TMI Blog2017 (12) TMI 1074X X X X Extracts X X X X X X X X Extracts X X X X ..... d no power to levy the tax on Works contract will not be of any assistance to the applicant - the contract in the instant case is predominantly for supply of equipment, erection and installation. FPDIL was required to carry out all preparation work , provide foundation, provide all civil works required, the equipment was merely supplied and installed. In the instant case, even assuming a contract was a works contract, we are of the view that the labour element was only incidental. The contract is itself described as a divisible contract. The intention of parties as derived from the diverse contractual provisions set out above leaves us in no manner of doubt that the contract in question was not a works contract but the dominant intention was of sale of equipment. Having reached that conclusion the question referred for our opinion is answered in the affirmative, in favor of Revenue. Appeal dismissed - decided against assessee. - SALES TAX REFERENCE (L) NO. 10 OF 2005 WITH SALES TAX REFERENCE NO. 35 OF 2017 - - - Dated:- 20-12-2017 - A.S. OKA A.K. MENON, JJ. Ms. Nikita Badheka a/w. Mr. Parth Badheka for the Applicant. Mr. B. B. Sharma, Spl. Counsel a/w. Mr. Him ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reflect the transaction in the returns and pay the applicable taxes. The taxes were deposited by the applicant as and when instructions were received from other places. The penalty levied was challenged. 6. Being aggrieved by the demand made pursuant to assessment orders dated 16thMarch,1984 and 20thMay,1984 appeals were filed. The appeals came to be partly allowed upon certain part payments being made. However, not being satisfied with the partial relief granted, Second Appeals came to be filed before the Tribunal. The Second Appeals were decided on or about 6th February, 1993. The main issue raised in these Second Appeals was whether the transactions between the applicant and the RCF pursuant to the work order dated 20th October, 1978 was a works contract transaction or a sales transaction. If they were work contract transactions, then they would not be liable to tax under the said Act otherwise tax was payable. The Tribunal found that the transaction was a Sales transaction and there was clear cut break up therein of the total contract price of ₹ 22 crores being cost of the material, compressors supplied and other costs of transportation. Rectification Applications file ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sider the contract as one of sale and the contract was in fact for design, erection and commissioning of the plant, hence not susceptible to payment of tax under the Bombay Sales Tax. She therefore submitted that the question referred may be answered in the negative in favour of the applicant assessee and against the revenue. 9. In the course of submissions Ms. Badheka relied upon the following judgments in support of the Applicants case: (i) Commissioner of Sales Tax vs. Steel Plant Pvt. Ltd. 99 STC 532 (BOM) (ii) Sentinel Rolling Shutters Engineering Company Pvt. Ltd. v. Commissioner of Sales Tax [1978] 42 STC 409 (iii) Ramsingh Sons Engineering Works v. Commissioner of Sales Tax, U.P. 1979 SCR (2) 621 (iv) Kone Elevator India Pvt. Ltd. vs. State of Tamil Nadu and Others [2014] 71 VST (SC) 10. Mr Sharma, learned Counsel appearing on behalf of the respondent submitted that the applicant's contentions are flawed, inasmuch as the transaction was essentially one of supply of equipment. The contract is clearly mentioned as a divisible contract. He invited our attention to the Work Order dated 20th October, 1978 which clearly makes reference ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nst rupee payment. (B) Clause 2.8.1. provides for inspection and testing at the contractors works. FPDIL has the right to access the contractors works for inspecting the material and workmanship used in relation to manufacturing and testing of the equipment. (C) Clause 2.9.0 talks of final acceptance which contemplates that after erection the equipments will be tested for satisfactory Commercial running to prove guaranteed performance for rated capacity. (D) Under clause 2.10.0 contractor is to furnish a phased schedule for erection of the equipment with a time bar chart for various stages. The said clause is material and is reproduced below; 2.10.0 : Phased schedule for erection of contract Contractor shall furnish a phased schedule for execution of the contract giving time bar chart for various stages of manufacture, inspection, shipping, clearance and dispatch. Contractor shall also furnish monthly progress report to FPDIL. It will be seen from the said clause that execution of the contract largely involves manufacture, inspection, shipping, clearance and dispatch. 14. The third schedule deals with prices. The total price is stated asRs.22 crores ou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... free from defects in design and material in relation to equipment and not in relation to the work of installation. Repair and replacement of the equipment is also contemplated at site. There is nothing to indicate that the guarantees also include the entire erection work. 17. Reference to clause 5.3.0 is material. Under the said clause the applicant is to guarantee performance of the equipment. Said clause is reproduced below : 5.3.0 : PERFORMANCE GUARANTEE Contractor shall guarantee that the performance of the equipment supplied shall be strictly in compliance with the contract specifications and shall perform the duties specified in the contract, provided that the equipment has been properly installed under the supervision of contractor's personnel and has been under normal and proper use and maintenance. Before tests are performed contractor reserve the rights of inspection, checking for proper setting of every unit and component parts. 