ORDER The order of the Court was made by Y. BHASKAR RAO, AG. C.J. - This sales tax revision Petition is filed aggrieved by the order of the Karnataka Appellate Tribunal, Bangalore, in S.T.A. No. 1397 of 1994 and also assessment order dated October 15, 1996. The petitioner is a public limited company doing business in xerox machines, parts and accessories. It is having registered office and factory at Modipuram in U.P., head office in Delhi and branches all over the country including one at Bangalore. It filed a return disclosing total and taxable turnovers at Rs. 4,23,58,510 and Rs. 1,63,58,556, respectively. The assessing authority who verified the books of accounts rejected the declared turnovers and determined total and taxable turnovers at Rs. 10,34,70,495 and Rs. 4,70,23,693. While doing so it held that the petitioner is not entitled to exemption from the tax on amounts received towards execution of works contract. Aggrieved by that assessment order the petitioner filed an appeal before the Joint Commissioner of Commercial Taxes (Appeals), BCD IV, Bangalore. That appeal was remanded on the ground that certain reductions were not considered. Against that order appeal is filed before the Karnataka Appellate Tribunal, Bangalore. The Appellate Tribunal dismissed the appeal after elaborately considering entire material on record. In the meanwhile after remand the assessing authority passed an order holding that the spare parts supplied and the goods supplied during course of service even though some of the goods are consumed in the course of maintenance of machines amounts to sale, therefore liable to tax under section 5B of the Karnataka Sales Tax Act, 1957. Therefore, the petitioner filed this revision petition. 2. The petitioner-company has entered into an agreement called SSMA (Spares and Service Maintenance Agreement) and FSMA. (Full Service Maintenance Agreement). They are more in the nature of an insurance coverage for a bundle of services rendered. It is contended by the petitioner that there is no element of sale liable to tax. Therefore, section 5B of the Act is not attracted as it is purely service contract. The basis for the charge is the transfer of property in goods for price. In the instant case both under FSMA and SSMA there was no transfer of property of goods either spares or consumables for price. So, the charge under section 5B is not attracted. The basis for the charge is the transfer of property in goods for price. In the instant case both under FSMA and SSMA there was no transfer of property of goods either spares or consumables for price. So, the charge under section 5B is not attracted. It is contended that as the terms of agreement replaced a non-functional part with a functional part, it was purely a case of barter not involving transfer of property for price. The remuneration both in respect of FSMA and SSMA was fixed for bundle of service irrespective of the nature and value of the materials to be used in service and maintenance. There was no consensus arrived at between parties; no agreement either to sell or to purchase any goods involved in service/maintenance contracts and so it cannot be said there is a sale of spares and consumables for the price so as to attract the tax under section 5B of the Act. It is further contended in Sl. No. 21 of the Sixth Schedule provides for levy of tax on full service and maintenance of the instruments, equipments, appliances, or plant and machinery, that levy related to a case of works contract where there was transfer of property in goods for price. When the works contract is of purely in the nature of service rendered that charge under section 5B read with section 2(1)(vi) was attracted and there is no question of levy of any tax relying on serial No. 21 of the Sixth Schedule to the Act. It is further contended that goods which are consumable are essential for rendering service and they will be consumed in the course of functioning of machines and the goods will not be available in any other form, therefore it cannot be said that it has the element of sale. The exchange of the spare parts for the old parts though agreement provides that it will take away old parts, it is only a barter but not sale, for they have got the right to take away supplied spare parts whenever they want and therefore, there is no transfer of ownership of goods, so there is no sale. Further, as per the terms of the agreement, supply of spare parts are without any price. Further, as per the terms of the agreement, supply of spare parts are without any price. Therefore, in the absence of the transfer of ownership of goods and non-payment of price the transaction cannot be said as a sale in terms of the definition provided under the Act. So, the company is not liable for tax. It is further contended that nomenclature of the contract alleged should not be looked into but the entire terms of the contract must be considered for coming to a conclusion whether there is element of sale or not. 3. The company has charged only 0.27 paise per copy in one type of machinery in one type of transaction and Rs. 7,000 per annum in lump sum for rendering of service as terms of the contract and they are not charging any additional amount for the spare parts and consumables supplied. 4. The learned Government Advocate contended that though the contract is termed as service contract, the clause provide for supply of spare parts in exchange of old parts and supply of the other goods, even if they are consumable, amounts to sale. The company is entitled to take away the old parts. Further, the contract provides that for rendering service of supplying spare parts and consumable goods in toto the company received 0.27 paise per copy and Rs. 7,000 per annum as per terms of contract. Therefore, the price for the goods is part and parcel of 0.27 paise and Rs. 7,000 per annum. It is contended that though the price for the goods supplied and charges for the service rendered is indivisible the authority can come to a conclusion following the principle laid down under rule 6 of the Rules framed under the Karnataka Sales Tax Act. Therefore, the contention that there is no sale is incorrect. As per the definitions of the "goods" and "sale" in the Act, the supply of spare parts, the consumable goods and for service rendered the company is charging 0.27 paise per copy and Rs. 7,000 per annum which include price for the goods supplied or replaced. 