for modification or correction of the award in respect of three items of his claim ( 1, 8 and 9) and item No. 1 of the respondent 's counter claim.
The Department also filed its objections to the award and prayed that a sum of Rs.8,080.29 should be awarded in favour of the Department or the award remitted to arbitrator.
The 292 learned single Judge dismissed the objections of the re spondents.
So far as the appellant 's prayers were concerned, he allowed the same only in respect of item 1 of the re spondent 's counter claim.
He held that the arbitrator was not justified in granting to the Government a sum of Rs.20,000 against the contractor.
Both the contractor and the respondents preferred appeals to the Division Bench.
The Bench reversed the order of the learned single Judge.
It set aside the order of the learned single Judge in so far as the sum of Rs.20,000 was deleted thereby from the award of the arbitrator.
The award was restored to its original terms and the contractor was held entitled to interest at 6 per cent on the amount found due to him after adjusting the sum awarded by the arbitrator in favour of the Government against the sum awarded in favour of the contractor.
The contractor has preferred this appeal by special leave from the order of the Division Bench of the High Court.
Learned counsel for the appellant pressed the conten tions in respect of the four items to which he had objected before the learned single Judge and the Division Bench.
Three of these items pertain to the claims put forward by the contractor which were rejected by the arbitrator and held by the courts to have been rightly rejected.
The first claim (item No. 1) made by the contractor was of a sum of Rs. 12,720 which, according to him, was the loss incurred by him by reason of the Department 's delay in handing over the site to him for executing the contract.
The learned single Judge discussed this aspect of the matter at length.
He observed that, on this point, there was, on the one hand, oral evidence adduced on behalf of the Department while there was only the bare denial of the contractor on the other.
He pointed out that the arbitrator had fully consid ered the matter and that it was not open to the court to re assess the evidence and that there was no error apparent on the face of the record.
The second claim (item No. 8) was for a sum of Rs.6,172 being the amount kept as security with the respondent.
In respect of this item also the learned single Judge discussed the evidence which showed that the security amount had been properly adjusted by the Department which had been constrained to take up the work departmental ly at the cost and risk of the contractor.
He held that this was an aspect which had been considered by the arbitrator and a proper conclusion arrived at.
The third claim put forward by the petitioner (item No. 9) was for a sum of Rs.30,000, claimed as compensation for an amount spent by the contractor for the purchase of a truck for this work.
The learned single Judge here again pointed out that no material had been placed before 293 the arbitrator by the contractor to show that he was enti tled to the amount and that, in any event, having regard to the fact that the work was executed by the Department at the cost and risk of the contractor, there was no question of the contractor preferring any claim in respect of this item.
The above three claims of the petitioner were also rejected by the Division Bench which pointed out that the award made by the arbitrator was not a speaking award and that the face of the award did not show any error.
We do not think that so far as these claims are concerned, that the appellant has any arguable case at all.
As pointed out by the Division Bench of the High Court, the award was a non speaking award.
The arbitrator had considered the materials placed before him and had arrived at his conclusions.
The award does not on the face of it disclose any error, much less any error of law, which needs to be set fight.
We therefore, hold that the High Court was justified in affirming the award so far as the rejection of these three claims is concerned.
The position in regard to the counter claim of the respondents which was allowed by the arbitrator and the Division Bench stands on a different footing.
The respond ents ' claim before the arbitrator was that they were enti tled to receive from the contractor "Rs.24,000 on account of payment of 10 per cent compensation on the tendered amount for not executing the work in accordance with the terms and conditions of the agreement".
As against this claim the arbitrator awarded the respondents a sum of Rs.20,000.
The learned single Judge took the view that having regard to clause 2 of the contract (pertaining to the claim by the respondent) read with clause 25 it was clear that any com pensation under clause 2 could be adjudicated upon only by the superintending Engineer or the Development Commissioner and that it was not open to the arbitrator to have entered upon a reference in regard to this claim at all.
