TMI Blog1964 (7) TMI 52X X X X Extracts X X X X X X X X Extracts X X X X ..... erienced mechanics and specialists engineers of the petitioner-company. 2. In this revision petition, which relates to the assessment year 1957-58, the dispute relates to three items. The first item is with regard to the turnover of a sum of ₹ 3,26,075.20 nP. received from its customers, Pandavapura Sahakara Sakhare Karkhane Ltd. (hereinafter called the sugar factory), for the fabrication, supply and erection of steel structures at the site of the sugar factory in Pandavapura, Mysore State, according to the written contract which was entered into between the sugar factory and the petitioner. The objection of the petitioner is that this item represents moneys received in respect of a works contract entered into between the petitioner, and its customer, the sugar factory, while the contention of the State is that it represents the price paid for the goods sold by the petitioner-company. The question for determination is whether the turnover in question relates to a works contract or a contract for the sale of goods. 3. The second item relates to a sum of ₹ 43,349-05 nP. representing payments received from the customers by the petitioner, for the manufa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all cases. In a majority of works contracts, the contractor, while carrying out his work supplies some component parts to complete the work, either by manufacturing or fabricating such parts or by delivering or supplying them simply from out. of his stock. But that does not necessarily mean that there is a sale of those component parts by the contractor. The crucial question is whether the agreement between the parties was that such parts should be treated as sold separately or they were merely supplied in the course of carrying out a works contract. In order to make it a contract for sale of goods, there should be clear proof of an intention to sell and purchase the materials as such, independently of the work that was to be carried out. If the contract is an entire indivisible contract in the sense that the consideration for the entire work including the fabrication and supply of materials is the payment of an inclusive lump sum, there is no scope for applying the notion of a contract of sale of goods. The materials supplied for the performance of a contract are merely accessory to the work and labour. 7. In cases, where the contract in question consists of the fabricat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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. 10. In order to ascertain the real intention of the parties, we shall now consider the true scope and the proper interpretation of the contract between the parties. It must be mentioned at the outset that the petitioner-company are not dealers in raw steel materials, like girders, trusses, rivets, nuts, bolts, etc., but they carry on business essentially as structural engineers and contractors, employing experienced and specialised engineers and mechanics. Such stock of steel materials as they have in ready stock are not for sale in the market, but are only used by them in the course of the aforesaid businesses. This important aspect touching the nature of the business activity of the petitioner should be borne in mind in determining the true meaning and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es referred to therein. It is unnecessary to set out those clauses in extenso). 4. Delivery.--Our rates quoted for the fabrication and supply of all steel work will be for delivery F.O.R. our works siding, Madras. All freight, unloading and cartage charges from Madras to site will be your responsibility and at your cost. All A.C. materials to be delivered to us at site, free of cost. 5. Loss or Damage.--We regret we cannot accept liability for loss or damage after the goods have left our works unless the loss or damage results from negligence on our part. Further, we cannot undertake any steps to recover losses from the parties responsible as such steps must be taken by your goodselves, but all necessary assistance will be rendered by us wherever possible. 8. Method of payment.--We will require payment to be made as follows: Structural steelwork.--To be paid on the weight calculated according to B.S. weight from the nett lengths and sizes of sections as shown in our material lists, without deductions for holes, notches and skew cuts. Additions will be made for the weights of rivets and bolts and nuts at 5% of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The Pandavapuram Sugar Factory Ltd., Pandavapura, Mysore State. Dear Sir, Erection of Steelwork, etc. for New Sugar Factory Buildings. We are in receipt of your letter of the 22nd ultimo and note therefrom the revision in the programme of fabrication, delivery and completion of erection of the buildings by us to suit the machinery erection programme. Due to this change the programme already given to you by our letter dated 19th July, 1957, has been cancelled and the following will be the revised tentative programme: (a) Boiling House.--Fabrication of stanchions will be completed by mid September, 1957. Fabrication of trusses, purlins, and beams will be completed by end of September, 1957: Provided the stanchions and trusses are received at site by the end of the first week of October, 1957, we will commence erection of the stanchions by mid October, 1957, and complete all steelwork and trusses, stanchions and purlins in this House by mid November, 1957. (b) Boiler House.--Fabrication of stanchions will be completed in the first week of November, 1957, and trusses, etc., by end November, 1957. Assuming th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by way of sample two receipts passed by the assessee when they received payments: The Secretary, The Pandavapura Sahakara Sakhare Kharkhane Ltd., Pandavapura, Mysore State. On Account Bill No. 1/A, New Sugar Factory at Pandavapura. Your letter dated 26th February, 1957. The Secretary, The Pandavapura Sahakara Sakhare Kharkhane Ltd., Pandavapura, Mysore State. On Account Bill No. 2. New Sugar Factory at Pandavapuram, Your letter dated 26th February, 1957. Rupees seventy-eight thousand, one hundred and fifty-seven and naya Paise twenty only. 12. We have perused all the relevant clauses of this agreement and we are clearly of the opinion that judged by all tests the contract in question is one entire indivisible contract for the execution of works, and it is impossible to read into this contract any notion of an element of a contract for sale of goods. The predominant intention of the parties is the performance or carrying out of certain works, and there is no contract for t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... steelwork will be