TMI Blog1995 (2) TMI 379X X X X Extracts X X X X X X X X Extracts X X X X ..... transactions by the assessee on the ground that these transactions amounted to works contract. The assessee, therefore, made an application under section 52(1)(c) of the Bombay Sales Tax Act, 1959 ("the Act") to the Commissioner of Sales Tax seeking determination of the question whether the transactions in question were transactions of "sale". For that purpose, the assessee submitted requisite details of a transaction of supply, erection and commissioning of a plant at site of M/s. Bharat Plastics, Bombay, which was evidenced by invoice dated February 23, 1977. The assessee furnished the invoice, relevant correspondence, bills, designs, drawings, reports, etc., to enable the Commissioner to appreciate the true nature of the transaction. The assessee also submitted literature about different types of machineries supplied by it to its customer. A note on the actual procedure of operation and completion of the transaction, giving the various stages of erection, date-wise report of work-inprogress and service reports of the personnel entrusted with the erection and commissioning of the said plants, was also submitted for the perusal of the Commissioner. A copy of contract dated Octobe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the supply of machinery and hence it was a transaction of "sale" within the meaning of section 2(28) of the Act. Counsel, however, did not dispute the fact that the amount of consideration settled between the parties in the instant case also included the cost of erection and installation of the machinery at site. His contention, in fact, was that looking at the totality of the terms and conditions of the agreement between the parties, the transaction has to be held to be a transaction of sale and not a works contract. In support of the above contention, our attention was drawn to some of the terms of the contract, in particular, the term which requires the machineries to be insured by the customer while in transit. It was also pointed out that the total value of the order was to be paid within 15 days of receipt of intimation of the machinery being ready for delivery. Our attention was also drawn to the clause which deals with sales tax to show that there was a provision for payment of sales tax at the rates applicable at the material time. 4.. We have considered the submissions of Mr. Desai, the learned counsel for the Revenue. We have also heard the learned counsel for the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. All raw materials and skilled and unskilled labour required for erection will have to be provided by you. Delivery: In approximately 4/8 weeks from the date of receipt of the order subject to confirmation by us at the time the order is received. The delivery period quoted is only an indication at all times subject to delay due to war, strikes and any other circumstances beyond our control and subject to force majeure. No responsibility for any direct or indirect loss arising out of delay in delivery will be accepted by us." From the above clauses, particularly the clause dealing with erection, it is clear that all inclusive price was charged for the supply, erection and commissioning of the plant. In the light of these facts, we are to decide whether this transaction is a works contract or sale of goods. 6. 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 con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the custom of the trade. 8.. It is thus obvious that the question as to under what circumstances a contract can be said to be a works contract is not free from difficulty and has to depend on the facts of each case. Though it is difficult to lay down any rule of universal application, there are some well-recognised tests which are laid down by decided cases of the Supreme Court which afford guidelines for determining as to whether a contract in question is a works contract or a contract for supply of goods. One of the important tests is to find out whether the contract is primarily a contract for supply of materials at a price agreed to between the parties for the materials so supplied and the work or service rendered is incidental to the execution of the contract. If so, the contract is one for sale of materials and the sale proceeds would be exigible to sales tax. On the other hand, where the contract is primarily a contract for work and labour and materials are supplied in execution of such contract, there is no contract for sale of materials but it is a works contract. The circumstance that the materials have no separate identity as a commercial article and it is only by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the price was to be revised if there was a change in the controlled price of billets supplied to the assessee. The tender was accepted and the assessee carried out the contract. The question was whether the sum of Rs. 23,480 received under the contract could be included in the taxable turnover for the purpose of sales tax. The Supreme Court on consideration of the above facts, held 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 or subsidiary to the sale, but was an essential term of the contract. The windowleaves did not pass under the terms of the contract as window-leaves. Only on the fixing of the windows as stipulated could the contract be fully executed and the property in the windows passed on the completion of the work and not before. The contract was therefore held to be a contract for execution of work not involving sale of goods. In Vanguard Rolling Shutters Steel Works v. Commissioner of Sales Tax [1977] 39 STC 372 (SC), the assessee manufacture ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntract would be fully executed." The Supreme Court then proceeded to examine what is a rolling shutter and how it is erected and installed in the premises and observed that a rolling shutter consists of several component parts and "the component parts do not constitute a rolling shutter until they are fixed and erected on the premises. It is only when the component parts are fixed on the premises and fitted into one another that they constitute a rolling shutter as a commercial article and till then they are merely component parts and cannot be said to constitute a rolling shutter. The erection and installation of the rolling shutter cannot, therefore, be said to be incidental to its manufacture and supply. It is a fundamental and integral part of the contract because without it the rolling shutter does not come into being. The manufacturer would undoubtedly be the owner of the component parts when he fabricates them, but at no stage does he become the owner of the rolling shutter as a unit so as to transfer the property in it to the customer. The rolling shutter comes into existence as a unit when the component parts are fixed in position on the premises and it becomes the propert ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y when the component parts are fixed in position and erected at the site, but at that stage it becomes the property of the customer because it is permanently embedded in the land belonging to the customer. The result is that as soon as 3-motion electrical overhead travelling crane comes into being, it is the property of the customer and there is, therefore, no transfer of property in it by the manufacturer to the customer as a chattel. It is essentially a transaction for fabricating component parts and putting them together and erecting them at the site so as to constitute a 3-motion electrical overhead travelling crane. The transaction is no different than one for fabrication and erection of an open godown or shed with asbestos or tin sheets fixed on columns. There can, therefore, be no doubt that the contract in the present case was a contract for work and labour and not a contract for sale." In State of Madras v. Richardson Cruddas Ltd. [1968] 21 STC 245, the Supreme Court also dealt with the question whether a contract for fabrication and installation of bottle cooling equipment at the premises of its customer was a contract for sale of the equipment or works contract. Unde ..... X X X X Extracts X X X X X X X X Extracts X X X X
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