TaxTMI 
TaxTMI 
1977 (9) TMI 52
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....215-00 at 9 per cent ..... Rs. 2,897-00 at 12 per cent ..... Rs. 219-00 . Total Rs. 23,89,393-00 The AAC refixed the assessable turnover at Rs. 22,71,158 with the following apportionment. Relief granted by Appellate Asstt. Commr. . . . at 31/2 per cent ..... Rs. 21,995-00 1,067-00 at 4 per cent ..... Rs.... 5,000-00 at 5 per cent ..... Rs. 22,46,047-00 1,12,168-00 at 9 per cent ..... Rs. 2,897-00 .... at 12 per cent ..... Rs. 219-00 .... . Total Rs. 22,71,158-00 .... In this refixation, the Assessing Officer deleted the turnover of Rs. 1,067 at 3 per cent and Rs. 1,12,168 at 5 per cent and the estimate of Rs. 5,000 at 4 per cent, as the relative defective features outlined by the Assessing Officer at the assessment stage were explained. Aggrieved of this first appellate decision under s.31 of TNGST, the appellants have taken recourse to this instant appeal before us seeking appropriate relief. 3. The disputed turnover of Rs. 11,98,890-00 at 5 per cent relates to the following: M/s. Aurofood Private Limited- . . Rs. Np. 442/21-10-74 ..... 64,74....
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....ility. There are several brands of the type of the conveyors by different manufacturers and their disposals, would naturally involve sales of chattels. He also presented that employment of engineering skill is a commonly prevalent feature in the line of trade. In this trend of approach he stated there is no deployment of any specialised skill to merit the treatment involved contracts as 'works contracts'. The element of fixation as immovable property was argued only as incidental. The main purpose of the contract was sought to be stressed as one for delivery of chattel and the incidental feature of erection was argued as is no way afflicting the elements of sale attracting liability to assessment. The theory of accretion was stated to be not specifically present. The view points of the lower authorities were highlighted. The ultimate stress was for sustenance of for action pursued by the lower authorities. Contract With Port Trust 6. (a) The agreement with Port Trust was entered into on 21st Jan., 1975. It commences with the preamble that the Board was desirous of purchasing conveyor system, complete-inclusive of fabrication, delivery, erection and commissioning in accordance....
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....onveyor C2 is an inclined conveyor connecting Hopper No. 4 and the shed. The Conveyor shall be 750mm wide and shall be troughed. It shall have about 7.5 metres centres and shall have a rated capacity of 300 tonnes per hour. The conveyor shall be complete with drive unit, starter, worm reduction gear unit with integral hold back flexible coupling, pull chord switches, rubber canvas belt, idlers, electromagnetic brake, truss type stringers and walk-a-ways and asbestos covered roof as per Schedule 2 and design data No. 2 of the contract. (3) Conveyor C3:-Conveyor C3 shall run longitudinally along the length of the shed inside. The conveyor shall be have a flat belt. It shall have about 110 metres centres and shall have a capacity of 300 tons per hour. The conveyor shall be complete with drive unit starter, warm reduction gear unit, flexible coupling, pull chord switches, rubber canvas belt, idlers, electro-magnetic brake, truss type stringers and walk-a-ways as per Schedule 3 and design date sheet No. 3 of the Contract. (4) Conveyor 04 to 08:-The Conveyors shall be mobile and move underneath longitudinal conveyor C3, in both directions. The Conveyor shall be 500 mm wide and shal....
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....rd shall be kept at an angle suitable for the transfer of fertilizer. This plough board shall move along with the Cross Conveyor and be capable of adjustment manually is such a way that each cross conveyor is fed a portion of the fertilizer carried in the longitudinal conveyor which is variable from 1/5 to full of the total quantity. The other movable plough boards on the cross conveyor will stack the fertilizer on the first floor when not discharging into bagging machines...." (e) Clause 7.1.2. stipulates that the appellants have to guarantee the proper performance of the installation for one year. The relevant clause is extracted below: ".... All equipment supplies and erected by the Contractor shall be designed, manufactured, fabricated, delivered at site, erected, tested and commissioned by the Contractor in such a manner that the Contractor is prepared to guarantee the performance of the complete installation in every detail in accordance with the operating and maintenance requirements, capacities etc., outlined in specification and drawings..." (f) The clause pertaining to concrete work in 7.1.5. is as under: "... The concrete works shall be performed by others an....