In order to appreciate the finding of the learned single Judge it will be useful to set out clauses 2 and 25 of the conditions of contract on which his decision was based: "Clause 2: Compensation for delay: The time allowed for carrying out the work as entered in the tender shall be strictly observed by the contractor and shall be deemed to be the essence of the contract on the part of the contractor and shall be reckoned from the fifteenth day after the date on which the order to commence the work is issued to the contractor.
The work shah throughout the stipulated period of the contract be proceeded with all due diligence and the contractor shall pay as compensation an amount 294 equal to one per cent, or such smaller amount as the Superintending Engineer (whose decision in writing shall be final) may decide on the amount of the estimated cost of the whole work as shown in the tender for every day that the work remains uncommenced, or unfinished, after proper dates.
And further, to ensure good progress during the execution of the work, the contractor shall be bound in all cases in which the time allowed for any work exceeds, one month (save for special jobs to complete one eighth of the whole of the work before one fourth of the whole time allowed under the contract has elapsed; three eighth of the work, before one half of such time has elapsed, and threefourth of the work, before three fourth of such time has elapsed.
However, for special jobs if a time schedule has been submitted by the Contractor and the same has been accepted by the Engineer in charge, the contractor shall comply with the said time schedule.
In the event of the con tractor failing to comply with this condition, he shall be liable to pay as compensation an amount equal to one per cent or such smaller amount as the Superintending Engineer (whose decision in writing shall be final) may decide on the said estimated cost of the whole work for every day that the due quantity of work remains incomplete; provided always that the entire amount of compensation to be paid under the provisions of this clause shall not exceed ten per cent, on the estimated cost of the work as shown in the tender." "Clause 25: Settlement of disputes by Arbitra tion: Except where otherwise provided in the contract, all questions and disputes relating to the meaning of the specifications, designs drawings and instructions hereinbefore men tioned and as to the quality of workmanship or materials used on the work or as to any other question, claim, matter or thing whatsoever, in any way arising out of or relating to the contract, designs, drawings, specifications, estimates, instruction, order, or these condi tions or otherwise concerning the works or the execution or failure to execute the same whether arising during the progress of the work or after the completion or abandonment thereof shall be referred to the sole arbitra tion of the person appointed by the Chief Engineer, Himachal Pradesh Public Works De partment . . " 295 The Division Bench did not agree with the view of the learned single Judge.
It pointed out that, while in the ordinary course, the rate of compensation payable by the contractor is one per cent of the amount of the estimated cost of the whole work, under clause 2, the Superintending Engineer is authorised to depart from this figure and deter mine the compensation at a smaller amount if there are any extenuating circumstances in favour of the contractor.
The question however was whether the compensation determined under clause 2 is excluded from the scope of arbitration under clause 25.
The Division Bench answered this question in the negative.
It pointed out that the sine qua non of clause 2 was that the contractor should have been guilty of delay in commencing the work or in completing it but the clause did not specify either the authority or the procedure for determining whether the contractor is responsible for the default.
Observing that there can be a serious dispute in a particular case as to the person who is responsible for the delay, the Bench took the view that the determination of this dispute cannot be excluded from the scope of clause 25.
The Bench observed that inasmuch as a bona fide dispute can be raised by the contractor in regard to his liability to compensation under clause 2 and no machinery is provided in clause 2 for the resolution of that dispute, there is ample justification for holding that resort can be had to arbitra tion under clause 25.
The statement in clause 2 that the decision of the Superintending Engineer is final, according to the Bench, merely constituted a declaration that no officer in the Department could disturb his quantification.
But this finality cannot be construed as extending to ex clude the jurisdiction of the arbitrator under clause 25.
On this view of the matter, the Division Bench found itself unable to agree with the learned single Judge that the arbitrator had traveled outside his jurisdiction in awarding a sum of Rs.20,000 as compensation to the Government against the contractor for the delay in executing the work.
It will be seen from the narration above that so far as this item was concerned, both parties proceeded on the footing that the claim of the Government was a claim under clause 2 and that the arbitrator had awarded the sum only in terms of clause 2.
This is also borne out by the fact that the claim of the Department was based on a percentage of the total cost of the work and the restriction of the claim to 10% also appears to have been the result of the proviso to clause 2.
