TaxTMI 
TaxTMI 
1978 (9) TMI 157
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.... decision of this Court which is directly applicable and is determinative of the controversy between the parties. The assessee who is the appellant before us is a private limited company carrying on business as engineers, contractors, manufacturers and fabricators and, in the course of its business, it entered into a contract dated 28th June, 1972, with M/s. C.M. Shah & Co. (P.) Ltd. (hereinafter referred to as the company) for fabrication, supply, erection and installation of Sentinel's Pull and Push type and reduction gear type rolling shutters in shedes Nos. 3 and 4 of the Sidheswar Sahakari Sakar Karkhana belonging to the company. The detailed specifications of the rolling shutters were given in the contract and the price was stipulated to be Rs. 7 per sq. ft. and rft. for pull and push type rolling shutters and Rs. 9 per sq. ft. and rft. for the reduction gear type rolling shutters, the price in both cases being inclusive of "erection at site". The contract was expressed to be subject to the terms and conditions set out in a printed form and there were also certain special terms and conditions which were specifically written out in the contract. Since considerable reliance wa....
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....y of the amount to be received by the assessee against fulfilment of the contract. The Deputy Commissioner of Sales Tax, who heard the application, took the view that the contract was a contract for sale of the two types of rolling shutters and the work of erection and installation was merely incidental to the sale and the assessee was, therefore, liable to pay sales tax on 95 per cent of the amount receivable by it under the contract, since that represented the sale price of the rolling shutters, the remaining 5 per cent being attributable to the work and labour involved in erection and installation. The assessee, being aggrieved by the order passed by the Deputy Commissioner of Sales Tax, preferred an appeal to the Sales Tax Tribunal, but the Sales Tax Tribunal also took the same view and held that the transaction of supply of the two types of rolling shutters embodied in the contract amounted to a sale but so far as the price was concerned, the Sales Tax Tribunal observed that since 90 per cent of the amount under the contract was payable at the stage of delivery, that should be taken to be the sale price and the balance of 10 per cent should be held to be "the charges for the w....
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.... work and labour depends upon the main object of the parties gathered from the terms of the contract, the circumstances of the transaction and the custom of the trade. It may be pointed out that a contract where not only work is to be done but the execution of such work requires goods to be used may take one of three forms. The contract may be for work to be done for remuneration and for supply of materials used in the execution of the work for a price; it may be a contract for work in which the use of materials is accessory or incidental to the execution of the work; or it may be a contract for supply of goods where some work is required to be done as incidental to the sale. Where a contract is of the first type, it is a composite contract consisting essentially of two contracts, one for the sale of goods and the other for work and labour. The second type of contract is clearly a contract for work and labour not involving sale of goods, while the third type is a contract for sale where the goods are sold as chattels and some work is undoubtedly done, but it is done only as incidental to the sale. No difficulty arises where a contract is of the first type, because it is divisible ....
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....tioner would be incidental to the sale. Then take a contract for constructing a building where considerable quantity of materials is required to be used in the execution of the work. This would clearly be a contract for work and labour and fall within the latter category. But, as we pointed out earlier, there may be, and indeed as the decided cases show, there are a large number of cases which are on the border-line and it is here that difficulty is often experienced in the application of this primary test. To resolve this difficulty, the courts have evolved some subsidiary tests. One such test is that formulated by this Court in Commissioner of Sales Tax, Madhya Pradesh v. Purshottam Premji [1970] 26 S.T.C. 38 (S.C.)., where it has been said: "The primary difference between a contract for work or 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 ...... In the case of a contract for sale, the thing produced as a whole has individual existence as the sole property of the party who produced it, at some time before delivery, and the property therein passes only under ....
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....ny dichotomy between fabrication and supply of the rolling shutters and their erection and installation so far as the price is concerned. The erection and installation of the rolling shutters is as much an essential part of the contract as the fabrication and supply and it is only on the erection and installation of the rolling shutters that the contract would be fully executed. It is necessary, in order to understand the true nature of the contract, to know what is a rolling shutter and how it is erected and installed in the premises. It is clear from the statement exhibit C to the petition for special leave, which statement was submitted before the Sales Tax Tribunal and the correctness of which was at no time disputed before us, that a rolling shutter consists of five component parts, namely, two brackets welded with 'U' type clamps, one pipe shafting with high tension springs, shutter screen made out of 2OG/18G thickness of metal as required by the customer, side guides or guide channels welded with iron clamps to the bottom with provision of locking arrangements with welded handles and top cover. These component parts are fabricated by the manufacturer and taken to the site an....
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...., rollers, etc., are despatched separately. Item 12.1 shows that "all the rolling shutters are erected by the manufacturer or his authorised representative in a sound manner, so as to afford trouble-free and easy operation, long life and neat appearance". It will, thus, be seen that the component parts do not constitute a rolling shutter until they are fixed and erected on the premises. It is only when the component parts are fixed on the premises and fitted into one another that they constitute a rolling shutter as a commercial article and till then they are merely component parts and cannot be said to constitute a rolling shutter. The erection and installation of the rolling shutter cannot, therefore, be said to be incidental to its manufacture and supply. It is a fundamental and integral part of the contract because without it the rolling shutter does not come into being. The manufacturer would undoubtedly be the owner of the component parts when he fabricates them, but at no stage does he become the owner of the rolling shutter as a unit so as to transfer the property in it to the customer. The rolling shutter comes into existence as a unit when the component parts are fixed In....
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....f the goods ex works, but this clause is clearly overridden by the special terms specifically written out in the contract that 25 per cent of the amount shall be paid by way of advance, 65 per cent against delivery and the remaining 10 per cent after completion of erection and handing over of the rolling shutters to the satisfaction of the company. This provision undoubtedly stipulates that 90 per cent of the amount due under the contract would be paid before erection and installation of the rolling shutters has commenced, but that would not make it a contract for sale of rolling shutters. The true nature of the contract cannot depend on the mode of payment of the amount provided in the contract. The parties may provide by mutual agreement that the amount stipulated in the contract may be paid at different stages of the execution of the contract, but that cannot make the contract one for sale of goods if it is otherwise a contract for work and labour. It may be noted that the contract in State of Madras v. Richardson & Cruddas Ltd. [1968] 21 S.T.C. 245 (S.C.). contained a provision that the full amount due under the contract shall be paid in advance even before the execution of the....