TMI Blog2005 (2) TMI 519X X X X Extracts X X X X X X X X Extracts X X X X ..... r Advocate (J.V. Rao, Ms. Promila, Ms. Sasmita Tripathy, A. Ramesh and Y. Raja Gopala Rao, Advocates, with him), for the respondent. -------------------------------------------------- The judgment of the Court was delivered by S.H. KAPADIA, J.- The question involved in this civil appeal filed by the department is whether contracts entered into and executed by the assessee were contracts for sale and not works contract. 2.. M/s. Kone Elevators (India) Ltd. (hereinafter referred to as "the assessee") is a unit of M/s. Kone Corporation, Finland, who are one of the pioneers in the manufacture of Hi-tech New Generation Elevators in the world. M/s. Kone Corporation, Finland has its operations spread over 37 countries in the world. The assessee herein is a registered dealer falling in the jurisdiction of the Commercial Tax Officer, R.P. Road Circle, Secunderabad, having its head office at 50, Vanagaram Road, Aynambakkam, Madras, with branches at Vijaywada and Vizag. The assessee filed monthly returns in form A-2 for the months of April and May, 1995. It was assessed by the said Commercial Tax Officer provisionally for the period April 1, 1995 to May 31, 1995 and for th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the tax revision case filed by the department was dismissed. Hence, this civil appeal. 3.. Shri Debojit Borkakati, learned counsel for the department submitted that the main object of the contract in question was to sell the lifts and the works done by the assessee for installation was incidental to the sale of lifts. It was urged that the Legislature had classified the commodity "lift" under entry 82 of the First Schedule to the Act keeping in mind that the word "installation" was ancillary to the "sale" of lifts. It was urged that the High Court had erred in holding that the installation of the lift involved skill and technical know-how, which was to be treated as works contract. 4.. Shri M.N. Rao, learned Senior Counsel for the assessee, on the other hand, submitted that the assessee was engaged in the manufacture, supply, erection, installation and commissioning of lifts by undertaking works contract; that the lifts/elevators as such cannot be delivered to the customer; that various accessories and components were required to be taken to the site where after carrying out the civil work, lifts were installed and commissioned. It was further urged that only after all the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of possession of the property, whereas the main object in a "contract for work" is not the transfer of the property but it is one for work and labour. Another test often to be applied to is: when and how the property of the dealer in such a transaction passes to the customer: is it by transfer at the time of delivery of the finished article as a chattel or by accession during the procession of work on fusion to the movable property of the customer? If it is the former, it is a "sale"; if it is the latter, it is a "works contract". Therefore, in judging whether the contract is for a "sale" or for "work and labour", the essence of the contract or the reality of the transaction as a whole has to be taken into consideration. The predominant object of the contract, the circumstances of the case and the custom of the trade provides a guide in deciding whether transaction is a "sale" or a "works contract". Essentially, the question is of interpretation of the "contract". It is settled law that the substance and not the form of the contract is material in determining the nature of transaction. No definite rule can be formulated to determine the question as to whether a particular given con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e aforestated Explanation VI appended to section 2(1)(n) are meant to cover non-conventional sale transactions which are now specified in clause (29A) of article 366 introduced by the Constitution 46th Amendment Act. Before the inclusive definition of the "tax on sale or purchase of goods" was introduced by the 46th Amendment, the expression "sale of goods" occurring in entry 48 of List II of the Government of India Act was interpreted by this Court in the classical case of State of Madras v. Gannon Dunkerley Co. (Madras) Ltd. See [1958] 9 STC 353. reported in AIR 1958 SC 560 as a term of well- recognized legal import in the general law and as mentioned in the Sale of Goods Act. The expression "sale of goods" in entry 48 was described as "nomen juris", its essential ingredients being an agreement to sell movables for a price and property passing therein pursuant to that agreement. It was held that in a building contract which is composite and indivisible, there is no sale of goods as there could be no agreement to sell materials as such and moreover, the property does not pass as movables. In order to enlarge the concept of sale and to arm the State Legislatures with po ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ontract is to avail the skill and labour of the seller though some material or components may be incidentally used during the process of the end-product being brought into existence by the investment of skill and labour of the supplier, the transaction would be a contract for work and labour. 10.. Applying the above tests, we may now proceed to notice the relevant recitals of the contracts in questions. Under the "Price Schedule", the assessee agreed to supply and install a Kone Elevator for Rs. 3,30,000. It was agreed that the customer shall approve the drawings and shall make machine-room hoistway and the lift shaft including power supply for the assessee to commence installation at the time of the delivery of the lift. The contractual obligations of the assessee regarding installation included employing labour to complete the mechanical erection, electrical wiring testing and commissioning of the lift. The assessee agreed that it shall commence installation only after the lifts arrived at the site and upon intimation from the customer that the site was ready as per the drawings. As soon as the lift stood installed, the customer was to take over. It was further agreed that any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated clause in the delivery schedule, it is clear that the customer was required to do the actual work at site for installation of lift. On reading the above clause, it may be observed that the entire onus of preparation and making ready of the site for installation of lift was on the customer. It was agreed that under no circumstances, the assessee shall undertake installation of lift if the site is not kept ready by the customer. Under clause 4(g) of the "Customers' Contractual Obligations", the assessee reserved the right to charge the customer for delays in providing the required facilities. These facts clearly indicate that the assessee divided the execution of the contract into two parts, namely, "the work" to be initially done in accordance with the specifications laid down by the assessee and "the supply" of lift by the assessee. "The work" part in the contract was assigned to the customer and "the supply" part was assigned to the assessee. This "supply " part included installation of lift. Therefore, contractual obligation of the assessee was only to supply and install the lift, while the customer's obligation was to undertake the work connected in keeping the site ready ..... X X X X Extracts X X X X X X X X Extracts X X X X
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