Divisible tile supply contract with separate sale element held taxable despite linked fixing and polishing work.

A contract for supplying, setting and polishing tiles was treated as divisible where the agreement showed a separate sale of tiles and an independent undertaking to do fixing work. The governing test was the parties' intention, drawn mainly from the contract terms and surrounding circumstances. Separate treatment of delivery, risk, inspection, termination rights and pricing for tiles versus setting and polishing supported severability. On that basis, the sale component was liable to sales tax under the Bombay Sales Tax Act, 1959, even though the arrangement was contained in one document. The transaction was therefore not an entire and indivisible works contract.

---

---

Issues: Whether the contract for supplying, setting and polishing tiles was a divisible contract with a sale element liable to tax under the Bombay Sales Tax Act, 1959, or an entire and indivisible works contract.

Analysis: The governing test was the intention of the parties, to be gathered primarily from the terms of the agreement and, where necessary, surrounding circumstances. A contract is a sale when the parties intend delivery of goods as such, even if work and labour is involved in bringing them into existence; it is a works contract when the supply of materials is merely incidental to the performance of service; and it is divisible where the agreement discloses both a sale of goods and a separate undertaking to do work and labour. The contract terms showed separate treatment of delivery, risk, examination of goods, and the right to terminate the fixing arrangement while retaining liability only for the supply of tiles. The payment structure also supported separation of the tile price from the setting and polishing charges.

Conclusion: The contract was divisible, the sale element was taxable, and the question was answered in the affirmative against the assessee.

Final Conclusion: The reference was decided in favour of the taxing authority on the footing that the transaction contained a severable sale component liable to sales tax.

Ratio Decidendi: Where an agreement on its terms shows that goods are sold and delivered separately from services, and the parties intended a severable arrangement, the sale component of the transaction is taxable even if embodied in a single document.

---