5. After going through the rival contentions of both the parties and the questions referred to by the petitioner in the revision petition the important question which arises for our consideration is whether the replacement of parts in the place of old parts amounts to sale ? 6. 7,000 per annum which include price for the goods supplied or replaced. 5. After going through the rival contentions of both the parties and the questions referred to by the petitioner in the revision petition the important question which arises for our consideration is whether the replacement of parts in the place of old parts amounts to sale ? 6. We have gone through the agreement which is for full service and maintenance of xerox machines. We have also gone through terms and conditions of the SSMA and FSMA. As per both agreements it is optional for petitioner-company to undertake : (a) Service and maintain the equipment without any additional charge, keep the equipment in good working order. (b) Repair and service the equipment at the request of the customer and the appellant will at its sole discretion, replace without any charge worn out parts by parts of serviceable quality. (c) Parts thus exchanged shall be the property of the appellant who is entitled to remove and carry away such parts from the customers' premises. (d) While in the case of FSMA, the appellant will provide free of charge all zerographic supplies (except power, paper and other output copy material) as and when necessary to do so, such a supply will not be made in respect of SSMA contract. (c) While in FSMA contract the remuneration is in the form of 27 paise per copy taken out (1 per cent discount towards service and wastage) remuneration in SSMA contract will be Rs. 7,000 per annum excepting for this difference, both FSMA and SSMA contracts admittedly are virtually the same. 7. Before dealing with the question, it is relevant to refer the provisions of the Constitution : Under entry 48 in List II of the Seventh Schedule to the Government of India Act, 1935, and under the Constitution of India as adopted, State Legislatures were empowered to impose tax on sale or purchase of goods other than newspapers. 8. In regard to imposition of tax on goods involved in the execution of works contract which was single and indivisible, the question arose whether there was sale of those materials within the meaning of that word in entry 48 in List II of the Seventh Schedule to the Government of India Act, 1935. The apex Court in the case of Gannon Dunkerley & Co. The apex Court in the case of Gannon Dunkerley & Co. [1958] 9 STC 353 held that the expression "sale of goods" in entry 48 of List II of the Seventh Schedule has the same meaning as in the Sale of Goods Act, 1930, its essential ingredient being an agreement to sell materials for a price and passing of property therein pursuant to that agreement. It was held firstly that in any indivisible works contract such as construction of buildings, there is no sale of goods because in such a contract there was no contract to sell the materials, nor the property passed therein as movables and therefore it is not within the States' power to impose tax on the supply of materials used in such works contract, treating it as sale. 9. The court further observed that the parties might enter into distinct and separate contracts, one for the transfer of materials for monetary consideration and the other for payment of remuneration for services and for work done. In such a case there are really two agreements, though there is a single instrument embodying them, and the power of State to separate the agreement to sell from the agreement to do work and rendering service and to impose tax on the same cause has to be examined. 10. After the decision in Gannon Dunkerley & Co. [1958] 9 STC 353 (SC), the matter with regard to taxability of goods involved in the execution of works contract was examined by the Law Commission which recommended that the expression "sale" should receive a broad interpretation and power to be given to States to levy tax on transactions of sale in substance. It recommended to insert a wide definition of "sale" in article 366 to include works contract. 11. In pursuance of the said recommendation, Constitution 46th Amendment Act was passed inserting clause (29A) of article 366 that a sale or purchase of goods includes a tax on the transfer of property in goods (which is goods or in some other form) involved in the execution of works contract and, such transfer, delivery or supply of any goods should be deemed to be a sale of those goods by the person making transfer, delivery or supply and purchase of those goods by the person to whom such transfer, delivery or supply is made. 12. 12. After the 46th amendment, the Karnataka Sales Tax Act, 1957, was amended to make provisions for imposition of tax in relation to works contract. Section 2(1)(v-i) was inserted to define "works contract" as under : "2(1)(v-i) 'Works contract' includes any agreement for carrying out for cash, deferred payment or other valuable consideration, the building construction, manufacture, processing, fabrication, erection, installation, fitting out, improvement, modification, repair or commissioning of any movable or immovable property." Section 5B of the Act was inserted for creating charge on works contract as under : "5-B. Levy of tax on transfer of property in goods (whether as goods or in some other form) involved in the execution of works contract. - Notwithstanding anything contained in sub-section (1) or sub-section (3) or sub-section (3-C) of section 5, but subject to subsections (4), (5) and (6) of the said section, every dealer shall pay for each year, a tax under this Act on his taxable turnover of transfer of property in goods (whether as goods or in some other form) involved in the execution of works contract mentioned in column (2) of the Sixth Schedule at the rates specified in the corresponding entries in column (3) of the said Schedule." 