for delivery F.O.R. and that all freight, unloading and cartage charges from Madras to site will be the responsibility and cost of the factory. He also relied on Clause 9 (a) and (b) providing for payment of 100 per cent. of the value of the raw materials, as well as 100 per cent. of the contract rate in the case of fabricated materials placed F.O.R. work siding, Madras. We see no substance in this argument as it proceeds upon a misconception and misunderstanding of the purpose and object for which Clauses 4 and g have been included in the quotation of the petitioner. It should not be overlooked that the petitioner had stipulated for the payment at the rate of ₹ 1,160 per ton of steelwork for fabrication and supply and erection at site of the entire steel structure. Clause I, standing alone, by itself, would mean that as the contract is for the. construction of the structure at the site the petitioner should be deemed to have undertaken the entire responsibility for every portion of the work, supply of materials, fabrication, erection as well as the charges for loading, unloading, cartage, railway freight, etc. In other words, clause I would take in every p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ult on the part of the petitioner, the petitioner would in law be obliged to give restitution of all the payments made by the factory. So long as the petitioner does not complete the work, the factory will be entitled to refund of all the moneys paid by it. 17. This aspect of the matter can also be looked at from a different angle, from the point of view of the factory. The factory cannot put an end to the contract and stop the erection work in the middle and offer to pay to the petitioner the value or the price of the materials as gathered and assembled at the spot, making a proportionate allotment for the labour involved, on the ground that the factory had become the owner of the goods stocked at the spot from time to time. The petitioner would be entitled to take away the goods gathered at the spot as their own and make a claim for damages against the factory for breach of contract. In other words, so far as the property in the goods is concerned, it throughout remains with the petitioner till the erection work is over and the fabricated materials are fastened to the site proper. To sum up, therefore, the following features are conclusive and decisive to hold that the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt payment. There is not the slightest warrant for understanding this contract as consisting of two separable and distinct component parts, (a) contract for the supply of fabricated steelwork at ₹ 1,100 per ton, and (b) ₹ 60 as charges for erection work. Any such theory based upon such an interpretation of the receipts would completely militate against and destroy the basic structure and features of the agreement between the parties as set out in the quotation referred to above. 19. We have discussed the matter so far, on the footing that the property in the materials had not been transferred to the employer, i.e., the factory, as that is regarded as one of the tests. But it does not necessarily follow that in all cases in which the property in the component parts used in the work in question passes to the employer the contract will be regarded as a contract for sale of goods. Even if property had passed it is merely accessory to work and labour and the contract will nevertheless be an indivisible contract for work and labour if the paramount intention of the parties was a bargain for work and labour and not for sale and purchase of goods. In other words, in su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned to the site and the erection work is complete. 21. In this connection we may also refer to the decision in Seath v. Moore (1886) 11 App. Cas. 350 in which the question arose whether the materials manufactured and provided by a certain ship-builder, whether wholly or partially finished, could be regarded as appropriated to the contract or are sold before they were actually affixed and formed part of the ship. The argument on behalf of the shipowner, i.e., the person who bargained for the building of the ship, was that as and when the parts were manufactured they vested in him and became his property whenever he made payment to the account of the price such as they considered proportionate to its value. The House of Lords negatived that contention and held that the property of that part of an unfinished ship which had not been actually constructed could not be held to have passed to the purchaser. Lord Watson observed at page 381 as follows:-- There is another principle which appears to me to be deducible from these authorities and to, be in itself sound, and that is, that materials provided by the builder and portions of the fabric, whether wholly or partially ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Lordships, for the simple reason, which was mentioned by my noble and learned friend on the Woolsack, that here, there was no contract for purchase of these materials. The learned counsel, and also the learned Judges in the Court below seem to me to have proceeded on the supposition or hypothesis that this contract contained, not only a contract for the purchase of the ship but a separate contract for the purchase of the materials also; and that seems to me to be a complete fallacy. There is only one contract--a contract for the purchase of the ship. There is no contract for the sale or purchase of these materials separatim; and unless you can find a contract for the sale of these chattels within the meaning of the Sale of Goods Act, it appears to me that the sections of that Act have no application whatever to the case. 24. It is unnecessary to refer to other cases, and it is sufficient to refer to the decision of the Supreme Court in Carl Still g.m.b. H. v. State of Bihar [1961] 12 S.T.C.449 as the contract involved and the facts of that case bear close resemblance to the instant case. In that case, the contractor agreed to set up a complete coke oven battery and by-prod ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s a bottle-cooler as a finished product, like a refrigerator. No customer entering the place of business of the petitioner can ask for the sale of a bottle-cooler equipment across the counter. The customer desiring such an equipment has got to place an order and the petitioner manufactures and fabricates the component parts according to the requirements and specifications of the customer, despatches those component parts to the site and installs the same on a suitable base and foundation. As we will presently show the work done by the assessee at the premises of the customer while the bottle-cooler equipment is installed is of equal importance