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....firm to IS: 1915. (j) The details pertaining to `Welding' in the process or work are in clause 7.5.4. as under: Welding: All welding, shall conform to IS: 816 and IS: 825. Field welding will not be permitted except under special circumstances in which case the written permission of the Chief Engineer or his representative must be obtained". The maximum size fillet weld applied to a normally square edge of a plate or shape shall be 1.5 mm less than the normal thickness of the edge. The size of fillet weld used along the toe of an angle or the rounded edge of flange shall not exceed 3/4 of the nominal thickness of the angle or the flange. Welding for rigid tubular frame joints and gusset plates for main machinery supporting structure shall be full strength continuous weld. The minimum effective length of the secondary stress carrying fillet weld except for stitch welds shall not be less than 8 times the nominal weld size. (k) The contract has specific structural stipulations also in 7.5.7. and they are as under: Stiffness and Deflection: Structural assemblies supporting machinery and machine components shall have adequate stiffness to ensure that deflect....
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....t and adjustment of machinery and equipment to obtain an efficient operation of the whole conveying system: Special attention shall be given to (1) Belt alignment on all conveyors. (2) Adjustment of loading chutes and skirt boards. (3) Alignment of pulleys. (4) Alignment of bearings and shafts. (5) Adjustment of belt take up devices. (6) Alignment of drive assemblies. (7) Adjustment of limit switches. In all cases of critical specialised adjustments to the equipment supplied, the contractor shall obtain the advice of the relevant equipment supplier and shall advice and obtain the approval of the Chief Engineer. The Contractor shall shim and level all assemblies and structural parts to their proper location and elevation. It shall be the contractor's responsibility to fill gear reducers with the correct lubricant at hand over time. (m) (i) The Field Tests are employed after erection. The first test is done by the contractor and is called `Contractor's test'. The final test is done by the Port Trust and this is called a `acceptance test'. This is followed by `Operational capacity test'. (ii) The details of contractors test is 10.0 are as under: ....
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....th integral hold back, flexible coupling, pull chord switches, Rubber canvas belt, idlers, electro-magnetic brake, truss type stringers and walk-a-ways and asbestos covered roof- generally as per Schedule No. 2 and design data sheet No. 2. 1 No. 61,000 (3) Conveyor C3: . . . . `VEEKAY'-Flat Belt Conveyor-900 mm wide-100 metres centres for conveying muriate of potash urea, Diammonium phosphate. Ammonium sulphate and rock sulphate from Conveyor C2 along the length of the, tonnes per hour-starter, worm reduction gear unit flexible coupling, pull chord switches, rubber canvas belt, idlers electro- magnetic brake, truss type stringers and walk-a-way generally as per Schedule No. 3 and design data Sheet No. 3. 1 No. 3,50,000 (4) Conveyors C4 to C8: . . . . `VEEKAY'-Flat Belt Conveyor-500 mm wide 12 metres centres, for conveying muriate of potash, urea, Diammonium phosphate, Ammonium Sulphate and rock sulphate, from conveyor C3 at the rate of 60 tonnes per hour complete with drive unit, reversible starter, flexible coupling, belt, idlers, electro- magnetic brake, independent drive for plough limit switches, pull cho....
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....er completion of the contract altogether special mention thereof may have been omitted in the specification. (20) The facilities shall be completed, erected and test demonstrated to the satisfaction of the Chief Engineer at his (Contractor's) own cost and entire responsibility. Handling, if any, to be done after unloading before erection will also be the responsibility of the Contractor. The site for erection and the space available for stacking of materials and erecting the materials are marked in the drawing. All erection at site is to be done by the contractor by his own plan, equipment and personnel. Only such of the plant or equipment as can be spared by the Trust may be made available on hire to the Contractor at Trust's scale of rates. (21) Erection shall be done by the contractor entirely at his own costs and responsibility. Living accommodation for the erection staff will not be provided by the Port trust. Watch for the materials at site for erection shall also be responsibility of the contractor. (r) Schedule C contains `general conditions of contract'. The following clauses are pertinent: (2) Extent of contract: The contract comprises the construction, comple....
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....ngineer, are due to bad materials used and or defective workmanship, the Contractor shall be required to carry out at the Contractor's cost, such repairs, as the Chief Engineer considers necessary or in the event of the Contractor failing to do this within a notified time, the Chief Engineer may arrange for such repairs to be carried out and deduct the cost of such rectification of the defects from the amount retained, without prejudice to the recovery of any amount that may have been spent in excess of the deposit. For purpose of this clause and cl. (4) above, the period of 12 months will count from the date of handing over of the completed part or whole of the works by the Contractor to the Chief Engineer. 7. Thiru K. Venkatesan, Managing Director of the company filed an affidavit before us during the course of the hearing. The affidavit deals with the two different works executed-one for Port Trust Madras and the other for Aurofood Limited. (ii) In regard to Port Trust it was stated that the contract was for the fabrication, delivery, erection and commissioning of a conveyor system. The system involved installation of 8 conveyors. The actual course of performance of the co....
