TaxTMI 
TaxTMI 
2005 (2) TMI 519
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....Generation Elevators in the world. M/s. Kone Corporation, Finland has its operations spread over 37 countries in the world. The assessee herein is a registered dealer falling in the jurisdiction of the Commercial Tax Officer, R.P. Road Circle, Secunderabad, having its head office at 50, Vanagaram Road, Aynambakkam, Madras, with branches at Vijaywada and Vizag. The assessee filed monthly returns in form A-2 for the months of April and May, 1995. It was assessed by the said Commercial Tax Officer provisionally for the period April 1, 1995 to May 31, 1995 and for the period from June 1, 1995 to July 31, 1995 under the Andhra Pradesh General Sales Tax Act, 1957 (hereinafter referred to for the sake of brevity as "the 1957 Act"). The said two provisional assessments were made by the Commercial Tax Officer vide orders dated August 19, 1995 and September 5, 1995, respectively. The assessee claimed deductions of labour charges for composition of tax under section 5G read with section 5F of the said Act saying that nature of the work undertaken by it constituted "works contract" involving manufacture, supply, installation and commissioning of elevators and lifts. The assessing authority how....
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....d technical know-how, which was to be treated as works contract. 4.. Shri M.N. Rao, learned Senior Counsel for the assessee, on the other hand, submitted that the assessee was engaged in the manufacture, supply, erection, installation and commissioning of lifts by undertaking works contract; that the lifts/elevators as such cannot be delivered to the customer; that various accessories and components were required to be taken to the site where after carrying out the civil work, lifts were installed and commissioned. It was further urged that only after all the parts stood assembled at site, the lifts came into being; that installation and commissioning of lifts involved skill and only after installation and commissioning of the lifts, the ownership stood transferred to the customer. Consequently, the assessee was entitled for deduction of labour charges and was entitled to composition of tax under section 5G of the said Act. It was urged that the assessing authority had erred in treating the transaction as a sale assessable to tax under entry 82 of the First Schedule to the said Act. It was further submitted on behalf of the assessee that manufacture, supply, erection, ins....
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....the essence of the contract or the reality of the transaction as a whole has to be taken into consideration. The predominant object of the contract, the circumstances of the case and the custom of the trade provides a guide in deciding whether transaction is a "sale" or a "works contract". Essentially, the question is of interpretation of the "contract". It is settled law that the substance and not the form of the contract is material in determining the nature of transaction. No definite rule can be formulated to determine the question as to whether a particular given contract is a contract for sale of goods or is a works contract. Ultimately, the terms of a given contract would be determinative of the nature of the transaction, whether it is a "sale" or a "works contract". Therefore, this question has to be ascertained on facts of each case, on proper construction of terms and conditions of the contract between the parties. 6.. Before proceeding further, an insight into the relevant provisions more especially the definitions of "sale" and "works contract" have to be noticed. Section 2(1)(n) which defines "sale" and section 2(1)(t) which defines the "works contract" are extracte....
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....oned in the Sale of Goods Act. The expression "sale of goods" in entry 48 was described as "nomen juris", its essential ingredients being an agreement to sell movables for a price and property passing therein pursuant to that agreement. It was held that in a building contract which is composite and indivisible, there is no sale of goods as there could be no agreement to sell materials as such and moreover, the property does not pass as movables. In order to enlarge the concept of sale and to arm the State Legislatures with power to tax the transactions simulating sales but not conforming to the concept of sale under the Sale of Goods Act, clause (29A) was inserted in article 366 by the 46th Constitutional Amendment. The Andhra Pradesh State Legislature fell in line with this amendment and changed the definition of "sale" so as to bring within the tax net the transactions which are not stricto sensu sales as per the law laid down in Gannon Dunkerley's case See [1958] 9 STC 353. AIR 1958 SC 560. It is important to note that the 1957 Act ordains that transfer of property in goods for valuable consideration must be "in the course of trade or business" [vide section 2(1)(n)]. This is be....
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.... to commence installation at the time of the delivery of the lift. The contractual obligations of the assessee regarding installation included employing labour to complete the mechanical erection, electrical wiring testing and commissioning of the lift. The assessee agreed that it shall commence installation only after the lifts arrived at the site and upon intimation from the customer that the site was ready as per the drawings. As soon as the lift stood installed, the customer was to take over. It was further agreed that any material supplied by the assessee shall remain their property till the lift was handed over to the customer. The contract in question consisted of certain obligations on the part of the customers under the heading "Customers' Contractual Obligations". Under this clause, the customer was obliged to undertake the work of civil constructions consisting of: (a) A properly enclosed lift hoistway; (b) A lift pit of proper depth; (c) Properly lighted machine room; and (d) Private pockets on the lift well walls. 11.. Further, certain obligations were passed on the customer under the Delivery Schedule which are reproduced herein below: "The general a....
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....ded the execution of the contract into two parts, namely, "the work" to be initially done in accordance with the specifications laid down by the assessee and "the supply" of lift by the assessee. "The work" part in the contract was assigned to the customer and "the supply" part was assigned to the assessee. This "supply " part included installation of lift. Therefore, contractual obligation of the assessee was only to supply and install the lift, while the customer's obligation was to undertake the work connected in keeping the site ready for installation as per the drawings. In view of the contractual obligations of the customer and the fact that the assessee undertook exclusive installation of the lifts manufactured and brought to the site in knocked-down state to be assembled by the assessee, it is clear that the transaction in question was a contract of "sale" and not a "works contract". Moreover, on perusal of the brochure of the assessee-company, one finds that the assessee is in the business of manufacturing of various types of lifts, namely, passenger lifts, freight elevators, transport elevators and scenic lifts. A combined study of the above models, mentioned in the broch....