Dominant intention test for works contracts upheld as supply of detachable plant goods, with electrical classification sustained for switch box

A contract for design, manufacture, supply, erection and commissioning of a swimming pool water purification plant was treated as a sale of goods because its dominant purpose was supply of detachable plant components, with only incidental civil work for connection to the existing system; the transaction was therefore taxable under the Act, not a works contract. The motor control centre was classified as electrical goods under item 41 of the First Schedule because it was an electrical switch box, not merely an accessory or part of a machine. The revision order was sustained on both disputed turnovers and the challenge failed.

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Issues: (i) Whether the contract for design, manufacture, supply, erection and commissioning of a swimming pool water purification plant was a works contract or a sale of goods liable to tax; (ii) Whether the motor control centre was correctly classified as electrical goods under item 41 of the First Schedule rather than as an accessory falling under item 81.

Issue (i): Whether the contract for design, manufacture, supply, erection and commissioning of a swimming pool water purification plant was a works contract or a sale of goods liable to tax.

Analysis: The decisive test was the true substance of the contract, namely whether its main object was transfer of a chattel as chattel or execution of work with materials used only incidentally. The contract showed that the plant, filters, pumps, chlorination system and connected components were to be supplied as goods, with limited civil work only for connection to the existing distribution system. The plant was not fixed as a permanent fixture to immovable property and remained detachable. The payment structure, inclusion of sales tax in the price, and the manner in which the assessee itself reflected the transaction supported the conclusion that the transaction was essentially for supply of goods.

Conclusion: The contract was not a works contract. It was correctly treated as a sale of goods taxable under the Act, in favour of Revenue.

Issue (ii): Whether the motor control centre was correctly classified as electrical goods under item 41 of the First Schedule rather than as an accessory falling under item 81.

Analysis: The motor control centre was found on the record to be an electrical switch box and not merely an accessory or part of a machine. On that footing, it fell within the entry covering electrical goods and not the more favourable item relied upon by the assessee.

Conclusion: The classification under item 41 was upheld and the assessee's challenge failed, in favour of Revenue.

Final Conclusion: The revision order was sustained on both disputed turnovers, and the appeal failed in entirety.

Ratio Decidendi: A contract is taxable as a sale where, on a realistic reading of its terms and surrounding circumstances, the dominant intention is supply of detachable goods and any work performed is merely incidental; classification of goods must follow their true commercial character as reflected in the record.

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