The award, therefore, on a fair reading of it, contains a grant by the arbitrator of compensation to the Government in terms of clause 2.
It is therefore open to the parties to urge before this Court, as they did before the High Court also, that, on a proper construction of clauses 2 and 25, 296 this award was not justified.
It is in this respect that this counter claim of the Department stands on a different footing from the earlier claims of the contractor which have been rejected and which, we have held above, have been rightly rejected.
Learned counsel for the appellants contends that the terms of clause 2 clearly envisage the determination of the amount of compensation for the delay in the execution of the work only by the Superintending Engineer and specifically mentions that the decision of the Superintending Engineer in writing shah be final.
The opening words of clause 25: "Except where otherwise provided in the contract" clearly take out of the purview of clause 25 any dispute in respect of a claim under clause 2.
He submitted that the clause authorised only the Superintending Engineer to go into the question whether there is any delay or not and the reasons therefore and to determine the rate at which compensation should be charged from the contractor.
If the Engineer in charge levies a compensation under clause 2, the contractor can apply to the Superintending Engineer.
If the Superin tending Engineer finds that there was no fault on the part of the contractor at all he could waive the compensation under clause 2 and that cannot be challenged by the Depart ment before the arbitrator.
Per contra, where the Superin tending Engineer confirms that there has been a delay for which compensation should be charged, it will not be open to the contractor to challenge the conclusion before the arbi trator.
Learned counsel also submitted that even if clause 25 were to be held applicable, the question of submitting a dispute in this regard to the arbitrator could only arise if there had been a determination and a dispute under clause 2.
Clause 2 envisages that the Engineer in charge should, in appropriate cases, levy a compensation at the rate specified in that clause.
If he did, it was open to the contractor to dispute the same and approach the Superintending Engineer to reduce or waive the compensation for any reason whatsoever.
Or, it may be that, even where the Engineer in charge levied no compensation, the Superintending Engineer could, either on his own motion or on being moved by the department, after considering the facts charge a compensation with the quantum of which the department may not be satisfied in which event a dispute could arise.
But in the present case neither the Engineer in charge nor the Superintending Engineer had determined any liability at all under clause 2.
There was no compensation levied against which there was any protest by the contractor, and there was no matter submitted to the Superintending Engineer for determination.
In these circum stances, the submission of the learned counsel for the appellant is that there was no dispute at all between the parties on 297 the question of compensation and that a dispute cannot be said to arise merely because a counter claim is for the first time put forward by the Department before the arbitra tor.
On the other hand, the learned counsel for the Depart ment contended that clause 2 is in the nature of a penal clause which automatically takes effect irrespective of any default.
He described it as an "agreed penalty" clause.
He stated that the clause made the contractor liable for the penalty prescribed therein whenever there was a delay in the completion of the contract, whatsoever might have been the reason therefore, the question as to whether the contractor was at default or not being totally immaterial.
The Depart ment was, therefore, entitled to automatically deduct from the bills payable to the petitioner the compensation or penalty at the rate mentioned in clause 2 or such reduced amount as may be determined in a particular case by the Superintending Engineer and that if the contractor objected to this deduction that would give rise to a dispute which can be the subject matter of arbitration under clause 25.
He therefore submitted that the Division Bench has rightly construed the terms of the contract and confirmed the award made by the arbitrator.
We have gone through the judgment of the Division Bench of the High Court and we have also considered the arguments advanced on both sides.
With great respect, we find our selves unable to agree with the interpretation placed by the Division Bench on the terms of the contract.
Clause 2 of the contract makes the time specified for the performance of the contract a matter of essence and emphasises the need on the part of the contractor to scrupulously adhere to the time schedule approved by the Engineer in charge.
With a view to compel the contractor to adhere to this time schedule, this clause provides a kind of penalty in the form of a compensa tion to the Department for default in adhering to the time schedule.
The clause envisages an amount of compensation calculated as a percentage of the estimated cost of the whole work on the basis of the number of days for which the work remains uncommenced or unfinished to the prescribed extent on the relevant dates.
We do not agree with the counsel for the respondent that this is in the nature of an automatic levy to be made by the Engineer in charge based on the number of days of delay and the estimated amount of work.
