9911796707
TMI Blog1977 (9) TMI 52X X X X Extracts X X X X X X X X Extracts X X X X ..... ,897-00 at 12 per cent ….. Rs. 219-00 . Total Rs. 23,89,393-00 The AAC refixed the assessable turnover at Rs. 22,71,158 with the following apportionment. Relief granted by Appellate Asstt. Commr. . . . at 31/2 per cent ….. Rs. 21,995-00 1,067-00 at 4 per cent ….. Rs.... 5,000-00 at 5 per cent ….. Rs. 22,46,047-00 1,12,168-00 at 9 per cent ….. Rs. 2,897-00 .... at 12 per cent ….. Rs. 219-00 .... . Total Rs. 22,71,158-00 .... In this refixation, the Assessing Officer deleted the turnover of Rs. 1,067 at 3 per cent and Rs. 1,12,168 at 5 per cent and the estimate of Rs. 5,000 at 4 per cent, as the relative defective features outlined by the Assessing Officer at the assessment stage were explained. Aggrieved of this first appellate decision under s.31 of TNGST, the appellants have taken recourse to this instant appeal before us seeking appropriate relief. 3. The disputed turnover of Rs. 11,98,890-00 at 5 per cent relates to the following: M/s. Aurofood Private Limited- . . Rs. Np. 442/21-10-74 ….. 64,741-00 . 449/11-11-74 ….. 78,467-50 . 479/6-1-75 ….. 64,149-00 . 489/11- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o presented that employment of engineering skill is a commonly prevalent feature in the line of trade. In this trend of approach he stated there is no deployment of any specialised skill to merit the treatment involved contracts as 'works contracts'. The element of fixation as immovable property was argued only as incidental. The main purpose of the contract was sought to be stressed as one for delivery of chattel and the incidental feature of erection was argued as is no way afflicting the elements of sale attracting liability to assessment. The theory of accretion was stated to be not specifically present. The view points of the lower authorities were highlighted. The ultimate stress was for sustenance of for action pursued by the lower authorities. Contract With Port Trust 6. (a) The agreement with Port Trust was entered into on 21st Jan., 1975. It commences with the preamble that the Board was desirous of purchasing conveyor system, complete-inclusive of fabrication, delivery, erection and commissioning in accordance with Schedules A,A1,B,C and D. Clause 1 envisages supply of goods or materials as described in Schedule A. Clause 3 (ii) stipulates that the decision of Chief En ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have a rated capacity of 300 tonnes per hour. The conveyor shall be complete with drive unit, starter, worm reduction gear unit with integral hold back flexible coupling, pull chord switches, rubber canvas belt, idlers, electromagnetic brake, truss type stringers and walk-a-ways and asbestos covered roof as per Schedule 2 and design data No. 2 of the contract. (3) Conveyor C3:-Conveyor C3 shall run longitudinally along the length of the shed inside. The conveyor shall be have a flat belt. It shall have about 110 metres centres and shall have a capacity of 300 tons per hour. The conveyor shall be complete with drive unit starter, warm reduction gear unit, flexible coupling, pull chord switches, rubber canvas belt, idlers, electro-magnetic brake, truss type stringers and walk-a-ways as per Schedule 3 and design date sheet No. 3 of the Contract. (4) Conveyor 04 to 08:-The Conveyors shall be mobile and move underneath longitudinal conveyor C3, in both directions. The Conveyor shall be 500 mm wide and shall have flat belt. It shall have 10.2 metres centres and shall have a rated capacity of 60 tons per hour. The Conveyor shall be complete with drive unit, reversible starter, flexible ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ilizer carried in the longitudinal conveyor which is variable from 1/5 to full of the total quantity. The other movable plough boards on the cross conveyor will stack the fertilizer on the first floor when not discharging into bagging machines...." (e) Clause 7.1.2. stipulates that the appellants have to guarantee the proper performance of the installation for one year. The relevant clause is extracted below: ".... All equipment supplies and erected by the Contractor shall be designed, manufactured, fabricated, delivered at site, erected, tested and commissioned by the Contractor in such a manner that the Contractor is prepared to guarantee the performance of the complete installation in every detail in accordance with the operating and maintenance requirements, capacities etc., outlined in specification and drawings..." (f) The clause pertaining to concrete work in 7.1.5. is as under: "... The concrete works shall be performed by others and will be detailed including anchor bolts to suit the requirements