TMI Blog2017 (4) TMI 731X X X X Extracts X X X X X X X X Extracts X X X X ..... e Judgment of the Supreme Court in Kone-II - The test employed by the Assistant Commissioner/ Assessing Officer in the impugned Judgment is no longer valid. Whether machine tools sold by the petitioner against Form-XVII declarations were to be taxed at concessional rate, (i.e. at the rate of 3%) under Section 3(5) of the Tamil Nadu General Sales Tax Act, 1959? - Held that: - the Assistant Commissioner/Assessing Officer has wrongly placed the onus on the petitioner to establish as to whether or not the machine tools sold by it had been consumed or not. Clearly according to us, once a declaration is furnished by the buyer in Form- XVII, the Department would have to ascertain from the buyer as to whether or not the machine tools had in fact been consumed - the matter requires reconsideration. Appeal allowed by way of remand. - W. P. No. 4198 of 2007 and M. P. No. 1 of 2007 - - - Dated:- 27-3-2017 - Rajiv Shakdher And R. Suresh Kumar, JJ. For Appellant : Mr. K. A. Parthasarathy For Respondent : Mr.S.Kanmani Annamalai ORDER ( Order of the Court was delivered by Rajiv Shakdher , J. ) 1. This is writ petition filed to set aside the order dated 03.01.2007, p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mil Nadu General Sales Tax Act, 1959 (in short 'the 1959 Act'). 8. As is evident on a perusal of the impugned order that qua both issues the Assistant Commissioner/Assessing Officer ruled against the petitioner and, consequently, not only imposed tax, but also went on to levy penalty on the petitioner. 9. The record, however, shows that in passing the impugned order insofar as the first issue was concerned, the Assistant Commissioner/Assessing Officer relied upon a three judge bench Judgment of the Supreme Court rendered in STATE OF ANDHRA PRADESH VS. KONE ELEVATORS (INDIA) LIMITED, reported in (2005) 140 STC 22 [in short 'Kone-I']. This aspect of the matter is evident upon reading the following observations, which are contained in the impugned order: In the quantitative analysis of the manufactured goods, finding a part of the balance sheet, the company's chartered accountant gives details of sanctioned or licenced capacities for various goods and actual production for the year and the previous year. Among the goods manufactured, one can find packaged air conditioners which are apart from other standard forms of window or split type of air condition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tract. In a contract of sale , the main object is the transfer of property and delivery of possession of the property, whereas the main object in a contract for work is not the transfer of the property but it is one for work and labour. Another test often to be applied to is : when and how the property of the dealer in such a transaction passes to the customer: is it by transfer at the time of delivery of the finished article as a chattel or by accession during the procession of work on fusion to the movable property of the customer? If it is the former, it is a sale ; if it is the latter, it is a works- contract . Therefore, in judging whether the contract is for a sale or for work and labour , the essence of the contract or the reality of the transaction as a whole has to be taken into consideration. The pre-dominant object of the contract, the circumstances of the case and the custom of the trade provides a guide in deciding whether transaction is a sale or a works- contract . Essentially, the question is of interpretation of the contract . It is settled law that the substance and not the form of the contract is material in determining the nature of transaction. No d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... int of first sale at a particular rate of tax. The authorities brought the transaction to tax as sale parking the commodity in the slot provided for it in the schedule whereas the assessee claimed it as works contract. Applying the test as above, the Supreme Court said, In the present case, on facts, we find that the major component of the end-product is the material consumed in producing the lift to be delivered and the skill and labour employed for converting the main components into the end-product was only incidentally used and, therefore, the delivery of the end-product by the assessee to the customer constituted a sale and not a works contract . Like in the case considered by the Supreme Court, the dealer's packaged air conditioners fit into the description given in the entry I of part G of the first schedule to the act introduced with effect from 17.7.96 by act 37/96 and published in the gazette dated 17.9.96, namely, Air conditioning plants . In the same way as in the case of lifts, the packaged air conditioners are also brought to site in the knocked down condition only after the civil work is ready, they are erected at the designated locations by arran ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was a contract for sale. The principal logic applied, i.e., the incidental facet of labour and service, according to us, is not correct. It may be noted here that in all the cases that have been brought before us, there is a composite contract for the purchase and installation of the lift. The price quoted is a composite one for both. As has been held by the High Court of Bombay in Otis Elevator (supra), various technical aspects go into the installation of the lift. There has to be a safety device. In certain States, it is controlled by the legislative enactment and the rules. In certain States, it is not, but the fact remains that a lift is installed on certain norms and parameters keeping in view numerous factors. The installation requires considerable skill and experience. The labour and service element is obvious. What has been taken note of in Kone Elevators (supra) is that the company had brochures for various types of lifts and one is required to place order, regard being had to the building, and also make certain preparatory work. But it is not in dispute that the preparatory work has to be done taking into consideration as to how the lift is going to be attached to the b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ransaction in issue related to a composite contract or not would have to be re-examined by the Assistant Commissioner/Assessing Officer keeping in mind the ratio of the Judgment of the Supreme Court in Kone-II. 11.1. The test employed by the Assistant Commissioner/ Assessing Officer in the impugned Judgment is no longer valid. 12. Insofar as the second issue is concerned, in our view even that aspect of the matter requires reconsideration. The reason for the same is that the Assistant Commissioner/Assessing Officer has wrongly placed the onus on the petitioner to establish as to whether or not the machine tools sold by it had been consumed or not. Clearly according to us, once a declaration is furnished by the buyer in Form- XVII, the Department would have to ascertain from the buyer as to whether or not the machine tools had in fact been consumed. In taking this view, we are fortified by the Judgment of the Division Bench of this Court rendered in SHREE MURUGAN ENGINEERING PRODUCTS VS. COMMERCIAL TAX OFFICER, COIMBATORE reported in 2006 148 STC 419 (Mad). The Division Bench in paragraph 5 and 15 of the said Judgment has made the following crucial observations: On a plai ..... X X X X Extracts X X X X X X X X Extracts X X X X
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