TMI Blog1995 (2) TMI 366X X X X Extracts X X X X X X X X Extracts X X X X ..... h the Bombay Municipal Corporation on January 6, 1967, for "supplying and erecting machinery and electric equipments for the proposed slaughter house at Deonar". As the said contract involved both supply of materials and erection thereof, the assessee applied to the Commissioner of Sales Tax under section 52(1) of the Bombay Sales Tax Act ("the Act") seeking determination of the questions (i) whether it would be regarded as a dealer in respect of the supply of the machinery involved in the above contract; (ii) whether the contract of supplying of electrical machinery and electrical equipment for the proposed slaughter house at Deonar entered into between the assessee and Municipal Corporation of Greater Bombay should be treated as an indivisible works contract or a divisible contract for supply of materials and labour. The Deputy Commissioner of Sales Tax who took up the determination, by his order dated October 31, 1968, held that the contract in question was a divisible contract for supply of electrical machinery and electrical equipment for the proposed slaughter house and for installation and hence, the value of the materials involved therein would be subject to tax at the rate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6 and the prices ruling at the time of supply will be to the Corporation's account and for determining the quantum of escalation following formula shall be applied: (a) The selling price of the contractor is based on 70 per cent as cost of material and 30 per cent as cost of labour. For erection, the contract value is based on 30 per cent as cost of material and 70 per cent as cost of labour. (b) The increase, if any, for cost of labour shall be directly related to and in proportion to the labour index as announced by Commissioner of Labour, Bombay, every month. (c) The increase, if any, on cost of material shall be directly related to and in proportion to the price index applicable as announced by the Government of India pertaining to semi manufacturers and manufacturers. (d) The contractors shall not be entitled under this clause to increase in the prices of labour and materials beyond 10 per cent, under any circumstances. ................ (5) In the event of the Indian Government or the State Government or any other statutory authority shall levy any rates, taxes, customs duties, sales or excise taxes or surcharges on any of the items included in the contract then th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s intended by the parties to the contract was not "sale or supply of goods" but "installation and erection of the plant". The law is well-settled now that such a contract would be an indivisible works contract and not a contract for sale and labour. In order that there should be a sale of goods which is liable to sales tax as part of a contract for work under the Act, there must be a contract in which there is not merely transfer of title to goods as an incident of the contract, but there must be a contract, express or implied, for sale of the very goods which the parties intended should be sold for a money consideration, i.e., there must be in the contract for work an independent term for sale of goods by one party to the other for a money consideration. 6.. A number of tests have been evolved by the Supreme Court from time to time to distinguish a contract for sale from a works contract but none of the tests is exhaustive and of universal application. These tests, as observed by the Supreme Court in Sentinel Rolling Shutters Engineering Company Pvt. Ltd. v. Commissioner of Sales Tax [1978] 42 STC 409, do not give any magic formula by the application of which one can say in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gree of skill. The supply and erection of machinery is one single indivisible process and the plant comes into being only when the erection is complete. Erection or installation is thus a fundamental and integral part of the contract. It cannot be regarded as merely incidental to the supply of machinery. An all-inclusive price is charged by the assessee for the work of fabrication, supply and installation of machinery at the slaughter house to make it a complete plant. It is therefore not a contract for sale of machineries but a works contract for erection of the plant at the slaughter house. 9.. We have also considered clause (1) of the contract, pointed out by the learned counsel of the Revenue Ms. Ankalesaria, which provides for payment of 97 per cent of the price of the machinery and equipment as set out in the specifications immediately on delivery of the machinery and equipment at the site. We are, however, of the opinion that it cannot have any bearing on the determination of the question whether the contract is one for sale or for work and labour. The true nature of the contract cannot depend on the mode of payment of the amount provided in the contract. This aspect of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which is the subject-matter of the contract. We have considered the above submission. It appears that at the bottom of the agreement, there is a note under the heading "for guidance only" which is as follows: "For guidance only: Rs. I Indigenous machinery at 6 per cent sales tax and general tax on Rs. 45,70,685 2,74,241 II Excise duty on indigenous machinery confined to Rs. 90,000 only irrespective of cost amount. 90,000 Total 49,34,926 III Cost of municipal establishment for supervision of equivalent to 2.5 percent of the total tendered amount for 20 months (month will be reckoned as 30 days each of 8 hours) Total contract amount 50,58,299 (Rupees fifty lakhs fifty-eight thousand two hundred and ninety-nine only). Note: The items I and II listed on this page are estimates only and are not part of the contractor's responsibility." We have perused the above note. We, however, do not think that the above note can, in any manner, assist us in the determination of the nature of the contract or affect the true nature thereof. The fact that provision has been made for payment of sales tax on the value of machinery cannot convert a works contract into tran ..... X X X X Extracts X X X X X X X X Extracts X X X X
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