13. Section 2(t) defines "sale" which is as follows : "'sale' with all its grammatical variations and cognate expression means every transfer of the property in goods other than by way of a mortgage, hypothecation, charge or pledge by one person to another in the course of trade or business for cash or for deterred payment or other valuable consideration, and includes - (i) a transfer otherwise than in pursuance of a contract of property in any goods for cash, deferred payment or other valuable consideration; (ii) a transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract; (iii) a delivery of goods on hire purchase or any system of payment by instalments; (iv) a transfer of the right to use any goods for any purpose (whether or not for a specified period) for cash, deferred payment or other valuable consideration; Explanation 1. - A transfer of property involved in the supply or distribution of goods by a society (including a co-operative society), club, firm, or any association to its members, for cash, or for deferred payment or other valuable consideration, whether or not in the course of business, shall be deemed to be a sale for the purposes of this Act ............." 14. Section 2(m) defines "goods" which is as follows : "'Goods' means all kinds of movable property (other than newspapers, actionable claims, stocks and shares and securities) and includes livestock, all materials, commodities and articles including the goods as goods or in some other form involved in the execution of a works contract or those goods to be used in the fitting out, improvement or a repair of a movable property, and all growing crops, grass or things attached to, or forming part of the land which are agreed to be severed before sale or under the contract of sale;" 15. The 46th Amendment to the Constitution made the definition of the "sale" wider to enable States to amend the sales tax laws for levying tax on the transfer of goods involved in the works contract. The question whether the works contract is indivisible or divisible one has thus been resolved and therefore every works contract is now a divisible works contract. 16. The question now to be considered is whether there is any transfer of property in goods for price from the petitioner to their customers under both FSMA and SSMA contracts and if so the same is taxable. 17. Learned counsel for the petitioner has taken us through the terms of the contracts. The terms contemplate that the petitioner-company shall service and maintain zerographics equipment during the agreement period in good working order. He also agrees to repair and service the equipment whenever there is a need. He also replaces the worn out parts by parts of serviceable quality, without any additional charge and the unserviceable parts will be taken away by the petitioner. The FSMA provides that the petitioner also supply toner, developer and oil, the SSMA does not provide for such supply. Thus, the Act of rendering service, supply of the spare parts and supply of the toner, developer and oil constitute the functioning of the petitioner for which he charges 0.27 paise per copy roled out in the case of FSMA and Rs. Thus, the Act of rendering service, supply of the spare parts and supply of the toner, developer and oil constitute the functioning of the petitioner for which he charges 0.27 paise per copy roled out in the case of FSMA and Rs. 7,000 per annum in the case of SSMA contract. 18. The terms of the contract contemplate the supply of the spare parts and other goods mentioned in the contract. There is no clause in the agreement specifying a price to be paid for the supply of the above goods. On the other hand it is stated spare parts are supplied without charge. Therefore, it has to be seen whether there is an element of transfer of property for price. 19. The replacement of the spare parts and right to take away the worn out parts by the petitioner makes him owner of the said worn out parts. There is no clause providing for customer of the petitioner becoming the owner of the spare parts on replacement. But during the entire contract period as per terms of the agreement a duty is cast on the petitioner to keep the equipment under good working order. Therefore, spare parts supplied by the petitioner has to be kept with the machines. There is no dispute that machines belong to the consumer of the petitioner. If the spare parts are taken away then the machine becomes unworkable and it will frustrate the contract. 20. The learned counsel for the petitioner contended that the petitioner has got the right to take away spare parts whenever they like as per clause (2) of the contract. Therefore, there is no right over the spare parts with the consumer, so ownership remains with the petitioner and it is not a sale. 21. To appreciate the above contention it is relevant to extract clause (2) : "(2) Shall repair and service the equipment at the customer's request. If required, MX will at its sole discretion replace, without any charge, worn out parts by parts including photoreceptor (drum) of serviceable quality. 