of the contractor, provided such requirements including bolt setting diagrams are submitted by the contractor for concrete works. The time schedule for such submission shall b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of the Chief Engineer or his representative must be obtained". The maximum size fillet weld applied to a normally square edge of a plate or shape shall be 1.5 mm less than the normal thickness of the edge. The size of fillet weld used along the toe of an angle or the rounded edge of flange shall not exceed 3/4 of the nominal thickness of the angle or the flange. Welding for rigid tubular frame joints and gusset plates for main machinery supporting structure shall be full strength continuous weld. The minimum effective length of the secondary stress carrying fillet weld except for stitch welds shall not be less than 8 times the nominal weld size. (k) The contract has specific structural stipulations also in 7.5.7. and they are as under: Stiffness and Deflection: Structural assemblies supporting machinery and machine components shall have adequate stiffness to ensure that deflections do not cause harmful misalignments or distortions of the machinery. Deflection of all main load carrying members shall be checked to ensure that excessive vibration or interference does not occur for all conditions of loading. Particular attention shall be paid to the design of drive pulley s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e up devices. (6) Alignment of drive assemblies. (7) Adjustment of limit switches. In all cases of critical specialised adjustments to the equipment supplied, the contractor shall obtain the advice of the relevant equipment supplier and shall advice and obtain the approval of the Chief Engineer. The Contractor shall shim and level all assemblies and structural parts to their proper location and elevation. It shall be the contractor's responsibility to fill gear reducers with the correct lubricant at hand over time. (m) (i) The Field Tests are employed after erection. The first test is done by the contractor and is called `Contractor's test'. The final test is done by the Port Trust and this is called a `acceptance test'. This is followed by `Operational capacity test'. (ii) The details of contractors test is 10.0 are as under: 10.0 FIELD TESTS: The tests shall comprise the following: (a) The Contractor's tests. (b) Acceptance test. After completion the conveying system and machinery shall be tested. The conveyors shall be run without loads. The movable conveyors and movable plough boards shall be taken through their full travel. All necessary adjustments, shall then be co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sulphate from Conveyor C2 along the length of the, tonnes per hour-starter, worm reduction gear unit flexible coupling, pull chord switches, rubber canvas belt, idlers electro- magnetic brake, truss type stringers and walk-a-way generally as per Schedule No. 3 and design data Sheet No. 3. 1 No. 3,50,000 (4) Conveyors C4 to C8: . . . . `VEEKAY'-Flat Belt Conveyor-500 mm wide 12 metres centres, for conveying muriate of potash, urea, Diammonium phosphate, Ammonium Sulphate and rock sulphate, from conveyor C3 at the rate of 60 tonnes per hour complete with drive unit, reversible starter, flexible coupling, belt, idlers, electro- magnetic brake, independent drive for plough limit switches, pull chord switches, truss type stringers and walk-a-way generally as per Schedule No. 4 and design data Sheet No. 4. 5 No. 61,000 3,05,000 . (Rupees Ten lakhs eighty one thousand only) . . 10,81,000 (q) Schedule `B' has `Special Conditions'. The Chief Engineer, Port Trust inspects the quality of materials and Workmanship in the process of supervision of the work. The following clauses of Schedule `B' are significant: (7) The manufacturer's guarantee for trouble-free working of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rection at site is to be done by the contractor by his own plan, equipment and personnel. Only such of the plant or equipment as can be spared by the Trust may be made available on hire to the Contractor at Trust's scale of rates. (21) Erection shall be done by the contractor entirely at his own costs and responsibility. Living accommodation for the erection staff will not be provided by the Port trust. Watch for the materials at site for erection shall also be responsibility of the contractor. (r) Schedule C contains `general conditions of contract'. The following clauses are pertinent: (2) Extent of contract: The contract comprises the construction, completion and maintenance of the works and the provisions of all labour materials, constructional plant, temporary works and everything, whether of a temporary or permanent nature required in and for such construction, completion and maintenance so far as the necessity for providing the same is specified in or reasonably to be informed from the contract. (3) (i) The work shall be taken to have been commenced from 4th Feb., 1974 i.e. the date of order and drawing should be submitted for approval within two months from 4th Feb., 19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... use and cl. (4) above, the period of 12 months will count from the date of handing over of the completed part or whole of the works by the Contractor to the Chief Engineer. 