Sale versus works contract test applied to lift contracts where supply was the real object and installation was incidental.

A contract for manufacture, supply, erection, installation and commissioning of lifts was held to be a sale rather than a works contract. The Court applied the true nature test by examining the contract as a whole, the predominant object of the parties, and how property passed to the customer. Because the customer had to complete site preparation and the supplier's main obligation was to manufacture and supply lifts, with installation being incidental, the transaction was treated as a sale. Section 5G of the Andhra Pradesh General Sales Tax Act, 1957 did not apply, and the assessment treating the turnover as taxable sales was restored.

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Issues: Whether the contracts for manufacture, supply, erection, installation and commissioning of lifts constituted a contract of sale or a works contract.

Analysis: The relevant statutory definitions treated as sale the transfer of property in goods in the course of trade or business, and treated as a works contract agreements for manufacture, erection, installation and commissioning. The decisive test was the true nature of the transaction as gathered from the contract as a whole, the predominant object of the parties, and the manner in which property passed to the customer. On the contract terms, the customer had to prepare the site, approve drawings, and complete civil and other pre-installation work before installation could begin. The assessee's obligation was to supply lifts in knocked-down form and install them after the site was made ready. The material and components remained the assessee's property until handover, but the overall transaction showed that the assessee was in the business of manufacturing and selling lifts, with installation being incidental to supply. The major component of the end product was the material consumed in producing the lift, and the skill and labour involved in erection and commissioning were only incidental.

Conclusion: The transaction was a sale and not a works contract, and section 5G of the Andhra Pradesh General Sales Tax Act, 1957 did not apply.

Final Conclusion: The department succeeded, and the assessment treating the disputed turnover as taxable sales under entry 82 was restored.

Ratio Decidendi: In determining whether a contract is one of sale or works contract, the substance of the transaction, the predominant object of the contract, and the manner of passing of property must be examined; where supply of the manufactured article is the real object and installation is incidental, the transaction is a sale.

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