21. To appreciate the above contention it is relevant to extract clause (2) : "(2) Shall repair and service the equipment at the customer's request. If required, MX will at its sole discretion replace, without any charge, worn out parts by parts including photoreceptor (drum) of serviceable quality. Parts thus exchanged shall be the property of MX and MX authorised service engineers shall be entitled to remove and carry away such parts from the customer's premises." The second part of clause (2) provides that the "parts thus exchanged shall be the property of MX and MX authorised service engineers shall be entitled to remove and carry away such parts from the customer's premises". If this clause has to be interpreted to the effect that the MX owner of the supplied spare parts can take away the spare parts supplied whenever they desire without replacing, the contract becomes frustrated. On the other hand if this clause is interpreted by holding that the petitioner will have the right to take away the spare parts in exchange of spare parts to the consumer, the interpretation will be proper and harmonious making the terms of the contract workable. We think that this interpretation will be just and proper. Therefore, the consumer of the petitioner will become the owner of the spare parts. Merely because there is no specific clause to that extent, it cannot be said that the consumer will not become owner of the spare parts. 22. It is further contended that there is no charge or price paid to the spare parts, therefore there is no consideration and hence no sale. 23. As per the definition of "sale" under the Karnataka Sales Tax Act, the transfer of goods for cash or deferred payment or other valuable consideration is deemed to be sale. In the present case 0.27 paise per copy and Rs. 7,000 per annum is paid as stated supra for the service rendered plus replacement of the worn out parts by supplying workable spare parts. Therefore, the amount of 0.27 paise per copy and Rs. 7,000 per annum payable includes the price of the goods supplied. Therefore, transfer is for valuable consideration. 24. Learned counsel for the petitioner contended that the exchange of parts is only a barter and there is no price paid. Therefore, the amount of 0.27 paise per copy and Rs. 7,000 per annum payable includes the price of the goods supplied. Therefore, transfer is for valuable consideration. 24. Learned counsel for the petitioner contended that the exchange of parts is only a barter and there is no price paid. The exchange of workable spare parts for the worn out part plus implicit part of value in the amount paid under the contract is the price for value of the goods. 25. Therefore, we are not able to agree with the contention of the learned counsel for the petitioner that the supplying of the spare parts is without any charge and therefore there is no sale. 26. Learned counsel for petitioner relied on the decision reported in [1998] 108 STC 234, Patna High Court (Rungta Projects Limited v. State of Bihar) to support the proposition that terms and conditions of the contract have to be looked into and not the nomenclature of the contract. There is no doubt about the principle laid down in the above judgment by the division Bench of the Patna High Court. But we have already held by considering the clauses of the contract, the only possible conclusion is that there is an element of sale. 27. Learned counsel for the petitioner contended that the goods supplied by the petitioner, i.e., toner, developer, and fuser oil are consumed while equipment is functioning, therefore it cannot be said that there is any transfer. In support of the above proposition counsel for the petitioner relied on Pest Control India Ltd. v. Union of India [1989] 75 STC 188, judgment of the Patna High Court. In this case the contract relates to treating premises by spraying and applying chemicals. The question arose whether the chemicals used in the course of such service was a sale. The court held that the chemicals used are consumed and nothing tangible remains. Therefore, the element of sale is not there as the goods supplied has not remained in any other form as per the definition. 28. In Deputy Commissioner of Sales Tax (Law), Board of Revenue (Taxes) v. M. K. Velu [1993] 89 STC 40, judgment of the Kerala High Court, the contract was entered for the display of the fireworks. The question arose whether the use of explosives during fireworks amounts sale of explosives. 28. In Deputy Commissioner of Sales Tax (Law), Board of Revenue (Taxes) v. M. K. Velu [1993] 89 STC 40, judgment of the Kerala High Court, the contract was entered for the display of the fireworks. The question arose whether the use of explosives during fireworks amounts sale of explosives. The division Bench held that the explosives used after the completion of fireworks will not be in existence in any tangible form and therefore, there is no sale. 29. In Dynamic Industrial and Cleaning Services (P) Ltd. v. State of Kerala [1995] 97 STC 564 (Ker), the contract was entered for cleaning boilers in thermal power station and fertiliser plant. The chemicals used there for the purpose of the cleaning were held to be not a sale as they will not remain in existence after the use in any tangible form. Therefore, there is no sale. 30. Keeping in view all the principles laid down in aforementioned decisions we have to scrutinise whether the goods supplied by the petitioner has any element of sale or not. 31. The spare parts supplied will be in physical existence only when they are removed from the machines. The toner and developer supplied which will result in printing on the copies taken out from the machine will come with the print. Thus, the toner and developer used are transformed into the form of print, so they are in existence in another form. But the fuse oil supplied is used for smooth and proper functioning of the machines which will be consumed during the process of functioning and it will not be in existence in any tangible form after the work is over. 32. Hence, in our view the supply of spare parts and toner and developer amounts to sale as stated supra, whereas in the supply of fuse oil is concerned, there is no element of sale. 33. Therefore, the petition is allowed partly to the extent of the fuse oil supplied by the petitioner to his consumers under the agreements and to that extent the order of the Appellate Tribunal and assessing authority are set aside and the assessing authority is directed to exempt the value of the fuser oil supplied from payment of sales tax. In other respects we confirm the judgment of the appellate authority and assessing authority. Petition allowed in part.