Inter-State sale versus works contract: lift supply with incidental installation was treated as a sale, making detention unjustified.

A contract for design, manufacture, supply, installation, testing and commissioning of lifts was treated as a contract of sale where the essential object was supply of lift goods in semi-knocked-down condition and installation was merely incidental. Applying the settled test for inter-State sale, the Court noted that the contract provided for movement of goods from one State to another pursuant to the agreement, so the transaction retained the character of an inter-State sale rather than a works contract. On that basis, detention of the goods and refusal to release them under the Punjab VAT law were held unjustified, and release of the goods was directed.

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Issues: Whether the movement and supply of lift parts pursuant to the agreement constituted an inter-State sale or a works contract, and whether detention of the goods and refusal to release them was justified under the Punjab VAT law.

Analysis: The transaction was tested by the settled criteria for inter-State sale, namely, existence of a contract of sale providing for inter-State movement of goods, actual movement of goods pursuant to that contract, and movement from one State to another where the sale concluded. The agreement showed that the dominant obligation was design, manufacture, supply, installation, testing and commissioning of lifts, but the Court held that installation was only incidental and did not alter the essential character of the transaction. Applying the distinction between a contract for sale and a works contract, the Court found that the substance of the agreement was transfer of lift goods in semi-knocked-down condition, with installation ancillary to supply. The earlier detention in similar facts and the subsequent release of goods were also treated as supporting the petitioner's stand.

Conclusion: The transaction was an inter-State sale and not a works contract. The detention order and subsequent proceedings were unjustified, and the petitioner was entitled to release of the goods.

Ratio Decidendi: Where the essential object of the contract is supply of goods and installation is merely incidental, the transaction remains a contract for sale and, if the contractual movement of goods is from one State to another, it is an inter-State sale.

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