TMI Blog1977 (2) TMI 115X X X X Extracts X X X X X X X X Extracts X X X X ..... red into a contract with M/s. C.M. Shah Co. Pvt. Ltd., Bombay (hereinafter referred to as "Shah Company"), to fabricate, supply, erect and instal their "Sentinel" pull and push type and gear type rolling shutters made out of mild steel. The said shutters were to be installed at the site, viz., Sidheshwar Sahakari Sakar Karkhana, Sholapur. The assessees also stated that they were required to depute their technicians to carry out the work of erecting, installing and fixing the said rolling shutters manufactured by them at their works at Bombay. The assessees further stated that for the purpose of executing the above work they had purchased various materials on which they had paid tax as required by the said Act. The assessees contended that the aforesaid contract entered into by them was an entire and indivisible contract of work and labour and not a contract for sale. The assessees, inter alia, submitted for the determination of the Commissioner the question as to whether the aforesaid contract amounted to a sale under the said Act. Along with this application the assessees sent to the Commissioner a copy of the aforesaid contract which shows that the contract was for fabricatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome detail the types of rolling shutters supplied by the assessees to Shah Company under the aforesaid contract. This description shows that these rolling shutters are generally manufactured out of 20"G or 18"G thickness of metal. This document contains a description of the types of rolling shutters, of the various parts which go into the making of these shutters and of the method of fixing the same. The Deputy Commissioner of Sales Tax (Adm.) I, Bombay City Division, Bombay, who determined the application of the assessees, held that the contract between the assessees and Shah Company was divisible and further held that out of the total cost the erection charges would be 5 per cent and the rest of the amount represented the sale price of the said shutters. The assessees filed an appeal against this decision before the Tribunal by way of Appeal No. 14 of 1973. After considering the submissions of both the sides and the terms and conditions of the contract as well as other relevant circumstances, the Tribunal confirmed the finding of the Deputy Commissioner of Sales Tax that the contract between the assessees and Shah Company was a divisible contract. The Tribunal further found ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y or the other. It will depend upon the facts and circumstances of each case. The question is not always easy and has for all the time vexed jurists all over. Reference may also be made here to our decision in Hindustan Tiles and Cement Industries v. State of Maharashtra[1975] 36 S.T.C. 326 at 327-328. We have observed in this case as follows: "The position in law is now well-settled by a number of decisions of the Supreme Court. There can be a contract simpliciter for the sale of goods. There can also be a contract simpliciter for work and labour in which all that is rendered by the party contracting to do work or provide labour is either the doing of the work contracted for or the providing of the labour stipulated. Neither of these two types of cases can, from the nature of things, give rise to any difficulty. A difficulty, however, arises when in a contract not only work is to be done but the execution of such contract requires the providing of materials by the contractor, namely, by the person undertaking the work and labour part of the contract. In such a case there are three distinct types of contract which the parties can enter into: the first, a contract for the sale of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ses at Sholapur. But it is significant that condition No. 4 provides that all masonry works required before and after erection would have to be carried out by Shah Co. and the typed conditions in this regard show that unskilled labour was to be provided also by Shah Company. On a fair reading of the terms and conditions it appears to us that once delivery of the goods, namely, the said shutters, was taken, as provided in the contract, at the factory of the assessees, the property in the goods passed to the purchaser taking delivery. It also appears to us that this contract is a composite contract comprising of two contracts, the main contract being for the supply of the said shutters and there being a further contract for the erection thereof. We may make it clear that it has not been contended before us at all that the contract in question is really an indivisible contract of sale. The Deputy Commissioner of Sales Tax and the Tribunal have both treated it as a divisible contract and the department here has also supported that view. It appears to us that the view taken by the Tribunal is correct. Mr. Shah laid great emphasis on the fact that 10 per cent of the amount payable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat skill and labour would have to be expended in the manufacture of these goods would not be any ground for saying that the transaction is not one of sale. As far as the skill and labour involved in the work of erection of the said shutters is concerned, the Tribunal has noted in detail the work which the assessees had to carry out and after considering the same has pointed out that this work briefly consists of making correct markings on the walls, adjustments of tension of springs, tension testing and fixation of channels, and of gear boxes in the gear type of shutters. Taking into account all these factors the Tribunal has come to the conclusion that though it involved technical work to be done by experienced persons, the predominant idea under the contract was not of obtaining the technical skill of the assessees but of obtaining the supply of the said shutters and thereafter getting them erected in the factory premises. We are inclined to agree with this view of the Tribunal. We have examined the nature of the work which the assessees were required to do and which we have briefly described above. We are of the view that although it is work which does require some skill and ab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... utters