Finished goods contract test determines sale characterization; tax applies on contract price despite supplied materials.
A manufacturing arrangement for pre-stressed concrete poles was treated as a contract of sale rather than a works contract because the parties intended delivery of finished poles for a fixed price per pole, even though the board supplied cement and steel and the contractor provided labour and other inputs. The supply of board materials, return of surplus, and obligation to bear loss on rejected poles did not change the character of the transaction. Once the contract was held to be a sale, sales tax applied to the agreed contract price of the poles, and not merely to the net amount after deducting the value of the materials supplied by the board.
Issues: (i) Whether the contract for manufacture and supply of pre-stressed concrete poles to the electricity board was a contract of sale or a works contract. (ii) If the transaction was taxable as a sale, whether sales tax was leviable on the gross price of the poles or only on the net amount after deducting the value of cement and steel supplied by the board.
Issue (i): Whether the contract for manufacture and supply of pre-stressed concrete poles to the electricity board was a contract of sale or a works contract.
Analysis: The contract was expressly for manufacture and supply of poles at a fixed price per pole. The board supplied cement and steel at stated rates, while the contractor supplied the remaining materials, labour, machinery and tools. The contractor was bound to use the board's materials only for the specified poles, return surplus material, and bear the cost of materials used in rejected or damaged poles. The contract also contained an express stipulation that the prices were exclusive of sales tax on finished poles. Applying the distinction between a contract for work and labour and a contract for sale, the decisive factors were the intention of the parties, the supply of finished poles as the end-product, and the conclusion that the poles were transferred as goods for consideration.
Conclusion: The transaction was a contract of sale and not merely a works contract.
Issue (ii): If the transaction was taxable as a sale, whether sales tax was leviable on the gross price of the poles or only on the net amount after deducting the value of cement and steel supplied by the board.
Analysis: Once the contract was held to be a sale of the finished poles, the agreed sale price was the price fixed per pole in the contract. The deduction of the value of cement and steel supplied by the board in the final bill did not alter the taxable turnover of the sale of poles. Any equitable claim arising from the method of billing was outside the scope of the reference, and the taxable price remained the contract price of the poles.
Conclusion: Sales tax was payable on the price of the poles as fixed per unit and not merely on the net realisation after deducting the value of cement and steel.
Final Conclusion: The reference was answered against the assessee, and the tribunal's view that the supply of poles constituted a taxable sale on the contract price was upheld.
Ratio Decidendi: In determining whether a manufacturing contract is a sale or a works contract, the decisive test is the intention of the parties as gathered from the contract, and where the contract contemplates delivery of a finished chattel for a fixed price, the transaction is a sale notwithstanding the use of materials and supervision in the course of manufacture.