Firstly, the reference in the clause to the require ment that the work shall throughout the stipulated period of the contract be proceeded with due diligence and the refer ence in the latter part of the clause that the compensation has to be paid "in the event of the contractor failing to comply with" the prescribed time 298 schedule make it clear that the levy of compensation is conditioned on some default or negligence on the part of the contractor.
Secondly, while the clause fixes the rate of compensation at 1 per cent for every day of default it takes care to prescribe the maximum compensation of 10 per cent on this ground and it also provides for a discretion to the Superintending Engineer to reduce the rate of penalty from 1 per cent.
Though the clause does not specifically say so, it is clear that any moderation that may be done by the Super intending Engineer would depend upon the circumstances, the nature and period of default and the degree of negligence or default that could be attributed to the contractor.
This means that the Superintending Engineer, in determining the rate of compensation chargeable, will have to go into all the aspects and determine whether there is any negligence on the part of the contractor or not.
Where there has been no negligence on the part of the contractor or where on account of various extraneous circumstances referred to by the Division Bench such as vis major or default on the part of the Government or some other unexpected circumstance which does not justify penalising the contractor, the Superintend ing Engineer will be entitled and bound to reduce or even waive the compensation.
It is true that the clause does not in terms provide for any notice to the contractor by the Superintending Engineer.
But it will be appreciated that in practice the amount of compensation will be initially levied by the Engineer in charge and the Superintending Engineer comes into the picture only as some sort of revisional or appellate authority to whom the contractor appeals for redress.
As we see it, clause 2 contains a complete machin ery for determination of the compensation which can be claimed by the Government on the ground of delay on the part of the contractor in completing the contract as per the time schedule agreed to between the parties.
The decision of the Superintending Engineer, it seems to us, is in the nature of a considered decision which he has to arrive at after con sidering the various mitigating circumstances that may be pleaded by the contractor or his plea that he is not liable to pay compensation at all under this clause.
In our opinion the question regarding the amount of compensation leviable under clause 2 has to be decided only by the Superintending Engineer and no one else.
The Division Bench has construed the expression in clause 2 in parenthesis that "the Superintending Engineer 's decision shall be final" as referring only to a finality qua the department; in other words, that it only constitutes a declaration that no officer in the department can determine the quantification and that the quantum of compensation levied by the Superintending Engineer shall not be 299 changed without the approval of the Government.
After refer ring to certain judicial decisions regarding the meaning of the word "final" in various statutes, the Division Bench concluded that the finality cannot be construed as excluding the jurisdiction of the arbitrator under clause 25.
We are unable to accept this view.
Clause 25 which is the arbitra tion clause starts with an opening phrase excluding certain matters and disputes from arbitration and these are matters or disputes in respect of which provision has been made elsewhere or otherwise in the contract.
These words in our opinion can have reference only to provisions such as the one in parenthesis in clause 2 by which certain types of determinations are left to the administrative authorities concerned.
If that be not so, the words "except where other wise provided in the contract" would become meaningless.
We are therefore inclined to hold that the opening part of clause 25 clearly excludes matters like those mentioned in clause 2 in respect of which any dispute is left to be decided by a higher official of the Department.
Our conclu sion, therefore, is that the question of awarding compensa tion under clause 2 is outside the purview of the arbitrator and that the compensation, determined under clause 2 either by the Engineer in charge or on further reference by the Superintending Engineer will not be capable of being called in question before the arbitrator.
We may confess that we had some hesitation in coming to this conclusion.
As pointed out by the Division Bench, the question of any negligence or default on the part of the contractor has many facets and to say that such an important aspect of the contract cannot be settled by arbitration but should be left to one of the contracting parties might appear to have far reaching effects.
In fact, although the contractor in this case might object to the process of arbitration because it has gone against him, contractors generally might very well prefer to have the question of such compensation decided by the arbitrator rather than by the Superintending Engineer.
But we should like to make it clear that our decision regarding non arbitrability is only on the question of any compensation which the Government might claim in terms of clause 2 of the contract.
We have already pointed out that this is a penalty clause introduced under the contract to ensure that the time schedule is strictly adhered to.