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....s work we deputed our skilled erectors, fitters, engineers and mechanics. We also engaged unskilled labour locally. The civil work was our own responsibility and was involved in respect of erection of C2 to C8 conveyor system. For this civil work we engaged our usual civil contractor for the purpose of preparing foundations cementing, grouting etc. The materials remained our property and lay at our risk and consts; and was protected by our watch and ward. The fabrication and erection are subject to periodical inspection by the engineers of the Madras Port Trust. The entire emphasis was on proper selection of materials as also due erection and commissioning. (c) The actual performance of erection work, conduct of tests, etc. leading to ultimate handing over of the system to Port Trust on 27th Feb., 76 was outlined in para 6 extracted below: "...... The erection work was done in progressive stages dependent upon the materials fabricated and collected at site. The conveyor system C-1 was erected over the steel towers provided by the Port Trust. Therefore, we did the necessary fixing arrangement on the towers for the reception trouses involving the drilling reception trouses invo....
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.... and C3). . . Rs. Np. (1) Excavating & preparing cement concrete foundation for the towers to support C1 & C2 conveyors at the Madras Port Trust(4 Nos. towards) 2,000-00 (2) Preparing cement concrete foundation for the columns to support C3 conveyors at Madras Port Trust 1,500-00 (Rupees Three thousand and five hundred only) 3,500-00 Bill dated 21st Oct., 75 (covering C4 to C8) . Charges for preparing cement concrete foundation for 5 Nos. conveyors (C4 to C8) at the Madras Port Trust, Madras 2,500-00 Details of roofing etc. Work done by V. Kathivelu: . To cost of Roofing works done at the Madras Harbour premises total sq. ft. 8400 @ Rs. 0-10 np per sq. ft. 840-00 To cost of sheet cutting charges for 84 cuttings at Rs. 0.30 per each cutting. 25-00 . 865-20 Bill dated 15th Dec., 75: . Cost of roofing works done at the Madras Harbour premises total 757.5 sq. ft at Rs. 0.10 per sq. ft. 75-75 Cost of sheet cutting for 12 Nos. Cutting @ Rs. 0-30 per each cutting. 3-60 . 79-35 (iv) While making payments, the Income-tax deductible at source at 2 per cent of the amount paid/credited was done and ....
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....o be prepared and approved. Cl. 4 referring to custody of materials by the appellants, cl. 5 regarding payment, and cl. 6 outlining the completion of the contract are extracted below: Custody of materials: M/s Aurofood Private Limited shall provide space for storage of material and equipment during and in the course of erection and furnish quarters for the erection engineers. The property in the equipment will remain with M/s. Conveyor Equipment Co. Pvt. Ltd. until erection handover. Payment: The entire contract is lumpsum of Rs. 9,95,099 (Rupees Nine lakh Ninety five thousand and ninety nine only). One third of the lumpsum shall be payable on formal acceptance of order by M/s. Aurofood Private Limited, the further sum on account at 10 per cent of the lumpsum will be payable within 3 months of payment of the one third advance, subject to work being completed by at least 50 per cent. Balance will be payable as and when materials are collected at site, subject to satisfactory erection progress. Completion: Contract shall be deemed to be completed only after erection, testing commissioning and handing over by M/s. Conveyor Equipment Co. Pvt. Limited against completion certifi....
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....oning process etc. are specific elaborate and clear. Letter dt. 25th July, 75 of the Engineer speaks of commissioning and test run conducted. Letter dt. 26th July, 75 speaks of further runs after rectification. Letters dt. 29th July, 75/30th July, 75 speak of the permanent supports to the elevators and other completion features (vii) The necessary cement concrete labour works were got done by the appellants by employing an outside contractor R. Swaminathan. Details of work done by him according to his bills are as under: BILL Charge for preparing cement concrete foundation for the following bucket elevators including grouting the bolts at Aurofood Private Limited., Auroville. . . WI 1, WI 2, WI 3, SR 4, WI 4, Page 73 & Page 72. L.S. Rs. 1,400-00 Charge for preparing cement concrete foundation for 6" & 10" dia. Screw conveyors and grouting the bolts at Aurofood Private Limited. . . (Auroville (16 conveyors). . Rs. 1,800-00 (Rupees one thousand and eight hundred only) . . (vii) Deductions at source of Income-tax on payments made were done as under: 30th April, 74 ... Rs. 6,776 25th July, 74 ... Rs. 2,000 ....
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....ne. 9. (i) The position of law in regard to `works contracts' is well settled. We however outline the significant cases which indicate the salient features. (ii) Benjamin's in `Sale of Goods' (1974 Edition Sweet and Maxwell') have expressed as under: "... Chattel to be affixed to land or another chattel. Where work is to be done on the land of the employer or on a chattel belonging to him which involves the use or affixing of materials belonging to the persons employed, the contract will ordinarily be one for work and materials, the property in the latter passing to the employer by accession 67 and not under any contract of sale. Sometimes, however, there may instead be a sale of an article with an additional and subsidiary agreement to affix it. The property then passes before the article is affixed, by virtue of the contract of sale itself or an appropriation made under it. Obviously, the question whether the intention of the parties is substantially one of improving the land or principal chattel (to which the furnishing of materials is incidental) on the one hand or one of making a sale (to which the agreement to affix is incidental) on the other hand is a matter of deg....