passed to the purchasers when they took delivery of the shutters in the factory premises of the assessee and not when the shutters were fixed in their premises. The terms of the contract in that case are in many regards remarkably similar to the terms of the contract in the case before us. It is true that under the contract before the Allahabad High Court the entire price of the shutters was payable against delivery, whereas in the present case, 90 per cent of the price was payable against delivery and the balance of 10 per cent had to be paid after the said shutters were installed and put in working condition. This difference would, however, only show that the contract in the case before us is not an indivisible contract of sale. If the principles in this decision are to be applied, there can be no doubt that the contract before us is a divisible or composite contract and one of the contracts contained in it is a contract for the sale of the shutters for which 90 per cent of the amount had to be paid as the price. The Division Bench of the Allahabad High Court has, in the aforesaid decision, referred to an earlier observation of the same High Court in Commissioner of Sales ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion work involved required a much higher degree of skill than that involved in the erection work of the shutters in the present case, the court has still taken the view that the contract in question was one of sale and not of work and labour. Mr. Shah placed strong reliance on the decision of the Supreme Court in State of Rajasthan v. Man Industrial Corporation Ltd.[1969] 24 S.T.C. 349 (S.C.). In that case, pursuant to an invitation of the Executive Engineer, the assessee submitted its tender for fabricating and fixing certain windows in accordance with specifications, designs, drawing and instructions. The windows were to be fixed to the building with rawl plugs in cut stone-works. The rate quoted by the assessee was based on the current price of mild steel billets and the price was to be revised if there was a change in the controlled price of the billets supplied to the assessee. It was held by the Supreme Court that the contract undertaken by the assessee was to prepare the window-leaves according to the specifications and to fix them to the building. There were not two contracts, one of sale and another of service. Fixing the windows to the building was also not Incidental o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nditions in the agreement, it was not possible to say that the parties intended that the contractor transferred the property in the railway coach to the railway after its completion. The essence of the contract or the reality of the transaction as a whole indicated that the contract was a contract for work and labour. This decision again is of no help to the assessees at all because the terms and conditions of that contract are materially different from those of the contract before us. As we have already pointed out, the underframes were to be supplied by the railway and there was an elaborate provision for constant supervision and control by the railway over the work of construction of the coaches on these underframes. The contractor had to supply constructional materials and fittings which should ordinarily be as per the railway's standard. The railway staff was to work in association with the contractor's staff to the extent required for installation of electrical equipments and so on. In view of the important differences in the terms and conditions of the contracts concerned, this case cannot be of any relevance to the decision of the question before us. We now come to the th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t in the present case. Reliance was also placed by Mr. Shah on the decision of a Division Bench of the Madras High Court in Richardson and Cruddas Ltd. v. State of Madras[1965] 16 S.T.C. 827. In that case, the assessee-company carried on the business of structural engineers and contractors. It was held that where the contract consists of the fabrication and erection of steel structures or buildings on the site of the customer, the main test is to find out whether the customer ever bargained for the sale and purchase of the component parts used in the work of fabrication and erection or construction. If, under the contract, structural materials are to be affixed to the land and only thereafter the property therein would pass to the customer notwithstanding that they were approved by him, and even paid for, the contract would be a works contract. The fact that payments are made before the work is completed in its entirety is not of decisive significance. On the basis of this decision, it was urged by Mr. Shah that in the present case also the property in the shutters passed only when they were erected and fixed in the factory premises and hence the contract must be held to be a works ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rajasthan v. Nenu Ram[1970] 26 S.T.C. 268 (S.C.). In that case, a contract for supplying and fixing wooden windows and doors together with frames and painting them in the construction of the police lines building was held to be an indivisible contract for the supply and fixing of wooden doors and windows at the site. It was held that the goods were not sold as movables and the property was to pass only when the wooden chowkhats and windows, etc., were fixed on the site and hence the amount payable to the assessee for the work was not liable to sales tax. This decision also is not very helpful in the determination of the question before us. In the first place, in this decision, the Supreme Court has mainly followed its decision in State of Rajasthan v. Man Industrial Corporation Ltd.[1969] 24 S.T.C. 349 (S.C.)., which we have already distinguished for the reasons given by us earlier. In this case (State of Rajasthan v. Nenu Ram(4) also the property in the wooden chowkhats and windows was to pass only when the same were fixed on the site. Moreover, the Supreme Court has pointed out that on the documents and other relevant facts and circumstances, the High Court was fully justified in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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