Composite works contract and Form XVII declarations: assessment remitted under the correct tax and burden-of-proof principles.

A composite contract for supply and installation of central and packaged air-conditioning plants must be assessed under the constitutional definition of works contract, not by the dominant nature or incidental labour test; the earlier assessment was therefore sent back for reconsideration under the correct legal standard. For goods sold against Form XVII declarations, the Department must verify actual consumption against the purchasing dealer, and the selling dealer cannot be taxed or penalised merely because the declaration later proves incorrect; this issue was also remitted for fresh consideration. The assessment order was set aside and both issues were directed to be re-examined.

---

---

Issues: (i) Whether the Central Air Conditioning Plant and Packaged Air Conditioning Plant transactions were composite works contracts or outright sales liable to tax as sales. (ii) Whether machine tools sold against Form XVII declarations could be taxed at concessional rate and whether the burden lay on the selling dealer to prove actual consumption.

Issue (i): Whether the Central Air Conditioning Plant and Packaged Air Conditioning Plant transactions were composite works contracts or outright sales liable to tax as sales.

Analysis: The assessment order had proceeded on the basis of the earlier view that the dominant nature test and the extent of labour or service could determine whether the transaction was a sale or a works contract. That approach could not survive after the Constitution Bench ruling which held that a composite contract for supply and installation, where labour and service are involved, is a works contract and that the dominant nature test is not the governing criterion. The impugned order therefore required reconsideration on the correct legal standard.

Conclusion: The issue was remitted for fresh examination in the light of the later Constitution Bench ruling.

Issue (ii): Whether machine tools sold against Form XVII declarations could be taxed at concessional rate and whether the burden lay on the selling dealer to prove actual consumption.

Analysis: Once Form XVII declarations are furnished by the purchasing dealer, the Department must verify whether the goods were in fact consumed by the buyer. The selling dealer cannot be fastened with tax and penalty merely because the declaration is later found to be incorrect. The assessment order wrongly placed the burden on the seller and did not proceed on the correct allocation of responsibility under the statutory scheme.

Conclusion: The issue was remitted for reconsideration on the correct burden of proof and statutory responsibility.

Final Conclusion: The assessment order was set aside and both issues were directed to be re-examined by the assessing authority in accordance with the governing legal principles.

Ratio Decidendi: For a composite contract involving supply and installation, the decisive test is the true nature of the transaction under the constitutional definition of works contract, not the dominant nature or incidental labour test; and where a statutory declaration in the prescribed form is furnished, the Department must test its truthfulness against the purchasing dealer rather than shifting the burden to the seller.

---