Composite turnkey works contract for HDPE pipe installation: excise invoices do not determine tax character; pre-11.05.2002 CST not leviable.

A turnkey agreement for supply and laying of HDPE pipes was treated as an indivisible works contract, because the scope, payment terms and annexures showed composite execution of trenching, welding, laying, testing and commissioning rather than separate sale and installation components. Excise invoices were held not to control the true legal character of the arrangement, and property in the pipes was said to pass only on completion of the contractual work. On that basis, Central Sales Tax on the transfer of property in goods involved in such works contracts was not leviable for the period before 11.05.2002.

---

---

Issues: Whether the contract for supply and laying of HDPE pipes was an indivisible works contract or a divisible contract of sale and installation, and whether Central Sales Tax could be levied on the transaction for the period prior to 11.05.2002.

Analysis: The agreement, read as a whole, showed that the contractor was required to perform the entire pipeline project on a turnkey basis, including supply of pipes, trenching, welding, laying, testing and commissioning. The payment terms, the scope of work and the annexure indicated that consideration was payable for the composite execution of the work and not as separate prices for sale of pipes and installation. The Court also held that invoices raised for excise purposes did not determine the true character of the contract, and that the property in the pipes used in the pipeline would pass only upon completion of the contractual work. In view of the 46th Amendment and the position prior to 11.05.2002, liability to Central Sales Tax for transfer of property in goods involved in works contracts could not be fastened for this earlier period.

Conclusion: The transaction was an indivisible works contract and not a divisible sale contract; the applicants were not liable to Central Sales Tax for the period in question, and the impugned assessments and appellate orders were unsustainable.

Ratio Decidendi: Where the contract, on a true reading of its terms, is a composite and inseparable works contract executed on a turnkey basis, the nature of the transaction cannot be determined from excise invoices, and Central Sales Tax on the transfer of property in goods involved in such works contracts could not be levied for periods prior to the statutory amendment effective from 11.05.2002.

---