and significance as the fabrication and supply of the component parts. It can by no means be said that the installation of the cooler equipment in the premises of the customer is merely auxiliary or mechanical or incidental, and that the predominant part of the contract relates only to the supply of the equipment. The terms of the contract and the affidavit filed by the assistant to the petitioner clearly show that the skill and labour employed by the specialist engineers of the petitioner-company both while manufacturing and fabricating the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on and installation of the equipment, and that the order cannot be dissected as one portion comprising a contract for work and labour and another portion for a contract for the sale of goods. The affidavit of the assistant (at page 69 of typed papers Vol. II) shows that in the first instance the petitioner fabricates a suitable mild steel brine tank with the required number of storage sleeves according to the requirements and specifications of the customer. Then the tank after processing is insulated with the required thickness of insulating materials mounted on a suitable reinforced wooden frame fabricated at the premises of the petitioner; then the required size of evaporator coils are selected and they are shaped to form coils specially suitable for housing inside the tank. 28. After the insulation work is over a template of the top is taken and the selected top will be manufactured to cover the top of the cooler. Required size of connections and fittings will be attached to the evaporator coils along with the suitable gasket sheets. The compressor, motor pulley drive belt, etc., required for the installation will be selected and fitted with suitable slide rails. The in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that an overall view of the contract is one for execution of work. This is certainly not a case where Richardson Cruddas, Ltd., could pick up the various pieces of the component parts either from its own stock or from the ready market and just put them together and leave it at the customer's premises. Further as observed earlier, this cooler equipment is not available for sale across the counter, and a customer cannot take delivery and begin working it by simply switching the plug or switch as in the case of refrigerators or frigidaires. 31. The learned Additional Government Pleader contended that the principles which are applicable to works contracts like construction of buildings and erection of heavy steel structures which are fastened to the land would not apply to contracts of sale of a chattel. He urged that the case of a contract of the sale of a chattel should not be viewed as a contract for works merely because a particular chattel is manufactured by the dealer according to the special specifications and requirements of a customer. By way of illustrative instances he referred to the case of a customer entering a shoe-mart and placing an order for a particula ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted from the charges of fixing or installing it. 32. He also placed considerable reliance on the observations in a Bench decision of this Court in State of Madras v. Voltas Ltd. (I Voltas case) [1963] 14 S.T.C. 446 An examination of both the contract and the note clearly indicates that this is not analogous to a case where a dealer in refrigerating machinery supplies a self-contained unit for the purpose of air-conditioning one or more rooms. Where such air-conditioning on a small scale is called for, there are units indicated as 1 ton , 2 tons, etc., upto 5 tons, which can, without modification air-condition spaces of limited area and volume. Provision of such air-conditioning calls for nothing more than making the room more or less air-tight and fixing the unit in question to a window or other aperture and sealing off any draught of air except through the air-conditioning apparatus. Had it been a case of a dealer supplying air-conditioning units of that type in large numbers to air-condition individual rooms even of a large building, it might perhaps follow that what was really involved was a sale of the air-conditioning unit, though certain charges might be le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... operty is merely ancillary to the contract for the performance of work such a contract does not thereby become a contract of sale . 36. In 77 Corpus Juris Secundum, the law is stated in the following terms at page 585:-- The distinction has been made that, if the property is not such as the seller usually has on hand for sale and in existence at the time of the sale, but is made specially for the buyer and on his special order, the contract is one for work and labour, and not of sale; but that if the property ordered is exactly such as the seller makes and keeps on hand for sale to anyone, and no change or modification of it is made at the buyer's request, it is a contract of sale, even though it may be entirely made after, and in consequence of, the buyer's order for it.... A contract to furnish a movable thing and affix it to the freehold is not a contract for the sale of goods, but one to furnish materials and affix them to the freehold by work and labour, and, until the materials are affixed, title to the materials does not pass. 37. The following foot-note referring to the case of Crystal Recreation v. Seattle Ass'n of Credit Men 209 Pac. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a chattel for which the price is to be paid. This is not an engine until it is put together, which done at the defendant's colliery. An engine of this nature is never sent out as a whole, but in parts, which are afterwards put up together in the spot where it is to be used. The plaintiffs contract to build an engine to be completed and fixed; but it is not an engine until it is completed and fixed.... But he cannot maintain an action for work and labour, because his labour was bestowed on his own materials, and for himself, and not for the person who employed him. Here is a chattel to which everything that is to be done for it to render it complete is to be done by the plaintiffs, cost what it may, and they cannot maintain an action for work and labour, because it is employed on their own materials. It is not work done for the defendants, but for themselves, the plaintiffs, until the thing contracted for is completed. The contract was for an engine--not for the several parts but the whole. Fixing is as much a part of the engine as putting in the first screw; and it is not a main engine until it is fixed and put up fit for work. 40. Parke, B., dismissing the plaintiffs ..... X X X X Extracts X X X X X X X X Extracts X X X X
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