Employer-supplied materials support a works contract: incidental contractor materials do not turn fabrication work into a sale.

Where the employer supplied the principal material and the contractor's own materials were only incidental to fabrication and erection work, the arrangement was treated as a contract for work and labour rather than a sale of goods. The contract with the Bombay Port Trust was characterised as indivisible work and labour because the steel was supplied by the employer and the clauses focused on execution, supervision, inspection, and delay liability. The Century Rayon arrangement was also held to be work and labour, as any transfer of property was incidental to performance and not a separate sale for price.

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Issues: (i) Whether the contract with the Bombay Port Trust was an indivisible contract of work and labour or a sale transaction; (ii) Whether the contract with Century Rayon was a contract of sale or a contract for work and labour, or a works contract.

Issue (i): Whether the contract with the Bombay Port Trust was an indivisible contract of work and labour or a sale transaction.

Analysis: The contract, read as a whole, showed that the dominant obligation was fabrication and erection of structural steelwork at the site. The principal material, namely steel, was supplied by the employer for execution of the work, and the clauses stressed workmanship, supervision, inspection, maintenance, and liquidated damages for delay. There was no indication that the steel was sold to the contractor and repurchased as finished goods; the arrangement was for carrying out construction work with employer-supplied materials.

Conclusion: The contract was an indivisible contract of work and labour, not a sale transaction, and the finding was in favour of the assessee.

Issue (ii): Whether the contract with Century Rayon was a contract of sale or a contract for work and labour, or a works contract.

Analysis: The correspondence showed that Century Rayon ultimately supplied the whole of the principal material, namely steel, while the assessee used only incidental items necessary for fabrication. On that footing, the transaction was one where work was done on materials supplied by the employer, and the incidental use of materials by the contractor did not convert the arrangement into a sale. The transfer of property, if any, was incidental to execution of the work and not for a separate price as goods.

Conclusion: The transaction was a contract for work and labour and not a sale of goods, and the finding was in favour of the assessee.

Final Conclusion: Both questions were answered in the affirmative, confirming that neither transaction attracted sales tax as a sale of goods under the reference.

Ratio Decidendi: Where the employer supplies the principal materials and the contractor's use of other materials is merely incidental to execution of the work, the contract is one for work and labour and not a sale of goods.

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