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....in the circumstances of a particular case, whether the contract is in substance one for work and labour or one for the sale of a chattel". (iv) The Lordships of the Supreme Court in State of Gujarat vs. Variety Body Builders(1) expressed as Under: "......It can be treated as well settled that there is no standard formula by which one can distinguish a contract of sale from a contract for work and labour. There may be many common features in both the contracts, some neutral in particular contract, and yet certain clinching terms in a given case may fortify a conclusion one way or the other. It will depend upon the facts and circumstances of each case. The question is not always easy and has for all time vexed jurists all over......." (v) The Lordships of the SC in Commissioner of Sales Tax vs. Purushotham Premji(2) elaborated as under: ".......... The primary difference between a contract for work of service and a contract for sale of goods is that in the former there is in the person performing work or rendering service no property in the thing produced as a whole not-withstanding that a part or even the whole of the materials used by him may have been his property. In ....
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....act as window-leaves and that only on the fixing of the windows as stipulated could be contract be fully executed. The property in the windows, it was observed, passed on the completion of the work and not before. The contract, was therefore, held to be a contract for execution of work and not for sale of goods. Nenu Ram's case related to a work of supplying and fixing wooden windows and doors together with frames. The windows has also thereafter to be painted. It was held that under the contract the goods were not sold as movables and that the party therein passed only when the windows and frames were fixed on the site. The liability to pay sales tax was consequently not attracted........" The ratio of this decision has application to this instant case before us. (viii) The theory of accretion was indicated in T.V. Sundaram Iyengar & Sons vs. State of Madras(4) referring to the earlier decision in State of Madras vs. Gannon Dunkerley(5). Referring to them the Supreme Court in 38 STC P. 229 at P. 232 expressed as under: "....... It was held that in the case of such a contract the property in materials used does not pass to the other party to the contract as movable propert....
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....doubt that the fixing part is only incidental to the main contract of supply of iron shutters. The assessee is entitled to receive the full price of the shutters at the time of their delivery to the purchase and not after they are fixed at the site of the purchaser. The fixation of the iron shutters to the premises is clearly not the main object of the contract even though the price charged by the assessee includes the fixation charges also. The property in the shutters passes to the purchaser when he takes delivery of the shutters in the factory premises of the assessees and not when they are fixed in his premises...,s The facts of the case in dispute before us and the details of the contractual terms are different and there is therefore no scope for the application of the ratio of this cited case. (x) In Mather and Platt Ltd. vs. State of Maharastra(7) an analgous position involving installation of sprinkler equipment was considered and it was held to be a works contract. Viewing that the predominant intention of the parties to the contract was the installation of automatic sprinkler plant and fire alarm system. The concept of two separate contract spelt out by the Tribunal....
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..... The grouting, welding, concreting and other types of masonary works and engineering works were got done to the fix the conveyors to the columns from the floor and to link them with the wall with adequate roofing facility. Such works had also to satisfy the statutory requirements of the Indian Factories Act, Indian Electricity Act, Indian Laws of Dock Labours Act, etc. The erection had to be done by way of fixation to the earth which was achieved by concreting masonary work, welding work, riveting work, grouting work and similar other process of work performance. One of the essential elements of the executed erection was the achievement of the total absence of vibration or defalcation in performance. The appellants had to provide walk ways and asbestos roofings convering, duly embedded in walls etc. As a part of the building in the process of the execution of the erection works. Chutes (for transfer) had to be erected duly integrated in the process of such construction. (ii) The standards set up and stipulations to be adhered to in regard to several other processes of erection including lubrication, painting, assembling are informative. Provisions specifically for drilling, pun....
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....est is to establish whether the conveyor system complies with all the requirements set out in the technical specification and drawing. If accepted the conveyor system is handed over to the Board. The operational capacity test is done by both the Engineer and the contractor together. The contractor is generally represented by a qualified engineer or Erection Superintendent familiar with the erection and operation of the conveyor system. The adjustment or corrections after the test have to be made by the contractor. (vi) In respect of the contract regarding Port Trust, we find that the available documentary evidence indicating the course of work, the performance of concrete masonary work by outside the labour contractor, the performance of roofing work by another outside contractor, were done as inseparable processes in the performance of the whole contract. They sufficiently confirm that the conveyors were duly got embedded with the ground columns attached to the earth when the final inspection was done and handed over on 27th Feb., 76. The system was completely installed, inseparably affixed to the ground column of the building and its side walls etc. When transfer of property o....