18. The sixth schedule deals exclusively with packing, marking and despatch instructions since there is no dispute over the fact that the equipment with the contract envisages to a large extent supply of equipment. It is no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contract wherein there was specific mentioning of general sales tax leviable on the value of machinery required for erection of the plant and which was a subject matter of the contract. The Court did not choose to rely upon the bill of quantities to conclude that it was a contract of sale and also observed that the burden of proving that a work contract involved physical sale of material is upon the revenue and that such burden cannot be discharged merely by showing that the property could be so transferred to the other party. 20. In the case of Sentinel Rolling Shutters Engineering Company Pvt. Ltd. (supra), the contract was a contract for work and not a contract of sale. The question referred by the Tribunal was answered in favour of the assessee and in the course of rendering the said decision, the Supreme Court found that the contract in that case was one for installing rolling shutters. Rolling Shutters came into existence in a unit when component parts were fixed in position at location and laying property of the customer as soon as came into being. There was no transfer of property in the rolling shutter by the manufacturer as in a chattel. It was essentially found to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... HY XX 05 9 2068 1 0 557 504 71 1695/2.1.80 4,80,546.40 HY XX 07 9 2235 1 2 477 515 03 1853/24.1.80 12,17,840.00 HY XX 07 9 2234 1 2 465 515 02 1854/24.1.80 2,39,304.00 HY XX 07 9 2233 1 2 463 515 02 1855/24.1.80 4,70,704.00 HY XX 07 9 2232 1 2 467 515 03 1856/24.1.80 2,39,096.00 Apart from these documents nothing else is placed before the Tribunal which will help us to analyse the transactions as already stated. 24. Ms. Badheka had also relied upon a recent decision of the Supreme Court in the case of Kone Elevator India Pvt. Ltd.(supra). The issue involved was whether a contract for manufacture, supply and installation of lift is a works contract and not a contract of sale. It was held by the majority judgment that a contract for manufacture, supply and installation of lift is a works contract and not a contract for sale. The judgment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was observed that the contract must in no uncertain terms that it was one for carrying out the work and the supply of material parts. The dissenting view holds that in the facts of Kone Elevator (supra) the contract was only for supply of lifts and other element of works were virtually insignificant compared to the element of sale which was paramount. 27. In our view considering the factual matrix and the law and after applying the tests in Kone Elevator, it is evident that in the facts of the present case the contract was clearly one for supply and erection of equipment, supply of equipment being dominant purpose. No doubt the State of Maharashtra had enacted the Maharashtra Sales Tax on Transfer of property of goods involved in works contract Act only in 1982 but the contention that during the period under consideration 1979 80 and 1980 81 the State had no power to levy the tax on Works contract will not be of any assistance to the applicant. In our view the contract in the instant case is predominantly for supply of equipment, erection and installation. FPDIL was required to carry out all preparation work , provide foundation, provide all civil works required, the equipme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the present case is a works contract. It is essentially a contract for supply of compressors and allied equipment with a minuscule amount of work. It is also seen that the contract is itself described as a divisible contract . 31. Furthermore, Clause 2.00 detailing FPDIL'S / OWNER'S obligations in our view clinches the issue inasmuch as, it is FPDIL obligation to make available erection of the contracted equipment, make available bench marks, elevation and reference lines for locating equipment and undertake execution of all civil works including supply of electricity and providing crane facilities each for hire charges. Thus this is not turnkey job for manufacturing, supplying and erection of compressor as contended by the learned Counsel for the applicant. In a turnkey contract, save and except the site being made available, most other activities would have been undertaken by the contractor, but not so in the instant case as evident from the above. This brings us to the numerous invoices and debit notes all of which are addressed to the Finance Manager, RCF. Invoices are drawn by the applicant. They make reference to the Work Order and provide for supply of compre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... act where the transfer of property takes effect as incidental to the contract of service. 34. Although in Rainbow (Supra) it was held that the State cannot impose sales tax on the works contract simpliciter in the guise of an expanded definition found in Article 366 [29 A](b) read with Section 2(n) of the M.P. General Sales Tax Act, 1959, in the instant case, even assuming a contract was a works contract, we are of the view that the labour element was only incidental. The contract is itself described as a divisible contract. The intention of parties as derived from the diverse contractual provisions set out above leaves us in no manner of doubt that the contract in question was not a works contract but the dominant intention was of sale of equipment. Having reached that conclusion the question referred for our opinion is answered in the affirmative, in favour of the revenue and against the appellants with consequences to follow. 35. In the result, the following order must follow : (i) The question referred to this Court is answered in the affirmative, in favour of the revenue and against the assessee. (ii) No order as to costs. - - TaxTMI - TMITax - CST, VAT & Sale ..... X X X X Extracts X X X X X X X X Extracts X X X X
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