Composite contracts may be works contracts where fabrication and erection are the real substance, not a sale of goods.

A composite contract for manufacture, supply and fixing of rolling shutters and steel windows was treated as a works contract where fabrication, delivery and erection formed the real substance of the bargain and the transfer of materials was merely incidental; the completed 265 items were therefore not liable to sales tax. For the remaining 135 items, the record did not conclusively show that erection and installation had been completed under the agreement, so the turnover could not be finally assessed on the existing materials and required fresh verification by the assessing authority.

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Issues: (i) Whether the contracts for manufacture, supply and fixing of rolling shutters and steel windows were works contracts or contracts of sale in respect of the 265 items fully executed. (ii) Whether the turnover relating to the remaining 135 items, where erection was disputed, could be finally assessed to sales tax or required verification by the assessing authority.

Issue (i): Whether the contracts for manufacture, supply and fixing of rolling shutters and steel windows were works contracts or contracts of sale in respect of the 265 items fully executed.

Analysis: The decisive test was the real nature of the bargain and the dominant object of the transaction. Applying the settled principles governing composite contracts, the Court held that where fabrication, delivery and erection are undertaken for a consolidated price and the materials acquire commercial identity only in the course of execution and fixation, the transaction is a works contract and not a mere sale of goods. The authorities below were found to have wrongly treated the completed items as sales despite the contract being indivisible in substance.

Conclusion: The contracts relating to the 265 items fully executed were works contracts and were not exigible to sales tax.

Issue (ii): Whether the turnover relating to the remaining 135 items, where erection was disputed, could be finally assessed to sales tax or required verification by the assessing authority.

Analysis: As to the balance items, the record did not conclusively establish that erection and installation were completed by the assessees in accordance with the original agreement. Since the factual position on subsequent completion and payment remained disputed, the matter required fresh examination by the assessing authority on the basis of further materials and objective verification.

Conclusion: The assessment on the 135 items was set aside and the matter was remitted for fresh consideration.

Final Conclusion: The revision succeeded only in part, with the completed items protected from sales tax and the disputed balance sent back for verification.

Ratio Decidendi: A composite contract is a works contract, and not a contract of sale, where the real substance of the transaction is execution of work and labour and the transfer of materials is only incidental to that execution.

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