Works contract treatment for conveyor system contracts denied sales tax on turnover from composite installation arrangements.

Composite contracts for design, fabrication, delivery, erection, commissioning and testing of conveyor systems were treated as works contracts because the materials were manufactured to specification, fixed to the site and intended to pass only on completion of installation. The presence of on-site fitting, testing, acceptance procedures, retention money, maintenance obligations and close supervision showed that the dominant intention was execution of an integrated installation contract rather than sale of movable goods. On that basis, the turnover arising from the conveyor contracts was not exigible to sales tax as first sales of goods.

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Issues: Whether the turnover arising from the conveyor contracts was exigible to sales tax as a sale of goods, or whether the contracts were works contracts outside the scope of assessment.

Analysis: The contracts required complete design, fabrication, delivery, erection, commissioning, testing and handing over of integrated conveyor systems. The contractual terms showed that the materials were fabricated to specification, transported to site, fixed to the ground and supporting structures by concrete, welding, riveting and grouting, and subjected to shop tests, field tests, acceptance tests and operational capacity tests. The property in the components was intended to pass only on completion and installation of the complete system. The contracts also contemplated maintenance obligations after handing over, retention money, and close supervision by the contractee, all of which supported the conclusion that the dominant intention was execution of a composite installation contract and not sale of movable chattels.

Conclusion: The disputed transactions were works contracts and the related turnover was not liable to sales tax as first sales of goods.

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