TMI Blog1990 (3) TMI 334X X X X Extracts X X X X X X X X Extracts X X X X ..... or, the customer has to pay by way of advance 30 per cent of the value of the work, on delivery of the mosaic tiles and chips 35 per cent of the value of the work, after laying of the tiles or chips 20 per cent of the value of the work, and after completion of polishing, the balance amount. The further terms of -the agreement were, that the customer has to bear transport charges for all materials such as tiles, polishing machine and accessories from the business place of the assessee to the place of the customer. The customer has to make available cement, sand and labour force required for laying the tiles. In addition to the above, he has to make available the following as well: (1) Support labour for the work of laying of mosaic tiles; (2) required quantity of wax polish and turpentine for final finish; (3) electricity to run the polishing machine; (4) if the work spot happens to be out of station, an allowance at a particular rate per day per head. From the above terms and conditions of the contract, the Assistant Commercial Tax Officer found that the cost of the tiles approximately worked out to 65 per cent of the total value of the work and the balance 35 per cent approximatel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the fixing of fans and lamps, in the instant case also it cannot be said that there was no supply of tiles and that the entire transaction related only to works contract." On the above view, the Board of Revenue concluded that there was sale of mosaic tiles and, therefore, the Appellate Assistant Commissioner was not right in holding that the contract between the assessee and the customer was one and indivisible. Consequently, after setting aside the orders of the Appellate Assistant Commissioner, the Board of Revenue restored the orders of the assessing officer. 7.. Aggrieved by the orders of the Board of Revenue, these appeals are filed. 8.. Mr. Inbarajan, learned counsel appearing for the appellant, reiterated the same grounds that were urged before the Board of Revenue and contended that the contract under which the assessee undertook the laying of mosaic flooring is one and indivisible, and the contrary view taken by the Board of Revenue is unsustainable. In support of his contention, he relied on the following decisions of the Supreme Court and also a decision of the Andhra Pradesh High Court. They are, State of Madras v. Richardson Cruddas Ltd. reported in [1968 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rey Rs. 200 per 100 Sq. ft. Green colour Rs. 300 " Marble Rs. 400 " 12" Rs. 300 " The terms of payment as agreed to between us are as follows: 1.. Advance with order-30 per cent of value of work. 2.. On delivery of required materials at work spot-35 per cent of value of work. 3.. After laying dies and in sithu works-20 per cent of value of work. 4.. After completion-Balance amount. The final measurements will be taken before wax polishing is done and all accounts will be settled finally before wax polishing. The party ordering the work undertakes to provide the following at his cost: (a) Transport charges for all materials such as tiles, polishing machine, etc., from the factory to work spot. (b) Required cement, sand and water for laying of tiles and sithu labour. (c) Support labour for laying of tiles at work spot. (d) Required quantity of wax polish and turpentine for final finish. (e) Electrical energy for machine polish. (f) For all outstation works an allowance of Rs. 5 per day per head on all working days will be extra. The work will be completed in about...days time. The progress of the work purely and entirely depends upon the mode of payments ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to "works contract" are given. The general principle as set down in Halsbury's Laws of England, approved by the Supreme Court, reads as follows: "Halsbury's Laws of England, Third Edition, Volume 34, article 3 at page 6: 'A contract of sale of goods must be distinguished from a contract for work and labour. A contract of sale is a contract whose main object is the transfer of the property in, and the delivery of the possession of, a chattel as a chattel to the buyer. Where the main object of work undertaken by the payee of the price is not the transfer of a chattel qua chattel, the contract is one for work and labour. The test is whether or not the work and labour bestowed end in anything that can properly become the subject of sale; neither the ownership of the materials, nor the value of the skill and labour as compared with the value of the materials is conclusive, although such matters may be taken into consideration in determining, in the circumstances of a particular case, whether the contract is in substance one for work and labour or one for the sale of a chattel'. " 14.. In State of Madras v. Richardson Cruddas [1968] 21 STC 245, while affirming a decision of this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tractor from the owner of the premises is one lump sum without at all specifying as to what part is meant for the materials used or fabricated and what part for the services or labour put in by the contractor. It is, therefore, clear that in the facts and circumstances of the present case, the transaction is a composite consolidated contract which is one and indivisible comprising labour and services executed for a lump sum. It is also clear that the materials are not merely supplied to the owner so as to pass as chattel simpliciter, but are actually fixed to an immovable property and after the same are fixed and erected they become a permanent fixture so as to become an accretion to the immovable property. In these circumstances, the conclusion is inescapable that the present contract cannot be said to be a pure and simple sale of goods or materials as chattels but is a works contract. It is well-settled that a works contract is a contract for construction of bridges, buildings, etc., and includes contracts which combine labour, skill and materials executed for a lump sum. The question as to under what circumstances a contract can be said to be a works contract is not free from di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ointed out by this Court in a number of decisions and some tests have also been indicated by this Court, but it is necessary to point out that these tests are not exhaustive and do not lay down any rigid or inflexible rule applicable alike to all transactions. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be delivered to the company at the works of the assessee and once they are delivered, they shall not be liable to be rejected by the company. But that does not mean that as soon as the component parts are delivered to the company, the contract is fully executed. The component parts do not constitute a rolling shutter and it is the obligation of the assessee under the contract to fix the component parts in position on the premises and erect and instal a rolling 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. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Sales Tax, U.P. [1977] 39 STC 372, to which one of us (Bhagwati, J.) was a party." 18.. Now let us look into the decision of the Bombay High Court in Hindustan Tiles and Cement Industries v. State of Maharashtra [1975] 36 STC 326, dealing with a case relating to laying of mosaic flooring. In that case, on facts and after analysing the terms and conditions of the contract, the High Court took the view that there was a divisible contract. One of the terms of the contract which weighed with the learned Judges in that case reads as follows: "9. (a) We undertake fixing contracts only for the sake of convenience of our customers and so reserve a right unto ourselves to terminate the contract for the fixing of the tiles and to limit our liability for the supply of tiles only. In such cases costs of the supply of the tiles shall be ascertained by deducting the usual charges for fixing and polishing labour from the contract rate." In fact, the learned Judges, while discussing the case, observed as follows: "..........A more important term of the contract for showing what the real intention of the parties was is the condition contained in sub-clause (a) of the said clause 9 in whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the charges are inclusive of laying and polishing. In such a case, in our opinion, the Tribunal erred in holding that it was only a sale of tiles and that laying and polishing was only incidental to such sale. There was no material before the Tribunal to arrive at such a finding. The Tribunal appears to have based its finding upon the conditions of sale printed at the foot of the bill, namely, that goods once sold shall not be taken back and that packing and forwarding charges as well as sales tax shall be extra. In our opinion, the bill has to be read as a whole instead of dilating upon one or two clauses. If so read, it is clear that it is not a case of a sale but of a works contract, namely, supplying, laying and polishing of mosaic tiles, and that it is one and indivisible contract. Merely because the bill contains clauses that goods once sold shall not be taken back or that packing charges, etc., shall be extra, it cannot be said that the said bill represents two contracts, namely, one of sale and other a labour contract. Mr. Dasaratharama Reddi explains that the petitioner uses only one form of bill, whether it is mere sale of tiles or whether it is works contract or whethe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the cost of work was payable as advance at the time of entering into agreement and 35 per cent of the cost on delivery of the required materials at workspot, the sale part of the said contract was worked out when the goods were delivered to the dealer's customers and at the time of delivery 35 per cent of the cost of work was to be paid in addition to the 30 per cent paid as advance. Thus it would be consistent and logical to take aggregate percentage of 65 per cent as the price of tiles sold by the dealer to his customers." (Emphasis supplied) After observing as above, the assessing officer applied the judgment of the Bombay High Court and decided the issue against the assessee. The Board of Revenue, while approving the order of the assessing officer, further observed that "the work of laying mosaic tiles cannot be said to require any great skill. ......The work is just like supply of electric fans, and lamps, fixing being undertaken thereafter by the supplier himself". (Fully extracted supra in paragraph 6). 21.. In the light of the facts, decisions and the findings of the authorities, we will have to find out whether the view taken by the assessing officer and the Board of Re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t Pleader in the said judgment of the Andhra Pradesh High Court reads as follows: (Though already extracted, for the sake of convenience, it is extracted again) "The decision of the Bombay High Court in Hindustan Tiles and Cement Industries v. State of Maharashtra [1975] 36 STC 326, relied upon by the learned Government Pleader has no application to the facts of the present case. That was a case where the contract itself contained the terms of payment, namely, 25 per cent with the order, 60 per cent against delivery, 10 per cent against setting and 5 per cent during polishing. In this case, the Tribunal found, on a consideration of various terms of the contract and the facts and circumstances placed before it, that the transaction was a divisible one and that 85 per cent of the amount payable thereunder represents the cost of tiles while the balance of 15 per cent represents the labour charges. The High Court held that the Tribunal was justified in coming to that conclusion on the material placed before it. Now in so far as the bill in this case is concerned, it does not permit or warrant any such break-up. Hence, it is not possible to apply the principle of the said decision t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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