TaxTMI 
TaxTMI 
2014 (5) TMI 265
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....42-17847/2005), Civil Appeal No. 5152 of 2014 (Arising out of SLP (C) No. 5377/2006), Civil Appeal No. 5153 of 2014 (Arising out of SLP (C) No. 7037/2006), Civil Appeal No. 5154 of 2014 (Arising out of SLP (C) No. 30272/2008), Civil Appeal No. 5156 of 2014 (Arising out of SLP (C) No. 30279/2008), Civil Appeal No. 5157 of 2014 (Arising out of SLP (C) No. 5289/2009), Civil Appeal Nos. 5159-5160 of 2014 (Arising out of SLP (C) Nos. 6520-6521/2009), Civil Appeal Nos. 5162-5164 of 2014 (Arising out of SLP (C) Nos. 4469-4471/2010), Civil Appeal No. 5165 of 2014 (Arising out of SLP (C) No. 11258/2010), Civil Appeal No. 5166 of 2014 (Arising out of SLP (C) No. 17228/2010), Civil Appeal Nos. 5167-5168 of 2014 (Arising out of SLP (C) Nos. 17236-17237/2010), Civil Appeal Nos. 5170-5172 of 2014 (Arising out of SLP (C) Nos. 23259-23261/2010), Civil Appeal No. 5174 of 2014 (Arising out of SLP (C) No. 15732/2011), Civil Appeal No. 5175 of 2014 (Arising out of SLP (C) No. 16466/2011), Civil Appeal No. 5178 of 2014 (Arising out of SLP (C) No. 16137/2011), Civil Appeal No. 5179 of 2014 (Arising out of SLP (C) No. 5503/2011), Civil Appeal No. 5180 of 2014 (Arising out of SLP (C) No. 11147/2011), Civi....
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....of lifts involving civil construction. For the Assessment Year 1995-96, the Sales Tax Appellate Tribunal, Andhra Pradesh, considering the case of the petitioner, opined that the nature of work is a "works contract", for the erection and commissioning of lift cannot be treated as "sale". On a revision being filed, the High Court of Andhra Pradesh affirmed the view of the tribunal and dismissed the Tax Case (Revision) filed by the Revenue. Grieved by the decision of the High Court, the State of Andhra Pradesh preferred special leave petition wherein leave was granted and the matter was registered as Civil Appeal No. 6585 of 1999 and by judgment dated 17.2.2005 in Kone Elevators (supra), the view of the High Court was overturned. After the pronouncement in the said case, the State Government called upon the petitioner to submit returns treating the transaction as sale. Similarly, in some other States, proceedings were initiated proposing to reopen the assessments that had already been closed treating the transaction as sale. The said situation compelled the petitioner to prefer the petition under Article 32 of the Constitution. As far as others are concerned, they have preferred the w....
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....He has referred to the Preamble of the Act which stipulates that an Act has been enacted to provide for the regulation of the construction, maintenance and safe working of certain classes of lifts and all machinery and apparatus pertaining thereto in the State of Bombay. The State Act applies to the whole of Maharashtra. He has drawn our attention to the dictionary clause of "lift" as has been defined in clause 3(c) to mean a "hoisting mechanism" equipped with a car which moves in a substantially vertical direction, is worked by power and is designed to carry passengers or goods or both; and "lift installation" which includes the lift car, the lift way, the lift way enclosure and the operating mechanism of the lift and all ropes, cables, wires and plant, directly connected with the operation of the lift. He has also placed reliance on Section 4 which deals with permission to erect a lift, Section 5 that deals with licence to use a lift and Section 7 which provides a lift not to be operated without a licence. Learned senior counsel has also drawn our attention to the various rules that deal with many a technical aspect and the terms on which lift shall work and what requirements are....
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.... expression "works contract" is not a term of art as has been explained in Builders' Association of India and others v. Union of India and others (1989) 2 SCC 645 as well as in Larsen and Toubro (supra). It is put forth by Mr. Bhat that lifts are assembled and manufactured to suit the requirement in a particular building and are not something sold out of shelf and, in fact, the value of goods and the cost of the components used in the manufacturing and installation of a lift are subject to taxation while the element of labour and service involved cannot be treated as goods. In essence, the submission of Mr. Bhat is that taking into consideration the multifarious activities involved in the installation of the lift, it has to be construed as a "works contract" and the decision in Kone Elevators (supra) does not lay down the law correctly. 9. Mr. Rakesh Dwivedi, learned senior counsel appearing for the State of Orissa, has referred to the terms of the quotation, the confirmation letter, the letter of approval, the preparatory erection work or civil work which are to be carried out by the customer at its own cost, the specific mode of payment and the nature of supply and, on tha....
