Works contract test: fabrication under buyer specifications and use of buyer-supplied materials showed execution of work, not a sale of goods.

A contract is treated as a works contract where its true nature shows that the main object is execution of work and labour, with materials used incidentally, rather than transfer of property in goods as goods. The contract here required fabrication of housing elements to the Board's specifications, used raw materials supplied by the Board, and left title in those materials with the Board. Reading the documents as a whole, the arrangement was for carrying out work, not a sale of goods, so the sales tax assessment could not stand.

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Issues: Whether the contract for fabrication and supply of housing elements to the State Electricity Board was a contract of sale or a works contract.

Analysis: The decisive test is the true nature of the contract as gathered from its terms and the surrounding circumstances, with the primary enquiry being whether the main object is transfer of property in a chattel as a chattel or the carrying out of work and labour with materials used incidentally in execution. The contract documents showed that the assessee manufactured the components to the Board's specifications, used raw materials supplied by the Board, had no title to those materials, and was bound to use them only for the contracted work. The subsequent clarification also stated that the property in the supplied raw materials remained vested in the Board. Reading the contract as a whole, the substance of the arrangement was execution of work rather than a sale of goods.

Conclusion: The contract was a works contract and not a contract for sale; the assessment based on sales tax could not stand.

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