Divisible contract principle applied to power line works: separate supply, civil and erection components could not be taxed as one works contract.

A contract for construction of power lines and erection of transmission towers was treated as divisible because the documents separately identified supply of materials, civil works and erection, and the supply element was separately bid, accepted and invoiced with title passing on supply. On that factual and contractual basis, only the civil component answered the description of a works contract, while the supply portion remained a sale and the erection portion a labour contract. The court therefore held that the transaction could not be taxed as one indivisible works contract, and the revisional order was set aside.

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Issues: Whether the contract executed for construction of power lines and erection of transmission towers was a divisible contract or an indivisible composite contract for the purpose of levy of tax.

Analysis: The contract documents split the work into distinct parts, including supply of materials, civil works and erection. The terms expressly treated the contract as divisible for supply and erection, and the supply portion was separately bid, accepted and invoiced with description, quantity and price. Title in the materials passed to the purchaser on supply, while the assessee thereafter used the materials for the erection and civil portions. The court held that the existence of a composite arrangement did not make the entire contract indivisible, because the factual and contractual framework showed separate and severable components. Only the civil portion answered the description of a works contract, while the supply portion remained a sale and the erection portion was a labour contract.

Conclusion: The contract was held to be divisible and not an indivisible works contract. The revisional order treating the entire transaction as taxable under the works contract entry was rightly set aside, and the assessee succeeded on the substantial question of law.

Ratio Decidendi: Where a contract contains separately identifiable supply, civil and erection components, and the parties treat the supply element as a distinct sale with transfer of title, the transaction is divisible and cannot be subjected to works contract tax as a single indivisible contract.

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