Home Case Index All Cases Income Tax Income Tax + AT Income Tax - 2005 (11) TMI AT This
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2005 (11) TMI 202 - AT - Income TaxContract For Sale Or Works Contract - whether outsourcing the manufacture of goods is a contract or purchase of goods ? - HELD THAT:- In the present case, the transfer of the property by the manufacturer as a finished article is as a chattel and the ownership passes on to the assessee only on taking the delivery of the goods and before the delivery of the goods the ownership remains with the manufacturer only. Therefore, necessarily following the above judgments in the case of State of AP vs. Kone Elevators (India) Ltd. [2005 (2) TMI 519 - SUPREME COURT] the contract of the assessee with the manufacturer is that of purchase and sale. As per the said judgment the works contract is one where the ownership passes to the customer by accession during the procession of work i.e., as and when work is in process, the ownership passes on to the customer. Since the theory of manufacturer of goods by specification is almost eliminating, nowadays, therefore, we have to see the intention of the customer and how the goods are supplied whether chattel-qua-chattel and if it is so, then it will be considered a 'sale' instead of 'works contract'. Also there is no definition of contract or sale in the IT Act which can solve the present issue. Therefore, to solve this issue we have to rely upon various other Acts and the interpretations made by Courts of law vis-a-vis the present case. The manufacturers are also independent establishment engaged in business of manufacturing of footwear and other goods and the assessee has issued the purchase order in favour of the manufacturers for supply of footwear and other goods and manufacturers were manufacturing the goods at their premises and they were not captive units of the assessee. The manufacturer as per agreement para 2.4 had the sale responsibility of purchase of raw material regarding quality of the products produced thereunder and the assessee was under no obligation to designate any such supplier. As per para 15.2.1 of the agreement the manufacturer is an independent manufacturer under the agreement and its personnel and other representative shall not act as nor be agents or employees of purchaser and its customer. As an independent the manufacturer will be solely responsible for determining the means and methods for performing the required tasks. As per para 5.4 of the agreement the prices charged and each term and condition applied by manufacturer with regard to each of the products shall be no less favourable than the prices charged for equivalent footwear or terms or conditions applied with regard to any other person for whom manufacturer produces footwear. Hence, the present case falls under the category of contract for purchase and sale and not a works contract u/s 194C of the Act. The views taken by the AO are of no assistance to the ld DR who has relied upon the order of the AO. The facts of the present case are almost identical to the Hindustan Shipyard Ltd. vs. State of AP [2000 (7) TMI 864 - SUPREME COURT], in principle. Therefore, this case of the assessee is a case of contract of sale and not that of works contract u/s 194C of the Act. Thus, we are of considered view that the transaction between the assessee and the manufacturer was of purchase and sale of goods and not of a works contract u/s 194C of the Act and the AO was not justified in treating the same as transaction of works contract u/s 194C of the Act and the assessee cannot be deemed to be an assessee in default in respect of the tax u/s 201(1)/201(1A) of the Act. Therefore, we find no infirmity in the order of learned CIT(A) which is hereby sustained. Thus ground Nos. 1 to 5 of the Revenue are dismissed. In the result, the appeal of the Revenue is dismissed.
|