It is something which the Engineer incharge enforces from time to time when he finds that the contractor is being recalcitrant, in order to ensure speedy and proper observance of the terms of the contract.
This is not an undefined power.
The amount of compensation is strictly limited to a maximum of 10% and with a wide margin of discretion to the Superintending Engineer, who might not only reduce the percentage but who, we think, can even reduce it 300 to nil, if the circumstances so warrant.
It is this power that is kept outside the scope of arbitration.
We would like to clarify that this decision of ours will not have any application to the claims, if any, for loss or damage which it may be open to the Government to lay against the contrac tor, not in terms of clause 2 but under the general law or under the Contract Act.
As we have pointed out at the very outset so far as this case is concerned the claim of the Government has obviously proceeded in terms of clause 2 and that is the way in which both the learned single Judge as well as the Division Bench have also approached the ques tion.
Reading clauses 2 and 25 together we think that the conclusion is irresistible that the amount of compensation chargeable under clause 2 is a matter which has to be adju dicated in accordance with that clause and which cannot be referred to arbitration under clause 25.
As stated earlier, an alternative ground was urged by the learned counsel for the appellant that, no penalty under clause 2 having been imposed by the respondents in the first instance, no dispute had at all arisen which could have been referred to arbitration.
This point was not taken before the High Court and the relevant facts are not on record.
That apart, in the view we have taken, it is unnecessary to express any opinion on this argument and we refrain from doing so.
For the reasons above mentioned, we restore the judgment of the learned single Judge.
In the result, the amount of compensation of Rs.20,000 awarded by the arbitrator in favour of the Government will stand deleted.
The amount of interest payable to the contractor, if any, will be worked out on the basis of the award as modified by us above.
The appeal is allowed.
We however make no order as to costs in the circumstances of the case.
N.V.K. Appeal allowed.

dataset_name: IN-Abs

summary/full:
The appellant undertook the construction of a Farmers ' Community Centre Building by an agreement entered into with the Union of India and the State of Himachal Pradesh, the respondents in the appeal.
The agreement dated June 20, 1968 provided, by Clause 2, for the payment of compensation for delay, if the contractor should have been guilty of delay in commencing the work or in completing it, the quantum of compensation to be deter mined by the Superintending Engineer and that his decision was final.
Clause 25 provided for settlement of disputes by arbitration.
It excluded from arbitration matters or dis putes in respect of which provision had been made elsewhere or otherwise in the contract.
Certain disputes arose between the parties, and in terms of clause 25 of the agreement they were referred to a sole arbitrator.
The Contractor submitted a claim in respect of 9 items, and the department filed a counter claim to the effect that they were entitled to receive from the Contractor a sum of Rs.24,000 on account of payment of 10 per cent compensation for not executing the work in accordance with the terms and conditions of the agreement.
The arbitrator gave his award, and the same was filed in the Court.
The Contractor filed objections for modification in respect of items 1, 8 and 9 of his claim and item No. 1 of the respondents ' counter claim.
The department also filed its objections.
The Single Judge dismissed the objections of the respondents and 289 allowed the appellants ' claim only in respect of item No. 1 of the respondents ' counter claim.
The single Judge took the view that a reading of clause 2 with clause 25 made it clear that any compensation under clause 2 could be adjudicated upon only by the Superintending Engineer or the Development Commissioner and that it was not open to the arbitrator to have entered upon a reference in regard to this claim at all.
Both parties filed appeals to the Division Bench.
The Bench reversed the order of the Single Judge and restored the award to its original terms.
It held that inasmuch as a bonafide dispute can be raised by the contractor in regard to his liability to compensation under clause 2 and as no machinery was provided in clause 2 for the resolution of such dispute, there is ample justification for holding that resort can be had to arbitration under clause 25.
On this view of the matter, the Bench did not agree with the Single Judge that the arbitrator had traveled outside his jurisdic tion in awarding compensation to the Government against the contractor for the delay in executing the work.
In the appeal to this Court it was contended on behalf of the appellants that the terms of Clause 2 clearly envis age the determination of the amount of compensation for the delay in the execution of the work only by the Superintend ing Engineer and specifically mentions that the decision of the Superintending Engineer in writing shall be final.
