Works contract classification turns on the real object of installation, not separate pricing of materials or staged payments.

A contract for supplying, erecting, testing and handing over machinery and electrical equipment as one integrated process is treated as an indivisible works contract when the main object is erection and installation of a complete plant. Separate pricing of machinery or staged payment terms does not, by itself, convert the arrangement into a sale of goods. The decisive test is the real nature of the bargain as shown by the contract terms, surrounding circumstances and transaction structure. Where supply of materials is merely incidental to execution of the work, the transaction is not a taxable sale of machinery and equipment and sales tax is not leviable on the material value.

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Issues: Whether the contract for supplying, erecting, testing, and handing over machinery and electrical equipment for the slaughter house was an indivisible works contract or a divisible contract involving a sale of goods liable to sales tax.

Analysis: The decisive test was the main object of the parties as gathered from the terms of the contract, the surrounding circumstances, and the nature of the transaction. The contract required supply at site, erection, testing, and handing over of the entire plant as one integrated process. The price structure and staged payment terms did not alter the true character of the bargain. Separate mention of machinery cost and sales tax in the bill of quantities was only for guidance and did not convert the transaction into a sale. The taxing authority was required to establish an independent taxable sale of goods, which it failed to do.

Conclusion: The contract was an indivisible works contract and not a contract for sale of machinery and equipment. The reference was answered against the Revenue and in favour of the assessee.

Final Conclusion: The transaction was treated as one for work and labour with supply of materials incidental to execution, so no sales tax was leviable on the value of the materials involved.

Ratio Decidendi: Where the real object of the contract is erection and installation of a complete plant, and supply of materials is merely incidental to that work, the contract is a works contract and not a taxable sale merely because the contract separately prices materials or provides staged payments.

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