TMI Blog1962 (11) TMI 33X X X X Extracts X X X X X X X X Extracts X X X X ..... humidity of the air as well. Provision had to be made for locating the complicated machinery required for the purpose in the basement of the building, and the layout had to be specially designed to carry the heavy load and to be free against vibration. It also called for integral air-ducts or passages to be constructed to take the chilled air from floor to floor and for the removal of the used air from the conditioned space. Messrs Voltas Limited submitted its proposals in this regard, and finally a contract was entered into on the 23rd July, 1959. The value of the contract was Rs. 6,95,500 for the supply and installation of an air-conditioning plant. The contract contained detailed particulars of the work that had to be done by Messrs Voltas. It specified in particular the manner in which the distribution of the conditioned air had to be made throughout the building; to the provision of false ceilings as a measure of insulation, the fabrication on the spot and fixing to the building, and embedding in the structure various parts of the machinery, including pipes, etc. It also set out in some detail the different types of machinery that would be utilised in the fabrication of the ai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ioning plant and does not cease to be a sale merely because the seller has undertaken to fix the machinery in the purchaser's premises. One important feature that has to be mentioned is that in the carrying out of a contract of this description, the assessees had in fact to supervise the construction of the building itself in order that the air-conditioning of the building as a whole could be efficiently designed and erected. A note in this regard was submitted to the Tribunal, the contents of which were accepted as substantially correct by the department, and this note was to a large extent relied upon by the Tribunal in reaching its conclusion. An examination of both the contract and the note clearly indicates that this is not analogous to a case where a dealer in refrigerating machinery supplies a self-contained unit for the purpose of air-conditioning one or more rooms. Where such air-conditioning on a small scale is called for, there are units indicated as 1 ton, 2 tons, etc., up to 5 tons, which can, without modification air-condition spaces of limited area and volume. Provision of such air-conditioning calls for nothing more than making the room more or less air-tight and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essees, which, as we have pointed out, is accepted as correct by the department, shows that when once the entire unit is connected up in the manner required, it is virtually impossible to remove any part of the machinery. It is perhaps hardly necessary for us to set out these features, for, in order to determine whether any taxable transaction, taxable under the Madras General Sales Tax Act, is involved, it is the agreement between the parties that has to be scrutinized. We have nevertheless thought it fit to specify these details, which have also been referred to by the Tribunal in its judgment in even greater detail, in order that the scope of the work undertaken by the assessees may be clearly understood. It seems to us that the decisions of the Supreme Court dealing with this line of cases are against the contention advanced by the department. We may refer to State of Madras v. Gannon Dunkerley Co.(1) There the question arose whether the imposition of tax on the supply of materials used in building contracts was warranted by the provisions of the Madras General Sales Tax Act and whether in fact that provision of the Act bringing to tax the turnover or any part of the turnov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re not the goods contracted for, the purchaser has got a right to reject them, or to accept them and claim damages for breach of warranty. Under the law, therefore, there cannot be an agreement relating to one kind of property and a sale as regards another. We are accordingly of opinion that on the true interpretation of the expression 'sale of goods' there must be an agreement between the parties for the sale of the very goods in which eventually property passes. In a building contract, the agreement between the parties is that the contractor should construct a building according to the specifications contained in the agreement, and in consideration therefor receive payment as provided therein, and as will be presently shown there is in such an agreement neither a contract to sell the materials used in the construction, nor does property pass therein as movables. It is therefore impossible to maintain that there is implicit in a building contract a sale of materials as understood in law." They next dealt with a composite contract under which the contractor undertook to supply materials, contribute labour and produce a construction, and proceeded to enquire whether it is open to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as well as a by-products plant and to erect and construct buildings, plants and machineries and deliver and supply accessories and articles and render services for an all-inclusive price. The Taxing Department sought to impose sales tax on the appellant on the materials supplied in the execution of the contract on the ground that such a supply was a sale. It was held that the contract was entire and indivisible for the construction of certain specified works for a lump sum and not a contract for sale of materials as such. Their Lordships set out the point for determination thus: "Whether on its true construction, the contract in question is a combination of two distinct agreements, one to sell materials and the other to supply labour and services, or whether it is only one agreement entire and indivisible for execution of the works?" They referred to the relevant provisions in the contract. One of the clauses, clause 15, in the contract stipulated that all materials and plant brought by the contractor upon the site in connection with the construction "shall immediately they are brought upon the site become the owner's property and the same shall not on any account whatsoever be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... atter is delivered over to the customer cannot by itself amount to a sale." Again at page 697, it was observed: "Rarely customers know or even care to know anything about the parts to be replaced; the necessity for replacement is often discovered only during the process of repair. To them the transaction is very often an integral one; on the part of the assessee, the parts were needed in the course of effecting repairs to the car and were fabricated ad hoc, i.e., for that purpose. It was a manufacture of the material occasioned by reason of the undertaking to repair the car and not one done as part of a commercial undertaking; to quote the words of the learned advocate for the petitioners, it was 'an ad hoc manufacture in connection with the repair of the car.' The elements necessary for constituting a sale of the part as such are therefore lacking in the case." We have examined the entire contract, each and every term thereof, and we can find no indication therein that there was any agreement between the contracting parties that there was to be a sale of any part of the machinery as such. The present case accordingly falls squarely within the scope of the principles laid dow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ivery, pro rata of the value of the goods delivered at site....." Special reference has been made to item 3 above and it is argued that because the contractors asked for payment of 50 per cent. of the value of the goods delivered at site, it must be inferred that there was a sale of that item of machinery. Such an inference appears to us to be very far-fetched. By no stretch of imagination can it be construed that Messrs Voltas were engaging in a sale of certain items of machinery to the Bombay Mutual Insurance. They contracted for the performance of a particular item of work which involved as part thereof supply and utilisation of certain materials. Obviously no contractor would be willing to wait for the payment till the completion of the work when the contract called for purchase and utilization of material at a high cost for the purpose of the contract. The mode of payment does not carry with it any implication that there was a sale of the goods as such at any stage of the contract. We are accordingly of the opinion that the Tribunal reached the only possible conclusion on the facts and circumstances of the case. There was no agreement which stipulated for the sale of mat ..... X X X X Extracts X X X X X X X X Extracts X X X X
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