7. Thiru K. Venkatesan, Managing Director of the company filed an affidavit before us during the course of the hearing. The affidavit deals with the two different works executed-one for Port Trust Madras and the other for Aurofood Limited. (ii) In regard to Port Trust it was stated that the contract was for the fabrication, delivery, erection and commissioning of a conveyor system. The system involved installation of 8 conveyors. The actual course of performance of the contract was explained as under: (a) The first phase of final approval of drawings was explained in para 4 (c) as under: "... A letter of intent for fabrication delivery, erection and commissioning of conveyor system for the fertiliser handling was issued by the Port on 4th Feb., 74. As soon as the letter of intent was received discussions with Port Engineers commenced from February for preparation of the drawings. The detailed designing and drawing was commenced on 10th April, 1974. While making the detailed drawings the design requirements m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Port Trust. The entire emphasis was on proper selection of materials as also due erection and commissioning. (c) The actual performance of erection work, conduct of tests, etc. leading to ultimate handing over of the system to Port Trust on 27th Feb., 76 was outlined in para 6 extracted below: "...... The erection work was done in progressive stages dependent upon the materials fabricated and collected at site. The conveyor system C-1 was erected over the steel towers provided by the Port Trust. Therefore, we did the necessary fixing arrangement on the towers for the reception trouses involving the drilling reception trouses involving the drilling holes, welding of support brackets etc. The Port Trust authorities lent their port cranes for lifting the heavy equipments and materials. Roofing work was our responsibility and was given on sub contract to one Thiru Kathavarayan. We provided necessary roofing materials. The sub contractor did fabrication at site, erected the roofing. Welding machines and cutting facilities were requisitioned from the port trust and site fabrication and assembly work was done by us. During the last week of February' 75 materials for C2 conveyors were co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... : . To cost of Roofing works done at the Madras Harbour premises total sq. ft. 8400 @ Rs. 0-10 np per sq. ft. 840-00 To cost of sheet cutting charges for 84 cuttings at Rs. 0.30 per each cutting. 25-00 . 865-20 Bill dated 15th Dec., 75: . Cost of roofing works done at the Madras Harbour premises total 757.5 sq. ft at Rs. 0.10 per sq. ft. 75-75 Cost of sheet cutting for 12 Nos. Cutting @ Rs. 0-30 per each cutting. 3-60 . 79-35 (iv) While making payments, the Income-tax deductible at source at 2 per cent of the amount paid/credited was done and necessary certificate used. The certificate dt. 11th April, 75 is for a deduction of Income-tax of Rs. 5,395 the certificate dt. 20th May, 75 is likewise for Rs. 1,003. (v) We desired to know the result of the tests and the acceptance of the work by the Port Trust. We also desired to know what the supports are available in regard to the maintenance period of one year. The letter dt. 4th Sept., 76 details these features and this is extracted below: MADRAS PORT TRUST MADRAS-600 001 Dt: 4th Sept., 76 V3(b) 64898/78/E. From The Chief Engineer, Madras Port Trust. To M/s. Conveyor Equipment Co. P. Limited, 3, Race Course R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er by M/s. Aurofood Private Limited, the further sum on account at 10 per cent of the lumpsum will be payable within 3 months of payment of the one third advance, subject to work being completed by at least 50 per cent. Balance will be payable as and when materials are collected at site, subject to satisfactory erection progress. Completion: Contract shall be deemed to be completed only after erection, testing commissioning and handing over by M/s. Conveyor Equipment Co. Pvt. Limited against completion certificate of M/s. Aurofood Private