TMI Blog1968 (1) TMI 46X X X X Extracts X X X X X X X X Extracts X X X X ..... shing and erecting the elevator installation outlined in the specification for the price of Rs. 57,000. The application stated that the applicants duly erected and installed the said two lifts in accordance with the terms of the contract and the lifts were handed over to the customer. The question posed for determination was whether sales tax was payable by the applicants in respect of the said contract. It was contended on their behalf that it was an entire and indivisible contract for the erection and installation of two lifts, and that the materials furnished were only in execution of the works contract and there was no sale of any goods and materials by the applicants. In case the determination was that it was not an entire and indivisible contract but constituted two separate contracts, one for the sale of materials, and the other for erection and installation of lifts, the applicants invited the learned Commissioner to apportion the amount of price and the amount of service charges from the total amount of Rs. 57,000. The application was sent by the Commissioner to the Deputy Commissioner for disposal. The learned Deputy Commissioner heard both the parties and came to the con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed at by the learned Deputy Commissioner, he would have been more correct if he had expressed his conclusion on the point of the character of the contract that, though the instrument happens to be one, according to the intention of the parties, it was a composite and divisible contract. On the question as to what part of the amount of Rs. 57,000 was liable to tax, it was held by the Tribunal that the learned Deputy Commissioner rightly declined to give his decision because section 27 of the Bombay Sales Tax Act, 1953, did not permit him to make any such determination. Various cases were discussed by the Tribunal in its judgment, and it was held that the decision of the Deputy Commissioner of Sales Tax was correct. It is observed by the Tribunal that, in the present case, not only the test that the amount of price of the material supplied is overwhelming as compared to the amount agreed upon for labour or service, but there is a further test also applicable. The price of the material supplied was subject to adjustment. It was pointed out for the applicants that the contract sum is also subject to variation due to change in freight and labour conditions. It is said by the Tribunal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and other terms, because they required two lifts at Plots Nos. 9 and 10 at Colaba Causeway. On receipt of this inquiry, the applicants wrote by their letter dated 18th April, 1958, that they had prepared their estimate for two Otis passenger lifts as per estimate and specification sheets attached to the letter after gathering information from the office of the building contractors. In paragraph 4 of this letter, the applicants stated that they had quoted a complete price for supply, delivery and erection of the lifts at site, including three months free maintenance of the installation. They also informed that they would import these lifts on their own import licence, provided the licence remained unused at the time of the receipt of the order, and that delivery period for these lifts for importing on their licence would be 12/16 weeks ex-works, Bombay, from the date of the receipt of the order and approval of layout drawings by the building contractors. In the last paragraph of this letter, the applicants stated that they appreciated the privilege of quoting to the building contractors, and looked forward to be honoured to carry out the installation of the lifts by them. Thereupon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... el. Then there are provisions regarding the machine, brake and motor. The motor is to be of Otis design and manufacture, or equivalent suited to the service proposed and arranged for ample lubrication. There are also provisions regarding sheaves and beams. The contract also makes provisions for a special operating device in the car and at hoistway landings. As regards the actual operation of the car, a provision is made for the car door or gate, hoistway doors and alarm bell. The contract specifically provides for the item of maintenance. It says that Otis maintenance will be furnished on each elevator provided for under this contract for a period of three months commencing on the date the elevator is turned over to the company for use. In order to enable the applicants to carry out the installation work, the building contractors are required to do some preparatory work, such as furnishing a properly framed and enclosed legal elevator hoistway, an elevator pit of proper and legal depth below the lowest landing, a properly lighted and ventilated fire-proof machine room or penthouse of sufficient size to accommodate the equipment, installation of necessary gate frame at all landings, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... applicants' factories; and the remaining 10 per cent. plus or minus any adjustments required on completion of erection, or in any case within six months of delivery of equipment." It is also provided in this clause that if erection is delayed due to reasons beyond control of the applicants, right is reserved to discontinue the work at any time until payments shall have been