Composite works contract for air-conditioning installation was not a sale of goods and escaped sales tax treatment.

An air-conditioning contract for designing, fabricating, supplying, installing and integrating a building-wide system was treated as an indivisible works contract rather than a sale of goods. The court found no agreement to sell any machinery or materials as such; the reference to material values and stage-wise payments did not change the character of the arrangement. Because the materials were used only in executing the work and became part of the completed structure, no taxable sale arose under sales tax law, and the assessment was set aside.

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Issues: Whether the air-conditioning contract was an indivisible works contract not liable to sales tax as a sale of materials.

Analysis: The contract was for designing, fabricating, supplying, installing, and integrating an air-conditioning system for an entire building, with extensive technical supervision, site-specific construction, embedded machinery, ducts, false ceilings, tanks, pipes, and other structural features. On the terms of the contract, there was no agreement for sale of any machinery or materials as such. The mere reference to material values and stage-wise payments did not convert the transaction into a sale. Applying the principles governing sale of goods and composite works contracts, the Court held that where the agreement is only for execution of work and the materials used become part of the completed structure, no taxable sale of goods arises.

Conclusion: The contract was a composite and indivisible works contract, not a sale of goods, and no part of the turnover was liable to tax.

Final Conclusion: The assessment was rightly set aside, and the petition challenging that result failed.

Ratio Decidendi: A contract is not taxable as a sale of goods unless there is an agreement to sell the very goods as such; where the agreement is for execution of an indivisible works contract and the materials used are only incidental to that work, no sale arises for sales tax purposes.

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