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....2003) 9 SCC 133, Collector of Central Excise, Calcutta-II v. Eastend Papers Industries Ltd.(1989) 4 SCC 244 and Aspinwall & Co. Ltd. v. Commissioner of Income Tax, Ernakulam (2001) 7 SCC 525. He has also placed reliance on Underwood Limited v. Burgh Castle Brick and Cement Syndicate (1922) 1 KB 343 wherein the Kings Bench has ruled that until the railway engine was reassembled and put on rail, it could not be said that the goods were delivered as per the contract. Commenting on the attachment to immovable property as permanent affixation, it is put forth by him that the decisions in Sentinel Rolling Shutters & Engineering Company (P) Ltd. v. Commissioner of Sales Tax (1978) 4 SCC 260, Ram Singh & Sons Engineering Works v. Commissioner of Sales Tax, U.P. (1979) 1 SCC 487, Man Industrial Corporation (supra) and Vanguard Rolling Shutters & Steel Works (supra) were rendered prior to the amendment of the Constitution and hence, they stand on a different footing as they were fundamentally dealing with indivisible contracts. Elaborating on the nature of affixation, it is urged by him that only the guide rails and the frame of the entry/exit doors are attached to the immovable property by ....
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....e contract for sale of goods. It is emphasized by him that the threshold question to be put in every case is whether the purchaser's true object is to obtain an identifiable product or goods or the intention is to utilize the services of or works from a person for the purposes of realizing an end product which may emerge only for the reason of the execution of the work by rendering of the services in question. Applying the said principle to a lift, it is canvassed by him that a lift or an elevator is an identifiable good which is transferred to the purchaser as such and solely because certain amount of labour or service is required for the purpose of putting together all the components of the lift at the site to bring it to its usable state, the same does not make a difference as to the nature of the contract and it cannot be regarded as a works contract. 12. Ms. Hemantika Wahi and Mr. Preetesh Kumar, learned counsel for the State of Gujarat, while adopting the submissions of the learned senior counsel for the State of Orissa, have submitted that the traditional tests for determining whether a contract is a works contract or not would continue to apply. It is urged that the ....
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....o done keeping in view the nature of composite contract. 15. Mr. P.P. Malhotra, learned Additional Solicitor General of India appearing for Union of India, has submitted that parts of the lift are assembled at the site in accordance with its design and requirement of the building which may include the floor levels and the lift has to open on different floors or otherwise depending upon the requirement. It has to synchronize with the building and each door has to open on the level of each floor and hence, by no stretch of imagination, it can be treated as a manufacture or mere supply but cumulatively considered, it is a works contract and, more so, when the contract is a composite or turnkey contract. Mr. Malhotra would further submit that it is not a mere case of sale and according to the expanded definition of tax on sale, "tax" is leviable only on the transfer of property in goods, whether in goods or in some other form, involved in the execution of work and no sales tax is leviable on the execution of works contract. Thus, the stand of the Union of India is that supply and installation of lift is not a contract for sale but a works contract. 16. To appreciate the controver....
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.... words have, in law, acquired a definite and precise sense, and that, accordingly, the legislature must be taken to have intended that they should be understood in that sense and in interpreting an expression used in a legal sense, the requirement was to ascertain the precise connotation which it possesses in law because both under the common law and the statute law relating to sale of goods in England and in India, to constitute a transaction of sale, there should be an agreement, express or implied, relating to goods to be completed by passing of title in those goods. The essence of the concept that both the agreement and the sale should relate to the same subject-matter was highlighted and it was opined that under the law, there could not be an agreement relating to one kind of property and a sale as regards another. The Constitution Bench further held that on the true interpretation of the expression "sale of goods", there must be an agreement between the parties for the sale of the very goods in which eventually property passes and in a building contract, the agreement between the parties being to the effect that the contractor should construct a building according to the spec....