made. Then follows clause 7 which has been the subject of contentious interpretation. That clause is to the following effect: "You agree that in case you do not take delivery of the machines and material at the building when we notify you they are ready, you will immediately make the payment due when the machine is ready for shipment as provided above, and designate some local point where you will take delivery. Upon your failure to designate within two weeks such point of delivery, we are authorised to warehouse machines and material within our factory or elsewhere at your risk and expense." Under paragraph 10 in this part, the applicants have reserved the right to cancel the order without payment of damages if they cannot manufacture the equipment covered by the order within nine months of the date they ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , in distinguishing the decision of the Madras High Court in the case of The State of Madras v. Voltas Ltd.[1963] 14 S.T.C. 446., which was relied upon on behalf of the applicants before the Tribunal. After referring to condition No. 7 regarding delivery of machines and materials, and condition No. 11 regarding the time when the title was to pass, the Tribunal observed that the intention of the party appeared to be clear that the two lifts were treated as movables which can be supplied and installed for the owner of the blocks if the payment was made as stipulated, but which could be removed even after they were installed if there was failure on the part of the owner of the blocks to comply with the terms of payment. With this observation, the Tribunal distinguished the case of the applicants from the case of Voltas Ltd.(2) decided by the Madras High Court. The Tribunal referred to the bill which we have set out above, and held that, on these facts, it was not possible to hold that the parties did not intend that there was to be a sale of the material by the appellants to the owner of the blocks. The Tribunal was also impressed with the contention that the value of the materials an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be not only for sale of lifts as if it were movable property, but for the supply, erection and installation of the lifts. Referring to the decision of the Supreme Court in The State of Madras v. Gannon Dunkerley Co. (Madras) Ltd.[1958] 9 S.T.C. 353., it is argued that, in order that a transaction may be treated as a transaction of sale of movable property or goods, there must be an agreement between the parties in respect of the goods in which property eventually passes. They also placed reliance on the English case of Tripp v. Armitage150 E.R. 1597. noticed in the judgment of the Supreme Court, in which the agreement provided, inter alia, that the articles which were to be used for the structure had to be approved by the trustees. If the contract is to make up materials, and to fix them, then, until they are so fixed, by the nature of the contract, the property will not pass. If the contract is not merely for sale of particular chattel, but if it is part of a larger contract relating to the erection and installation of some machinery like a lift which is to be fixed in the building, it cannot be said that it is intended by such a contract that the article to be fixed should ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d counsel for the revenue distinguishes this case on the ground that the contract therein involved erection and construction of machinery and building and then delivery and supply of accessories of articles from Germany and local manufacturers in India. The applicants also relied on the decision of the Madras High Court in the Voltas case[1963] 14 S.T.C. 446. In this case, the company had agreed under a contract to provide the entire building with a system of air-conditioning. The contract contained detailed particulars of the work that had to be done by the assessees and the different types of machinery that would be utilised in the fabrication of the air-conditioning unit. In addition to designing the machinery, the assessees had to set it up in a particular manner, insulate the air passages carrying dehumidified and chilled air to the various parts of the building, provide false ceilings specially designed for each floor and design the passages in such a manner that the entire volume of the building would receive the advantage of the air-conditioning. This case is also distinguished on the ground that one of the important features of the agreement was that, in carrying out the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... these three categories the contract entered into by the applicants in this case would properly fall. The next decision relied on on behalf of the applicants is in the case of Richardson and Cruddas Ltd. v. The State of Madras[1965] 16 S.T.C. 827., now affirmed by the Supreme Court in Civil Appeal No. 599 of 1966 decided on 5th May, 1967(1). A copy of this judgment has been made available to us at the hearing. In this case, the assessee-company doing business as engineers and contractors and as dealers in iron and steel goods and refrigerating and cooling units, entered into a contract for the fabrication, supply and erection of steel structures with a co-operative society, and for the fabrication and installation of "bottle coolers" under orders from customers. In respect of both these types of contracts, it was held that the contract was a single composite works contract and not a contract for supply of goods and for sale of goods and also for supply of labour and services. This case is significant, because one of the points at issue was an inference to be drawn from the nature of the bills which were presented. In that case, in those bills, charge was made under the head "Fabr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... separate prices for the materials and labour and, therefore, the case was analogous to the case in one of the later decisions of the Supreme Court in the Government of Madras v. Simpson and Co. Ltd.