TMI Blog1978 (9) TMI 157X X X X Extracts X X X X X X X X Extracts X X X X ..... a contract of work and labour. This has always been a difficult question, because most of the cases which come before the courts are border-line cases and the decisions given by courts are by no means uniform. But so far as the present case is concerned, it does not present any serious difficulty and is comparatively free from complexity or doubt, for there is a decision of this Court which is directly applicable and is determinative of the controversy between the parties. The assessee who is the appellant before us is a private limited company carrying on business as engineers, contractors, manufacturers and fabricators and, in the course of its business, it entered into a contract dated 28th June, 1972, with M/s. C.M. Shah Co. (P.) Ltd. (hereinafter referred to as the company) for fabrication, supply, erection and installation of Sentinel's Pull and Push type and reduction gear type rolling shutters in shedes Nos. 3 and 4 of the Sidheswar Sahakari Sakar Karkhana belonging to the company. The detailed specifications of the rolling shutters were given in the contract and the price was stipulated to be Rs. 7 per sq. ft. and rft. for pull and push type rolling shutters and Rs. 9 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... but before they were erected and installed at the premises of the company. Since the assessee entertained doubt as to whether the contract was a contract for sale or a contract for work and labour, the assessee made an application dated 16th September, 1972, to the Commissioner of Sales Tax for determining this question, for on the answer to it, depended the taxability of the amount to be received by the assessee against fulfilment of the contract. The Deputy Commissioner of Sales Tax, who heard the application, took the view that the contract was a contract for sale of the two types of rolling shutters and the work of erection and installation was merely incidental to the sale and the assessee was, therefore, liable to pay sales tax on 95 per cent of the amount receivable by it under the contract, since that represented the sale price of the rolling shutters, the remaining 5 per cent being attributable to the work and labour involved in erection and installation. The assessee, being aggrieved by the order passed by the Deputy Commissioner of Sales Tax, preferred an appeal to the Sales Tax Tribunal, but the Sales Tax Tribunal also took the same view and held that the transaction o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... They do not give any magic formula by the application of which we can say in every case whether a contract is a contract for sale or a contract for work and labour. They merely focus on one or the other aspect of the transaction and afford some guidance in determining the question, but basically and primarily, whether a particular contract is one for sale of goods or for work and labour depends upon the main object of the parties gathered from the terms of the contract, the circumstances of the transaction and the custom of the trade. It may be pointed out that a contract where not only work is to be done but the execution of such work requires goods to be used may take one of three forms. The contract may be for work to be done for remuneration and for supply of materials used in the execution of the work for a price; it may be a contract for work in which the use of materials is accessory or incidental to the execution of the work; or it may be a contract for supply of goods where some work is required to be done as incidental to the sale. Where a contract is of the first type, it is a composite contract consisting essentially of two contracts, one for the sale of goods and th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a contract for supply of air-conditioner where the contract may provide that the supplier will fix up the air-conditioner in the premises. Ordinarily a separate charge is provided in such contract for the work of fixing up but in a given case it may be included in the total price. Such a contract would plainly be a contract for sale because the work of fixing up the air-conditioner would be incidental to the sale. Then take a contract for constructing a building where considerable quantity of materials is required to be used in the execution of the work. This would clearly be a contract for work and labour and fall within the latter category. But, as we pointed out earlier, there may be, and indeed as the decided cases show, there are a large number of cases which are on the border-line and it is here that difficulty is often experienced in the application of this primary test. To resolve this difficulty, the courts have evolved some subsidiary tests. One such test is that formulated by this Court in Commissioner of Sales Tax, Madhya Pradesh v. Purshottam Premji [1970] 26 S.T.C. 38 (S.C.)., where it has been said: "The primary difference between a contract for work or service and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... two types of rolling shutters and not only are the rolling shutters to be manufactured according to the specifications, designs, drawings and instructions provided in the contract, but they are also to be erected and installed at the premises of the company. The price stipulated in the contract is inclusive of erection and installation charges and the contract does not recognise any dichotomy between fabrication and supply of the rolling shutters and their erection and installation so far as the price is concerned. The erection and installation of the rolling shutters is as much an essential part of the contract as the fabrication and supply and it is only on the erection and installation of the rolling shutters that the contract would be fully executed. It is necessary, in order to understand the true nature of the contract, to know what is a rolling shutter and how it is erected and installed in the premises. It is clear from the statement exhibit C to the petition for special leave, which statement was submitted before the Sales Tax Tribunal and the correctness of which was at no time disputed before us, that a rolling shutter consists of five component parts, namely, two bracke ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e after despatch of the component parts of the rolling shutter. Hood cover is fixed in a neat manner and supported at the top at suitable intervals. This also has to be done at the site. Item 11.1 of the specification shows that the rolling shutter curtain and bottom lock plate are interlocked together and rolled in one piece, but the other parts like guide channels, bracket plates, rollers, etc., are despatched separately. Item 12.1 shows that "all the rolling shutters are erected by the manufacturer or his authorised representative in a sound manner, so as to afford trouble-free and easy operation, long life and neat appearance". It will, thus, be seen that the component parts do not constitute a rolling shutter until they are fixed and erected on the premises. It is only when the component parts are fixed on the premises and fitted into one another that they constitute a rolling shutter as a commercial article and till then they are merely component parts and cannot be said to constitute a rolling shutter. The erection and installation of the rolling shutter cannot, therefore, be said to be incidental to its manufacture and supply. It is a fundamental and integral part of the co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing shutter. The execution of the contract is not completed until the assessee carries out this obligation imposed upon it under the contract and a rolling shutter is erected and installed at the premises. It is true that clause 12 of the printed terms and conditions provides that 50 per cent of the amount under the contract shall be paid as advance and the balance against delivery of the goods ex works, but this clause is clearly overridden by the special terms specifically written out in the contract that 25 per cent of the amount shall be paid by way of advance, 65 per cent against delivery and the remaining 10 per cent after completion of erection and handing over of the rolling shutters to the satisfaction of the company. This provision undoubtedly stipulates that 90 per cent of the amount due under the contract would be paid before erection and installation of the rolling shutters has commenced, but that would not make it a contract for sale of rolling shutters. The true nature of the contract cannot depend on the mode of payment of the amount provided in the contract. The parties may provide by mutual agreement that the amount stipulated in the contract may be paid at differ ..... X X X X Extracts X X X X X X X X Extracts X X X X
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