TaxTMI 
TaxTMI 
1984 (11) TMI 306
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....d contract of 11th April, 1975. They annexed a provisional invoice dated 30th April, 1976, for Rs. 49,451.70. This invoice was in respect of one reformer tube assembly, exclusive of tube top assembly, catalyst support assembly and other fixtures to be supplied and billed later. It was charged for at the rate of Rs. 103.00 per kg. No sales tax was charged in the provisional invoice. The invoice, however, contains a printed certificate stating that the registration certificate under the Bombay Sales Tax Act is in force on the date on which the sale of the goods specified in the invoice is made, etc. 3.. In respect of this application the Deputy Commissioner of Sales Tax by his order dated 31st December, 1976, held that the said agreement of 11th April, 1975, was a divisible contract, one for the sale of reformer tube assemblies and the other for the work of designing, drawing, erection and installation. 4.. Against this decision the applicants preferred an appeal before the Tribunal. The Tribunal confirmed the finding of the Deputy Commissioner that the contract was a divisible contract, one for the sale of reformer tube assemblies and the other for work to be carried out. 5....
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....s, manifolds, headers, refractories, insulation bottom supports, top suspension gear and any other item not mentioned in ARTICLE 2.10 except that the outlet pigtails supplied by the BUYER shall be welded by the SELLER on one end to the reformer tubes and on the other end to the manifold, i.e., two welds for each outlet pigtail. Specification for welding outlet pigtail ends shall be mutually discussed and agreed to by the BUYER and the SELLER. 2.110: The SELLER's scope of work shall exclude the removal of any item from the existing reformer furnace." Clause 2.20 deals with deliveries: "2.20: DELIVERIES: The SELLER shall complete and despatch to the BUYER's plant all 208 reformer tubes complete with flanges, bottom static castings, gaskets bolts and catalyst supports as per the SELLER's scope of supply detailed in ARTICLE 11, to the BUYER, before 12 months from the date of this agreement or 31st March, 1976, whichever is earlier. Part deliveries shall be permissible at the SELLER's discretion." 6.. There are also detailed provisions in the contract relating to tests and inspection of the reformer tube assemblies at various stages of fabrication and installation. Complete ....
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....d to the SELLER in the following instalments: 10 per cent of the total amount payable under ARTICLE V, i.e., Rs. 9,85,504.00 (Rupees nine lakhs eighty-five thousand five hundred four only) within 7 days of signing of the formal agreement between the BUYER and the SELLER against the SELLER's furnishing to the BUYER a bank guarantee issued by a scheduled Bank or an insurance guarantee for the like amount in the form and manner acceptable to the BUYER. 7.20: 5 per cent of the total amount payable under ARTICLE V, i.e., Rs. 4,92,752.00 (Rupees four lakhs ninety-two thousand seven hundred fifty-two only) within seven days of approval of design drawings against the SELLER's furnishing to the BUYER a bank guarantee issued by a scheduled Bank or an insurance guarantee for the like amount in the form and manner acceptable to the BUYER, 7.30: 75 per cent of the total amount payable under ARTICLE V, on prorata basis for the value of reformer tubes actually despatched to the BUYER against documents evidencing despatch of tubes, negotiated through a bank, partial deliveries being permissible at the discretion of the SELLER. 7.40: 5 per-cent of the total amount payable under ARTI....
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....e carried out in the course of which certain material is incidentally supplied by the contractor, such a contract is usually considered as a contract for work and not as a contract for sale. But where a contract is both a contract for supply of material as well as for work to be carried out, and both these aspects of the contract are of importance, a question usually arises as to whether any part of this transaction can be separately looked upon as a transaction for sale on which sales tax can be levied. Obviously such a transaction of sale must be severable from the rest of the contract and be capable of being treated separately as a transaction of sale. 11.. In Benjamin's Sale of Goods, Second Edition, para 42, it is stated as follows: "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 person employed, the contract will ordinarily be one for work and materials, the property in the latter passing to the employer by accession 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 i....
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....n work, is there a delivery of a complete reformer tube assembly from the applicants to the purchasers. There is therefore no delivery of the complete reformer tube assembly as such from the seller to the buyer. 15.. It is contended in this connection by Mr. Jetly, learned counsel for the department, that assembly of each reformer tube assembly is complete at the applicant's factory in Thane because there is an elaborate procedure for checking and inspection of each tube by the petitioners. This argument, however, cannot be accepted because there is a detailed provision in the contract relating to inspection and testing of the work to be done by the sellers at every stage. From this provision for inspection and testing, it is not possible to conclude that a fully assembled reformer tube is at any stage sold by the seller to the buyer. 16.. The second factor which is relevant in this connection is the factor of price. Under article V of the contract a lump sum price is payable by the buyer to the seller in respect of the entire work completed under the contract. The price is calculated at the rate of Rs. 103 per kg. of the reformer tube assembly as set out therein. The sche....
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....y to refer to the provisional invoice of 30th April, 1976. Although the invoice relates to one reformer tube assembly less certain parts which are to be supplied and built later, the rate charged in the invoice is the full rate payable under article V for the entire work to be carried out under the contract. This would indicate that the invoice was merely a method of calculating part payment to be received by the applicants in the course of the work being done by them under the contract. If the invoice were in respect of the price of the reformer tube assembly, the price would have been much less. No sales tax is also charged under the invoice. It is also only a provisional invoice. All these factors go to show that the part payments received by the applicants against delivery of partially assembled reformer tubes are not as and by way of price of the materials supplied. They are part payment against the total amount payable for the work to be done under the contract. 19.. It is, therefore, not possible to divide the contract into a contract for the supply of reformer tube assemblies and a contract for work and labour. The contract is an integrated contract for supply of materia....
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....he facts of that case the Supreme Court held that a rolling shutter came into existence only when it was assembled and affixed on the premises of the customer. There could therefore be no sale of a rolling shutter prior to its being so affixed. The Supreme Court in that case at page 417 held: "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." Under the contract in the present case also payments made under the provisional invoices cannot be considered as a price for supply of material for reasons which we have set out earlier. The contract in the present case, like the contract in the case of Sentinel Rolling Shutters & Engineering Company Pvt. Ltd. [1978] 42 STC 409 (SC), is essentially a contract for affixing reformer tube assemblies to the ammonia plant of the customer in order to convert the system of the plant from a cold bottom system to a hot bottom system....
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....n the parties for the purpose of transferring title to goods, which presupposes capacity to contract, that it must be supported by money consideration, and that as a result of the transaction property must actually pass in the goods." Applying this principle in the case of Sarvaiya & Co. v. State of Maharashtra reported in [1976] 38 STC 86, our High Court considered a contract for the supply and laying of two underground cables. The contract set out separate charges for the supply of cable, for the supply of other equipment and for the work to be carried out. The extra 300 yards of cable which remained unutilised under the contract was retained by the customer. On this basis the Court came to the conclusion that there was clearly a sale of the cable to the customer under the contract and the contract was divisible into one for sale of cable and the other for the work to be carried out under the contract. In the present case there is nothing which would indicate such passing of property in the material at any time in the course of the contract. The ratio of this case, therefore, will not apply to the present contract. 27.. In the case of Union of India v. Central India Machine....