[1968] 21 S.T.C. 21. In that case, a dealer in motor cars, motor parts and accessories, also dealt with the sale of Perkins Diesel Engines. The assessee did not manufacture or fabricate Perkins Engines, but fitted the engines to the vehicles of the customers and charged a consolidated amount in the bill. From the sample of the bill which is produced in the report, it would seem that the bill showed "To cost of supplying and fitting to the car of the customer one new Perkins Engine complete with one set model conversion kit and flywheel including labour and batteries" for which were charged Rs. 9,505, and from this amount was deducted 5 per cent. discount on the engine price of Rs. 7,215. The bill was interpreted as evidencing an agreement to sell a particular diesel engine, the price of which was separately mentioned in the bill, and to fit it in the customer's vehicle. The learned counsel appearing for the department also contended that an intention to sell the lifts must be attribute ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mething more is done. In the ultimate analysis in this case the form in which services are rendered does not permit its severance into two compartments. In this connection, there are certain factors which have relevance in determining the intention of the parties. The time-limit fixed for doing the work, the mention of an all-inclusive price for the totality of the materials and services rendered, the absence of an agreement for the sale of chattel as chattel, the point of time when the property in the goods passed from the applicants to the opposite party, the nature of the contract undertaken by the applicants, and the indivisibility of the contract, are all factors which would indicate what should be the proper construction of the contract entered into between the parties. It is, therefore, necessary to examine the terms of the contract and the surrounding circumstances in this case. The applicants' contention is that they secured the works contract which is not severable in parts. To begin with, so far as the applicants are concerned, the correspondence and the agreement emphasise that the contract is for "Otis Electric Traction Elevator Installation" which is to be carried o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... well as other costs, such as cost of shipment and cost of installation, have been separately calculated in arriving at the price to be charged, and, therefore, this would indicate that the intention was to sell separately the materials and the fabricated lifts and charge separately for the labour or services rendered. We do not think this interpretation of the terms of the price adjustment provision is permissible. The price adjustment provision has been made specially in order to ensure certain fluidity permissible in the final billing for the work done on account of variation in the several factors which should be taken into consideration in determining the costs but that does not alter the fact that an allinclusive price has been charged for the work of supply, erection and installation of the two lifts. The term of the contract regarding delivery of machines and materials does not, in our opinion, lead to the inference that the property in the materials and machines passed from the applicants to the building contractors by mere delivery. A special clause clearly pointing out the intention of the parties as to the time when the property in the goods was to pass has been incorpor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and installing the apparatus. In fact, we see no difference between this case and the Richardson Cruddas case[1968] 21 S.T.C. 245., where a bottle cooling equipment was required to be fitted or installed in the premises of the customer. There is another case which has come to our notice, and that is the decision of the Rajasthan High Court in Man Industrial Corporation Ltd. v. The State and Another[1966] 17 S.T.C. 152. In that case before the Rajasthan High Court, the assessee carried on the business of fabricating steel doors, windows and works of allied nature, and entered into a contract with the Government of India for providing and fixing special type steel windows of four different specifications in the buildings constructed to house a Central office. The question was whether the assessee was liable to pay sales tax on the amount received by him on this contract. The court came to the conclusion that, on a true construction of the terms of the contract, it was an indivisible contract of work and not of sale, and the assessee was, therefore, not liable to sales tax. The fact that the materials used in execution of the work had been the property of the person who undertook ..... X X X X Extracts X X X X X X X X Extracts X X X X
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