1967 (5) TMI 61 - SC - VAT and Sales Tax

Steel fabrication and installation not taxable as sales; classified as works contracts. Specialized labor involved.

The Supreme Court held that the turnover from the fabrication, supply, and erection of steel structures and the turnover from the fabrication and ... Works contract - contract of sale - turnover - sale price - inter-State trade or commerce - transfer of property - work and labour - inclusive priceWorks contract - contract of sale - transfer of property - turnover - Turnover received under the contract for fabrication, supply and erection of steel structures for the co-operative society was not taxable as sale but was a works contract. - HELD THAT: - Under the Central Sales Tax Act only turnover from sale of goods in the course of inter-State trade or commerce is chargeable, and that requires a bargain for sale of specific goods with transfer of property as the principal object. The correspondence between the parties showed a consolidated lump price per ton for fabrication, supply and erection, no provision for passing property before completion of erection, no dissected valuation separating materials from labour, the necessity for special fabrication for the particular erection, and the predominance of specialised skill and labour. These features establish that the contract's main object was the performance of work and labour to fabricate and erect structures on site rather than a contract to sell chattels as such. The bills drawn at a different per-ton rate did not establish two separate contracts (one for sale and one for erection) and did not displace the contractual character established by the correspondence. Consequently the consideration was received under a works contract and not as sale of goods.The amount received for fabrication, supply and erection of steel structures constituted consideration under a works contract and was not liable to assessment as turnover from sale.Works contract - contract of sale - inclusive price - work and labour - Turnover from fabrication and installation of bottle cooling units supplied to customers was not taxable as sale but constituted a works contract. - HELD THAT: - The arrangements for bottle cooling equipment involved bespoke fabrication of component parts according to the customer's specifications, delivery to site and installation on a suitable base by trained technicians. The price charged was inclusive for fabrication and installation. The installation was not merely incidental to a sale of a completed chattel but formed an integral part of the obligation undertaken. These characteristics indicate that the contracts were for work and labour to supply and install a specially fabricated unit at the customer's premises, i.e., works contracts rather than contracts for sale of specific goods.The amounts received for fabrication and installation of bottle cooling equipment arose from works contracts and were not assessable as turnover from sale.Final Conclusion: Both challenged items of turnover were held to arise from works contracts (fabrication and erection/installation) and not from contracts of sale; the appeal is dismissed with costs. Issues Involved:1. Taxability of turnover from the fabrication, supply, and erection of steel structures.2. Taxability of turnover from the fabrication and installation of bottle coolers.Detailed Analysis:1. Taxability of turnover from the fabrication, supply, and erection of steel structures:The respondents, engaged in business as engineers and contractors, were assessed for Central sales tax by the Madras assessing authority for the year 1957-58. The authority included Rs. 3,26,075.20 received under a contract for the fabrication, supply, and erection of steel structures for a co-operative society setting up a sugar factory in Mysore. The respondents contended that this amount should not be included in the taxable turnover. The assessing authority rejected this claim, considering the transaction as primarily a sale of steel structures with an additional contract for installation or erection.Upon appeal, the Appellate Assistant Commissioner of Commercial Taxes held that the transaction was for execution of work and not assessable to sales tax. However, the Sales Tax Appellate Tribunal, Madras, held that the turnover from both items was taxable. The High Court of Madras, on revision, upheld the respondents' plea that the amounts were received under works contracts and thus not liable to sales tax.The Supreme Court analyzed whether the contract was for the sale of goods or a works contract. The Court noted that under the Central Sales Tax Act, turnover from the sale of goods alone is chargeable to tax. For the consideration received to be taxable, it had to be established that the respondents sold specific goods and that the property in the goods passed to the society upon delivery. The Court referred to Halsbury's Laws of England and the case of Clark v. Bulmer to distinguish between a contract for the sale of goods and a contract for work and labor.The Court examined the correspondence between the parties, which revealed that the contract was for designing, detailing, fabricating, and erecting steel structures. The High Court had concluded that the contract was a works contract based on several features, including a consolidated lump payment, no provision for passing property in the goods before erection, and the predominant idea of special skill and labor.The Supreme Court agreed with the High Court's conclusion, finding no evidence of a separate contract for the supply of fabricated steel parts and another for their erection. Thus, the turnover from the fabrication, supply, and erection of steel structures was not taxable as a sale of goods.2. Taxability of turnover from the fabrication and installation of bottle coolers:The second issue concerned Rs. 43,349.05 received for the fabrication and installation of bottle coolers. The assessing authority held that the respondents had sold bottle cooling units and that the contracts were not converted into works contracts by the installation of the units.The Supreme Court examined the nature of the contracts for bottle coolers. Customers placed orders for bottle cooling equipment, which the respondents fabricated according to specifications and installed at the customers' premises. The Court noted that the installation was not merely auxiliary but an integral part of the contract. The respondents charged an inclusive price for both fabrication and installation.The Court found that each bottle cooling equipment required special fabrication and installation by trained technicians. The contracts were for supplying a specially designed and fabricated unit to be installed at the customer's premises, not for the sale of specific goods.Thus, the Supreme Court concluded that the turnover from the fabrication and installation of bottle coolers was also not taxable as a sale of goods but was a works contract.Conclusion:The Supreme Court dismissed the appeal, holding that both the turnover from the fabrication, supply, and erection of steel structures and the turnover from the fabrication and installation of bottle coolers were not taxable as sales of goods but were works contracts. The appeal was dismissed with costs.