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....the property in the bus bodies passed as a movable property. Thus, it was not one but sum total of several reasons which was the foundation of the majority judgment in Patnaik & Co. (supra). 19. In the case of State of Gujarat v. M/s. Kailash Engineering Co. (Pvt.) Ltd.AIR 1967 SC 547, the issue was whether the construction of third class sleeper coaches by the respondent-assessee on certain conditions amounted to a works contract or it was a sale under the said State enactment. This Court, taking into account all the terms of the contract and treating the same as one entire and indivisible contract for carrying out the works specified in full details in the agreement, and considering that it did not envisage either the sale of materials by the respondent to the Railway, or of the coach bodies as such, treated it as a works contract. 20. In The State of Madras v. Richardson & Cruddas Ltd. (1968) 21 STC 245 (SC), there was a postulate that a consolidated lump sum would be paid per ton for fabrication, supply and erection at site of all steelwork, and there was no provision under the contract for dissecting the value of the goods supplied and the value of the remuneration for t....
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....bstance one for work and labour or one for the sale of a chattel34." Be it stated, in the said case, the respondent-company carried business as hoteliers and, as a part of its business, the company received guests to whom it furnished certain amenities. The Court ruled that the transaction between a 34 Halsbury's Laws of England 3rd Ed., Vol. 34, 6-7. hotelier and a visitor was essentially one of contract of service and facilities provided at reasonable price. 23. In State of Gujarat (Commissioner of Sales Tax, Ahmedabad) v. M/s. Variety Body Builders (1976) 3 SCC 500, this Court, after referring to the passage from Halsbury's Laws of England, Third Edition, Volume 34, page 6, ruled thus: - "47. 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 context, 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 al....
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....t no stage does he become the owner of the 3-motion electrical overhead travelling crane as a unit so as to transfer the property in it to the customer. Emphasis was laid on the fact that the 3- motion electrical overhead travelling crane comes into existence as a unit only when the component parts are fixed in position and erected at the site, but at that stage, it becomes the property of the customer because it is permanently embedded in the land belonging to the customer and, therefore, there is no transfer of property in it by the manufacturer to the customer as a chattel. 26. In Hindustan Aeronautics Limited v. State of Orissa (1984) 2 SCC 16, the Court, while emphasizing that there is no rigid or inflexible rule applicable alike to all transactions which can indicate distinction between a contract for sale and a contract for work and labour, opined that basically and primarily, whether a particular contract was one of sale or for work and labour depended upon the main object of the parties in the circumstances of the transaction. 27. The aforesaid authorities clearly show that a works contract could not have been liable to be taxed under the State sales tax laws and whe....
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....hether or not intoxicating), where such supply or service, is for cash, deferred payment or other valuable consideration, and such transfer, delivery or supply of any goods shall be deemed to be a sale of those goods by the person making the transfer, delivery or supply and a purchase or those goods by the person to whom such transfer, delivery or supply is made." 29. After the amendment in the Constitution, various States amended their legislations pertaining to sales tax for levy of sales tax on works contract. The constitutional validity of the Forty-Sixth Amendment by which the State Legislatures were conferred the competence to levy sales tax on certain transactions, as incorporated in sub-clauses (a) to (f) of Clause (29A) of Article 366 of the Constitution as well as the amendments made by the State Legislatures, were challenged in Builders' Association (supra). The Constitution Bench took note of the various problems which arose on account of the decisions in the field pertaining to works contract and the recommendations by the Law Commission in its 61st Report recommending for certain amendments in the Constitution so as to levy sales tax on transactions of....
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....(29-A) of Article 366 of the Constitution are subject to the restrictions and conditions mentioned in clause (1), clause (2) and sub-clause (a) of clause (3) of Article 286 of the Constitution and the transfers and deliveries that take place under sub-clauses (b), (c) and (d) of clause (29-A) of Article 366 of the Constitution are subject to an additional restriction mentioned in sub-clause (b) of Article 286(3) of the Constitution. The Constitution Bench further opined that it is open to the States to segregate works contract into two separate components or contracts by legal fiction, namely, contract for sale of goods involved in the works contract and for supply of labour and service. 30. At this juncture, the pronouncement in M/s Gannon Dunkerley and Co. and others v. State of Rajasthan and others (1993) 1 SCC 364 is necessary to be noted. While dealing with the various submissions of the counsel for the States, the Constitution Bench referred to the Builders' Association case wherein it has been clearly stated that the tax leviable by virtue of sub-clause (b) of clause (29A) of Article 366 of the Constitution becomes subject to the same discipline to which any levy unde....