The opening words of Clause 25, "Except otherwise provided in the contract" clearly take out of the purview of Clause 25 any dispute in respect of a claim under Clause 2.
Even if Clause 25 be held applicable, the question of submitting a dispute in this regard to the arbitrator could only arise if there had been a determination and a dispute under Clause 2.
It was further submitted that there was no dispute at all between the parties on the question of compensation and that a dispute cannot be said to arise merely because a counter claim was for the first time put forward by the Department before the arbitrator.
On behalf of the respondent Department the appeal was contested by contending that Clause 2 was in the natore of a penal clause which automatically takes effect irrespective of any default.
The clause made the contractor liable for the penalty prescribed therein whenever there was a delay in the completion of the contract, whatsoever might have been the reason therefore, the question as to whether the con tractor was at default or not being totally immaterial.
The Department was, therefore, entitled to automatically deduct from the bills payable to the contractor, the compensation or penalty at the rate mentioned in Clause 2 290 or such reduced amount as may be determined in a particular case by the Superintending Engineer and that if the contrac tor objected to the deduction that would give risc to a dispute which can be the subject matter of arbitration under Clause 25.
Allowing the appeal, HELD: 1.
Clause 2 of the contract makes the time speci fied for the performance of the contract a matter of essence and emphasises the need on the part of the contractor to scrupulously adhere to the time schedule approved by the Engineer in charge.
With a view to compel the contractor to adhere to this time schedule, this clause provides a kind of penalty in the form of a compensation to the Department for default in adhering to the time schedule.
[297E F] 2.
Clause 2 contains a complete machinery for determina tion of the compensation which can be claimed by the Govern ment on the ground of delay on the part of contractor in completing the contract as per the time schedule agreed to between the parties.
The decision of the Superintending Engineer is in the nature of a considered decision which has to arrive at after considering the various mitigat ing circumstances that may be pleaded by the contractor or his plea that he is not liable to pay compensation at all under this clause.
[298E F] 3.
The question regarding the amount of compensation leviable under Clause 2 has to be decided only by the Super intending Engineer and no one else.
[298G] 4.
The opening part of Clause 25 clearly excludes mat ters like those mentioned in Clause 2 in respect of which any dispute is left to be decided by a higher official of the Department.
[299C] 5.
The question of awarding compensation under Clause 2 is outside the purview of the arbitrator and the compensa tion, determined under Clause 2 either by the Engineer in Charge or on further reference by the Superintending Engi neer will not be capable of being called in question before the arbitrator.
[299D] 6.
Clause 25 which is the arbitration clause starts with an opening phrase excluding certain matters and disputes from arbitration and these are matters or disputes in re spect of which provision has been made elsewhere or other wise in the contract.
These words can have reference only to provisions such as the one in paranthesis in Clause 2 291 by which certain types of determination are left to the administrative authorities concerned.
[299B C] 7.
The question of any negligence or default on the part of the contractor has many facets and to say that such an important aspect of the contract cannot be settled by arbi tration but should be left to one of the contracting parties might appear to have far reaching effects.
In the instant case, it is made clear that the decision regarding non arbitrability is only on the question of any compensation which the government might claim in terms of Clause 2 of the contract.
This is not an undefined power.
The amount of compensation is strictly limited to a maximum of 10 percent and with a wide margin of discretion to the Superintending Engineer.
It is this power that is kept outside the scope of arbitration.
[299E, F, H; 300A]


judgement:
ivil Appeal No. 1048 of 1980.
From the Judgment and Order dated 11.3.80 of the Rajas than High Court in S.A. No. 52 of 1980.
section Ganesh and P.H. Parekh for the Appellant.
S.S. Khanduja for the Respondent.
The Judgment of the Court was delivered by SHARMA, J.
This appeal by special leave is directed against the decision of the Rajasthan High Court confirming the decree of eviction of the appellant from certain prem ises under section 13(1)(f) of the Rajasthan Premises (Control of Rent and Eviction) Act, 1950 (hereinafter referred to as the Act), on the ground that he had denied the title of the respondent landlord.
