Works contract characterization turns on integrated execution and installation, not separate pricing labels or staged payments.

A contract for fabrication, supply, erection and installation of reformer tube assemblies was treated as a works contract because the agreement, read as a whole, required integrated design, fabrication, supply, erection and installation at the buyer's premises under detailed specifications, tests and inspections. The materials did not pass as completed goods on despatch, since essential components and fitting work were completed only during installation, and the lump-sum and staged payment structure reflected execution of the whole contract rather than a separate sale price and work charges. No severable sale of goods was shown; the agreement was therefore essentially a works contract involving supply of materials.

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Issues: Whether the agreement dated 11 April 1975 for fabrication, supply, erection and installation of reformer tube assemblies was a works contract or a divisible contract containing separate agreements for sale of goods and for work and labour.

Analysis: The contract, read as a whole, required the assessee to design, fabricate, supply, erect and install the reformer tube assemblies in the buyer's plant, with detailed specifications, tests and inspections at each stage. The materials did not pass as complete reformer tube assemblies at the point of despatch, because essential components and fitting work were to be completed only during erection and installation at the buyer's premises. The lump-sum consideration and staged payments were structured for the entire execution of the contract, and the separate mention of charges for design, erection and the balance work was treated as a method of calculation, not as a true segregation of a sale price from work charges. On these terms, no severable sale of goods as such was shown to have taken place.

Conclusion: The agreement was not a divisible contract for sale of goods and work and labour; it was essentially a works contract involving supply of materials. The answer is in favour of the assessee.

Ratio Decidendi: A contract remains a works contract, and not a divisible sale contract, where the transfer of property in the materials does not occur as complete goods under a separable sale transaction but only in the course of integrated execution and installation of the work.

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