Limited, Pondicherry. (iii) The letter CEC 031/1/74 dt. 8th March, 74 of the appellants confirmed the minutes. In another letter dt. 8th March, 74 M/s Aurofood (P) Limited confirmed the involved work as a `works contract'. (iv) The bunch of correspondences made available before us show that the appellants fabricated, erected and commissioned 16 conveyors etc. The first phase of work was the fabrication and delivery of conveyor, their testing etc. Letter dt. 26th Sept., 74 details a postponed delivery schedule for erection. (v) Preparation of pits and concrete construction of masonary work are dealt with in some of the correspondences. The dime ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... WI 1, WI 2, WI 3, SR 4, WI 4, Page 73 & Page 72. L.S. Rs. 1,400-00 Charge for preparing cement concrete foundation for 6" & 10" dia. Screw conveyors and grouting the bolts at Aurofood Private Limited. . . (Auroville (16 conveyors). . Rs. 1,800-00 (Rupees one thousand and eight hundred only) . . (vii) Deductions at source of Income-tax on payments made were done as under: 30th April, 74 ... Rs. 6,776 25th July, 74 ... Rs. 2,000 25th March, 75 ... Rs. 1,292 (ix) The details of the work done etc. as stated by Managing Director K. Venkatesan in the affidavit dt. 23rd Nov., 76 are as under: As regards the work at Auroville for M/s. Aurofood Private Limited, initially Mr. M.M. Patel of the said company visited and discussed the entire matter on 5th Nov., 1973 with regard to the requirements of the material handling equipment for the expansion of their flour mill. Preliminary quotations were submitted. At each stage they were in consultation with their machinery suppliers. M/s. Henry Simons Limited, U.K. and insisted on our system and our contract being approved by them. Initially the idea was that we should supply the requisite materials and they were intending ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... property then passes before the article is affixed, by virtue of the contract of sale itself or an appropriation made under it. Obviously, the question whether the intention of the parties is substantially one of improving the land or principal chattel (to which the furnishing of materials is incidental) on the one hand or one of making a sale (to which the agreement to affix is incidental) on the other hand is a matter of degree, which may difficult to determine in practice, but there is no theoretical difficulty. In decided cases, the following have been held contracts for work and materials; to supply and install machinery is a building 68; to renew and alter the engines and other machinery in a ship to erect a building 70 to construct built-in-cocktail cabinet in a house-71 to fit new break-linings to a car-72. In contrast, a contract to supply blackout curtains and rails and to fit them to premises has been held a sale of goods-73. 67. Tripp vs. Armitage (1839) 4M & Wealth- tax; Clark vs. Bilmer (1843) 11 N & Wealth- tax. 243. 68. Buxton vs. Bedall (1803) 3 East 303; Clark vs. Bulmer Supra; Appleby vs. Myers (1867) L.R. 2 C.P. 651. 69. Anglo-egyptian Navigation Co. vs. Mema ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r of Sales Tax vs. Purushotham Premji(2) elaborated as under: ".......... The primary difference between a contract for work of service and a contract for sale of goods is that in the former there is in the person performing work or rendering service no property in the thing produced as a whole not-withstanding that a part or even the whole of the materials used by him may have been his property. In the case of a contract for sale, the thing produced as whole has individual existence as the sale property of the party who produced it, at some time before delivery, and the property therein passes only under the contract relating thereto to the other party for price. Mere transfer or property in goods used in the performance of a contract is not sufficient; to constitute a sale there must be an agreement express or implied relating to the sale of goods and completion of the agreement by passing of title in the very goods contracted to be hold. Ultimately, the true effect of an accretion made in pursuance to a contract has to be judged, not by an artificial rule that the accretion may be presumed to have become by virtue of affixing to a chattel, part of that chattel but from the inte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion was indicated in T.V. Sundaram Iyengar & Sons vs. State of Madras(4) referring to the earlier decision in State of Madras vs. Gannon Dunkerley(5). Referring to them the Supreme Court in 38 STC P. 229 at P. 232 expressed as under: "....... It was held that in the case of such a contract the property in materials