The appellant has been in possession of the structure in ques 332 tion since 1953, when he was inducted therein by the owner one Nawab M. Ali Khan.
In 1969 Nawab M. Ali Khan died, and it appears that some dispute arose between his legal repre sentatives and the present respondent No. 1.
It further appears that the dispute was finally settled in favour of the respondent No. 1 and according to the case of the appel lant he duly recognised him as his landlord and started paying rent.
In 1973 the appellant received a notice from the Municipal authorities asking him to remove the disputed structures on the ground that it was erected on Government land.
According to the appellant 's case, the notice was issued at the instance of the respondent No. 1, who was anxious to evict the appellant.
The appellant, in the situa tion, was forced to file a suit in the civil court challeng ing the validity of the notice and praying for injunction against the Municipal authorities from interfering with his possession.
The respondent No. 1 filed the present suit on the twin Founds of default in payment of rent and denial of his title.
The case of default in payment of rent was re jected but the suit was decreed on the ground of denial of title.
On appeal, the Additional District Judge confirmed the decree.
The appellant 's second appeal was also rejected by the High Court at the admission stage.
The appellant 's plaint in the earlier suit by which it is suggested that he challenged the respondent 's title was filed in the present case and marked as Ext.
The first appellate court has while recording its finding against the appellant observed that the statements in the plaint amount to disclaimer and, in any event, it appears that the appellant failed to acknowledge the land lord 's title therein and consequently he was liable to eviction under clause (f) of section 13(1) of the Act, which reads as follows: "13.
Eviction of tenants. (1) Not withstanding anything contained in any law or contract, no Court shall pass any decree, or make any order, in favour of a landlord, whether in execution of a decree or otherwise, evicting the tenant (xxx) so long as he is ready and willing to pay rent therefore to the full extent allowable by this Act, unless it is satisfied . (a). . . . . . . . . . . . . . . . .
(f)that the tenant has renounced his charac ter as such or denied the title of the landlord and the 333 latter has not waived his right or condoned the conduct of the tenant; or" We do not agree.
There is no statement in the plaint at all challenging the landlord 's right and there was no occasion for the appellant to deal with this aspect in view of the scope of his suit.
On the other hand, the pleading shows that he described the nature of his possession as that of a tenant and the interest of the present respondent No. 1, who was defendant No. 2 in that suit, as that of a landlord.
Mr. S.S. Khanduja, the learned counsel for the re spondent, relied on the last sentence of paragraph 1 of the plaint, as mentioned below, and contended that since the defendant No. 2 was not one of the heirs of the deceased Nawab M. Ali Khan, this sentence should be read as denial of his title: "He sold out some portion of his property in his life time and the remaining property came to be owned by his heirs i.e. defendants No. 2 to 6.
" Firstly it has to be noticed that although the respondent was wrongly described as an heir, his title to the property was acknowledged.
Further this sentence cannot be read in isolation.
The position is explained in paragraph 5 of the above noted plaint in the following terms: "5.
That the land where the stall type Kachhi shops of the plaintiffs have been constructed, the Defendant No. 2 has built his house after taking the land on a long term lease from Nawab Mukarram Ali Khan.
In between these there is a Pakka 'Dola '.
There is dispute about the ownership of the land between the Defendant No. 2 and the Defendant No. 3 to 6 since the death of Nawab Mukarram Ali Khan in the year 1969.
Later on the matter has been compromised in between the four heirs, the Defendant No. 2 developed a bad motive and he wants that anyhow the plaintiffs should be evicted from the premises as early as possible and he.
should occupy the same.
" The argument is that the title of the respondent (defendant No. 2 in the earlier case) was nowhere accepted in the plaint.
After mentioning the dispute between him and the legal representatives of the deceased Nawab the appellant did not proceed to clarify the position.
So far as 334 the statement in paragraph No. 1 of the plaint is concerned, the grievance is that the title of the landlord was denied, if not completely then at least in part by describing the defendants 3 to 6 as co owners with him.
We are not in a position to agree with the contention of the learned counsel that for these reasons the appellant has to be evicted.
