1965 (5) TMI 30 - HC - VAT and Sales Tax

High Court: Steel window contract not subject to sales tax. Engineering skill involved. Property passes upon installation.

The High Court determined that the contract between the assessee and the President of India for providing and fixing steel windows in a government ... - Issues Involved:1. Whether the transaction between the assessee and the President of India amounted to a sale liable to sales tax.2. Whether the contract was divisible between providing and fixing the windows.3. Whether the contract was an indivisible contract of work and not of sale.Detailed Analysis:Issue 1: Whether the transaction amounted to a sale liable to sales tax.The Board of Revenue for Rajasthan referred to the High Court to determine if the contract between the assessee and the President of India amounted to a sale liable to sales tax. The assessee, a public limited company, entered into a contract to provide and fix steel windows in a government building. The Sales Tax Officer assessed the assessee for sales tax on the total amount received from the contract, despite objections. The Deputy Commissioner and the Board of Revenue upheld this decision, leading to the referral to the High Court.Issue 2: Whether the contract was divisible between providing and fixing the windows.The Deputy Commissioner held that the contract consisted of two separable parts: providing and fixing the windows. The Board of Revenue, while dismissing the assessee's revision application, observed that the assessee did not separately quote labour charges for fixing the windows, which would be a small proportion of the total transaction value. Therefore, it directed the Sales Tax Officer to ascertain the labour charges and deduct them from the total amount to determine the taxable turnover. The High Court, however, found that the question referred by the Board was larger in scope than necessary and reformulated it to focus on whether the contract was divisible and thus partly liable to sales tax.Issue 3: Whether the contract was an indivisible contract of work and not of sale.The High Court examined various precedents to determine the nature of the contract. The learned counsel for the assessee argued that the contract was for 'work' and not for 'sale,' citing several cases where similar contracts were deemed indivisible and not liable to sales tax. The Advocate-General contended that the contract was divisible, with the latter part (fixing) being nominal and insignificant.The High Court analyzed the contract's terms, which included providing and fixing steel windows as per approved drawings, and found that the contract involved obtaining steel, fabricating windows, and fixing them in the building. The Court concluded that the contract was akin to a building contract, where the property in the fabricated windows passed only after they were fixed in the building, thus becoming part of the immovable property. Citing Gannon Dunkerley's case, the Court held that such a contract could not be broken into components to treat one part as a sale.The Court also considered other cases like Carl Still's and Voltas', where contracts involving the provision and installation of machinery or structures were deemed indivisible and not liable to sales tax. The Court found that the contract before it included engineering skill and was for an all-inclusive price, making it an indivisible contract of work.Conclusion:The High Court concluded that the contract between the assessee and the Executive Engineer, Central Public Works Department, Ajmer, was an indivisible contract of work and not of sale. Therefore, it was not liable to sales tax. The reference was answered accordingly, with no order as to costs.