Works contract principle applied to installation agreements where materials are incidental to completing a functional system.

A contract for installation of an automatic sprinkler and fire alarm system was treated as an indivisible works contract, not a divisible arrangement for sale of materials and separate labour. The dominant object was the completion and installation of a functioning plant through skilled fitting, erection on site, technical design, and adjustment of plans, while clauses on delivery, retention of property, fire risk, and removal on non-payment were only protective stipulations. The use of standardised or imported materials did not alter the essential character of the bargain. Where the main intention is execution of work and materials are only incidental, the transaction is not a separate sale of goods as chattels.

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Issues: Whether the contract for installation of the automatic sprinkler and fire alarm system was an indivisible works contract or a divisible transaction consisting of a sale of materials and separate labour and services.

Analysis: The documentary terms showed that the dominant object of the arrangement was installation of a complete plant for the mills, with skilled fitting, erection on site, technical design, adjustment of plans, and payment linked to completion of the entire work. Clauses relating to delivery, retention of property until full payment, fire risk, and removal on non-payment were treated as special protective stipulations and not as indicators that the parties intended two separate contracts. The fact that materials were standardised or that some parts were imported did not alter the essential character of the bargain, which was to complete and install a functioning system. The reasoning was aligned with the principle that where the main object is execution of work and use of materials is ancillary to that work, the transaction is a works contract and not a sale of goods as chattels.

Conclusion: The contract was not divisible into a sale of materials and separate labour and services; it was an indivisible works contract. The answer to the referred question was in the negative and was in favour of the assessee.

Ratio Decidendi: A contract whose predominant intention is the installation and completion of a functional system by work, labour, and technical skill is a works contract, even if property in materials used may ultimately pass under the arrangement, and it is not taxable as a separate sale of materials unless the agreement clearly shows divisibility.

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