Even interpreting the plaint in a manner as favourable to the landlord as may be possible, it has to be accepted that the document cannot be construed to clearly deny the respond ents ' title in unambiguous terms.
One thing that is conspic uous is that the appellant did not claim any title in him self.
We expressly described the character of his possession as that of a tenant.
Is it in this situation permissible to forfeit his lease on the ground of disclaimer of title? In providing disclaimer as a ground for eviction of a tenant in clause (f) of section 13(1) of the Act, the Legislature decided to give effect to the provisions of clause (g) of section 111 of the .
The principle of forfeiture on disclaimer is rounded on the rule that a man cannot appro bate and reprobate at the same time.
Since the consequence of applying the rule is very serious, it must be held that the denial has to be clear and in unequivocal terms.
The decision of this Court in Mohammad Amir Ahmad Khan vs Munic ipal Board of Sitapur and another, A.I.R. 1965 S.C. 1923, relied upon by the learned counsel for the appellant high lights this aspect.
The facts in that case would show that the tenant there had made statements against his landlord which were far more serious than those in the case before us and still was not penalised.
It may be appreciated that in the present case the 1973 suit was not directed against any of the defendants excepting the Municipality and the state ments in the plaint referred to above were made by way of giving the background in which the impugned notice by the Municipal officers had been issued.
No relief against the other defendants including the present respondent was prayed for.
Examining the entire plaint in this background we are of the opinion that the ground contemplated under section 13(1)(f) of the Act is not made out.
We, therefore, set aside the judgments of the courts below and dismiss the suit.
The appeal is accordingly allowed with costs through out.
N.P.V. Appeal allowed.

summary/full:
The appellant was inducted into the structure in ques tion by the owner in 1953.
In 1969, the owner died and some dispute arose between his legal representatives and the respondent.
The dispute was finally decided in favour of the respondent.
The appellant duly recognised him as landlord and started paying rent.
In 1973, in response to a notice received from the Municipal Authorities asking him to remove the disputed structure on the ground that it was erected on Government land, the appellant was forced to file a suit in the Civil Court, challenging the validity of the notice and praying for injunction against the Municipal authorities from inter fering with his possession.
The respondent thereafter filed a suit against the appellant on the grounds of default in payment of rent and denial of his title by him.
It was alleged that the appel lant had challenged the respondent 's title in the plaint filed in the earlier suit.
The case of default in payment of rent was rejected, but the suit was decreed on the ground of denial of title.
On appeal, the Additional District Judge confirmed the decree and held that the statements in the plaint amounted to disclaimer and, in any event, the appellant had failed to acknowledge the landlord 's title therein and consequently he was liable to eviction under cl.(f) of section 13(1) of the Act.
The appellant 's second appeal was also rejected by the High Court at the admission stage.
Allowing the appeal, HELD: In providing disclaimer as a ground for eviction of a tenant in cl.(f) of section 13(1) of the Rajasthan Premises (Control of Rent and Eviction) Act, 1950, the Legislature decided to give effect to the 331 provisions of cl.(g) of section 111 of the .
The principle of forfeiture on disclaimer is rounded on the rule that a man cannot approbate and repro bate at the same time.
Since the consequence of applying the rule is very serious, it must be held that the denial has to be clear and in unequivocal terms.
[334C D] In the instant case, the 1973 suit was not directed against any of the defendants excepting the Municipality and the statements in the plaint were made by way of giving the background in which the impugned notice by the Municipal officers had been issued.
No relief against the other de fendants including the present respondent was prayed for.
Even interpreting the plaint in a manner as favourable to the landlord as may be possible it has to be accepted that the document cannot be construed to clearly deny the re spondent 's title in unambiguous terms.
One thing that is conspicuous is that the appellant did not claim any title in himself.
He expressly described the character of his posses sion as that of a tenant.
Examining the entire plaint in this background the ground contemplated under section 13(1)(f) of the Act is not made out.
[334B, E F] Mohammad Amir Ahmad Khan vs Municipal Board of Sitapur and another, A.I.R. 1965 S.C. 1923, referred to.