Court caseAIR 1958 SC 560

Gannon Dunkerley, building contractors, executed construction contracts for a lump sum. The Madras General Sales Tax Act was amended to tax the value of the materials used in such works contracts as if they had been 'sold' to the owner. The company challenged the assessment: in a building contract there is no agreement to sell the bricks, cement and steel as goods; the materials pass to the owner only as part of the finished building, by accession to the land, not by a contract of sale.

The Constitution Bench held that 'sale of goods' in the legislative entry is a term of art and must be read in the sense it had in the Sale of Goods Act 1930: a contract whereby property in goods is transferred from seller to buyer for a price, requiring an agreement to sell movables, and the actual transfer of property in them for money consideration. In a building contract the property in the materials passes to the owner not under a contract of sale but by the theory of accretion when they are embedded in the building. The contract is one and indivisible; the State cannot split it and tax the notional sale of materials. The appeal of the State was dismissed.