used does not pass to the other party to the contract as movable property. It would so pass it that was the agreement between the parties. If there was no such agreement and the contract was only to construct a building, in that case, the materials used therein would become the property of the other party only on the theory of accretion, the theory of accretion being that whatever is embodied or affixed to immovable property becomes the property of the owner of the immovable property as and when it is embedded or fixed. If the contract is to construct a building then the various materials, like bricks, cement, doors etc. become the property of the owner of the land, the moment they are affixed to it'-The concept of `accretion' is found to have application in this instant case before us. (ix) The recent decision of the Allahabad High Court in Commissioner of Sales Tax v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x) In Mather and Platt Ltd. vs. State of Maharastra(7) an analgous position involving installation of sprinkler equipment was considered and it was held to be a works contract. Viewing that the predominant intention of the parties to the contract was the installation of automatic sprinkler plant and fire alarm system. The concept of two separate contract spelt out by the Tribunal was also rejected. (xi) In State of Rajasthan and another vs. Man Industrial Corporation Limited(8) fabrication and fixing of windows in accordance with specifications designs, drawings and instructions. The windows were fixed to the building with rawl plugs in cut stone works. As the property in goods passed on completion of such work, the contract was held to be one for the execution of work not involving sale of goods. This principle covers this instant case before us. (xii) In an analgous case K.A. Ramachar vs. State of Madras,(9) the assessee engaged in fabricating, supplying and erecting iron trusses, purlins., etc., at the premises of the customers, manufactured the various parts of the trusses in his factory, transported them to the customers' premises, assembled them there and erected them in ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he building in the process of the execution of the erection works. Chutes (for transfer) had to be erected duly integrated in the process of such construction. (ii) The standards set up and stipulations to be adhered to in regard to several other processes of erection including lubrication, painting, assembling are informative. Provisions specifically for drilling, punching and other processes in making holes for the purposes of rivetment have also been outlined. The stipulation of loading standards to secure safety of the building, standards regarding utilisation of steel in the building construction, code of products adopted for welding and general construction futures, besides outlining the manner of connection, stiffness deflection etc. indicate that the fabricated materials were sought to be fitted to the column basement, so as to evolve the complete installation and erection of the eight conveyors in the different apartments provided for the purpose. These conveyors are appropriately linked or connected for the purposes of conveying the materials. The intention of installation and erection process was to secure a even flow of good performance without vibration, deflection et ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... performance of the whole contract. They sufficiently confirm that the conveyors were duly got embedded with the ground columns attached to the earth when the final inspection was done and handed over on 27th Feb., 76. The system was completely installed, inseparably affixed to the ground column of the building and its side walls etc. When transfer of property of conveyors integrated in the entire system, after due acceptance on 27th Feb., 76 took place there was therefore no scope for delivery of any chattel. The transfer in property materialised by way of accretion in the course of execution of the work. (viii) Further, the appellants had to maintain the system free from troubles for a period of one year from the date of acceptance. The letter dt. 4th Sept., 76 sufficiently confirms this feature. The appellants provided a bank guarantee of Rs. 17,888 as security deposit to be held by the Port Trust till 26th Feb., 77 to meet the guarantee application of the appellant in the process of maintenance of the system. (ix) From these details, we find that there is sufficient force in the arguments of the learned counsel to the effect that the intention of the parties was to execute a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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