2004 (7) TMI 633 - HC - VAT and Sales Tax

High Court: Juice Heater Supply Contract Deemed Works Contract

RR. Engineering Co. Versus Commissioner of Sales Tax

The High Court determined that the contract for the supply of M.S. fabricated juice heaters constituted a works contract, not merely a supply of goods. ... - Issues:1. Determination of whether a contract for the supply of M.S. fabricated juice heaters is a works contract or a supply of material contract.Analysis:The case involved a revision regarding the nature of a contract for the supply of M.S. fabricated juice heaters. The applicant, a sole proprietorship concern, claimed the turnover should be treated as a works contract for the assessment year 1984-85. The Sales Tax Officer treated it as a contract of sale, imposing tax on the turnover. The Tribunal reviewed two contracts entered into by the applicant, one with a cooperative sugar factories federation and the other with a sugar mill. The Tribunal found the first contract to be for the supply of goods, not a works contract, based on various factors such as charging sales tax and insurance costs to the purchasers. The Tribunal's decision on this issue was upheld.Further, the contract with the sugar mill involved fabricating vertical juice heaters as per specifications provided by the purchasers. The equipment was to be assembled, painted, and marked before being erected at the purchasers' site. The Tribunal erroneously concluded that the goods were complete at the factory site, contrary to established legal principles. Citing relevant legal precedents, the High Court determined that the contract was indeed a works contract, not merely a supply of goods. The judgment emphasized the importance of the primary test of whether the main object of the contract is the transfer of property in a chattel. As the equipment had to be erected and fitted at the purchaser's site to come into existence as a unit, it constituted a works contract.The High Court also referenced a related revision case, where the matter was remanded back to the Tribunal for fresh findings. However, the brief order of remand did not provide clarity on the issues in the present revision. Ultimately, the High Court allowed the revision in part, holding the dealer liable to pay sales tax only on the turnover related to the sales made to the cooperative sugar factories federation, not the sugar mill. No costs were awarded in the judgment.