Indivisible works contract treated as accession to immovable property, so materials were not taxable as a separate sale.

An entire lump-sum contract for sanitary installation, water-supply and drainage work was held to be indivisible, so it could not be split into separate contracts for labour and sale of materials. On that footing, the materials used in execution were not taxable as a distinct sale under the Orissa Sales Tax Act. The materials were fixed to the buildings and became part of the immovable property, so title passed by accession rather than by sale as movable goods. The taxing authorities failed to show any separate taxable sale of materials, and sales tax was therefore not leviable on the contract materials.

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Issues: (i) Whether the contracts in question were divisible contracts attracting liability to tax under the Orissa Sales Tax Act. (ii) Whether the property in the goods supplied in execution of the contracts passed by accession to immovable property and not by sale as movable goods.

Issue (i): Whether the contracts in question were divisible contracts attracting liability to tax under the Orissa Sales Tax Act.

Analysis: The agreement showed a lump sum undertaking for sanitary installation, water-supply and drainage work, with no separate provision for payment for materials. The work was a single integrated undertaking and not two separate contracts of sale and service. A works contract that is entire and indivisible cannot be split up for the purpose of taxing materials as if there were a sale of goods.

Conclusion: The contracts were not divisible contracts and were not taxable on that footing.

Issue (ii): Whether the property in the goods supplied in execution of the contracts passed by accession to immovable property and not by sale as movable goods.

Analysis: The materials used in the execution of the contract were fixed to the buildings and became part of the immovable property. In such a case, title does not pass as movables by sale; it passes by accession when the materials are embedded or affixed to the structure. On the facts, the taxing authorities failed to establish any separate taxable sale of materials.

Conclusion: The property in the goods passed by accession to immovable property and not by sale as movable goods.

Final Conclusion: The reference was answered in favour of the assessee by holding that the contract was a pure works contract and that no sales tax could be levied on the materials used in its execution.

Ratio Decidendi: An entire and indivisible works contract cannot be bifurcated into a sale of materials and a contract for labour, and materials embedded in immovable property do not pass by sale as movable goods.

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