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....nd the other is for work and labour; the second is clearly a contract for work and labour not involving sale of goods; and the third is a contract for sale where the goods are sold as chattels and the work done is merely incidental to the sale. 33. Commenting on the said decision in Larsen and Toubro (supra), a three-Judge Bench opined that after the 46th Amendment, the thrusts laid down therein are not of much help in determining whether the contract is a works contract or a contract for sale of goods. We shall elaborate the perception as has been stated in Larsen and Toubro (supra) at a later stage. 34. In Bharat Sanchar Nigam Ltd. (supra), a three-Judge Bench was concerned with the question of the nature of the transaction with regard to whether mobile phone connections which are enjoyed, is a sale or is a service or both. Though the context pertained to the meaning of the term "goods" under Article 366(29A), yet the Court referred to the case in Associated Cement Companies Ltd. v. Commissioner of Customs (2001) 4 SCC 593 and stated thus: - "After the Forty-sixth Amendment, the sale element of those contracts which are covered by the six sub-clauses of clause (29-....
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....to add that the aforesaid decision has been approved to have been laying down the correct legal position in Larsen and Toubro (supra). 37. In State of U.P. and others v. P.N.C. Construction Co. Ltd. and others (2007) 7 SCC 320, the raw materials were bought by the assessee which were used in the manufacture of hot mix utilized for road construction. The question thatemanated before the Court was whether, on the said facts, the Department was right in denying the benefit of recognition certificate as contemplated under Section 4B of the U.P. Trade Tax Act, 1948. In that context, it was observed that after the introduction of sub-clause (b) of Clause 29-A in Article 366, the emphasis is on the expression "transfer of property in goods (whether goods as such or in some other form)" and, therefore, the works contract which is an indivisible contract is, by a legal fiction, divided into two parts-one for sale of goods and the other for supply of labour and services, which has made it possible for the States to levy sales tax on the value of the goods involved in a works contract in the same way in which the sales tax was leviable on the price of the goods supplied in a building contr....
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....er of property in the goods as goods or which have lost its form as goods and have acquired some other form involved in the execution of a works contract." 40. On the basis of the aforesaid elucidation, it has been deduced that a transfer of property in goods under Clause (29A)(b) of Article 366 is deemed to be a sale of goods involved in the execution of a works contract by the person making the transfer and the purchase of those goods by the person to whom such transfer is made. One thing is significant to note that in Larsen and Toubro (supra), it has been stated that after the constitutional amendment, the narrow meaning given to the term "works contract" in Gannon Dunkerley-I (supra) no longer survives at present. It has been observed in the said case that even if in a contract, besides the obligations of supply of goods and materials and performance of labour and services, some additional obligations are imposed, such contract does not cease to be works contract, for the additional obligations in the contract would not alter the nature of the contract so long as the contract provides for a contract for works and satisfies the primary description of works contract. It has b....
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....ract, the assessee duly erected and installed two lifts in accordance with the terms of the contract and, eventually, the lifts were handed over to the customer. The question arose for determination whether sales tax was payable by the applicant therein in respect of the said contract. It was contended that it was an entire and indivisible contract for the erection and installation of lifts and the materials furnished were only in execution of the works contract and there was no sale of goods and materials by them. The learned Deputy Commissioner of Sales Tax came to hold that though the contract was one and indivisible contract and of lump sum value, yet in essence, it was to transfer the property in the goods for money consideration and so, the contract involved a sale of lifts. When the matter travelled to the Sales Tax Tribunal, it concurred with the view expressed by the Deputy Commissioner of Sales Tax. It was observed by the Tribunal that the amount or price of the materials supplied was overwhelming as compared to the amount agreed upon for labour and service and that apart, the price of the materials supplied was subject to adjustment. It was further held by the Tribunal t....
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.... and was intimately connected with the labour and services undertaken by the applicants in erecting and installing the apparatus. After so stating, the Court observed that the work of erection and installation of an apparatus like the lift in a huge building, which has to carry passengers to several floors, is a type of work which calls for considerable skill and experience and the technical skill and precision in execution of the work is absolutely essential if satisfactory services are to be rendered by the person who undertakes such work. Eventually, the High Court ruled that it would be difficult to hold that the mere use of the material, or the ultimate passing of property in the article or apparatus as a result of the execution of the contract, will make it possible to sever the agreement into two parts, one for the sale of goods, and the other for services rendered, for the two are so intimately connected that severance is not possible in such cases and, in fact, it was an indivisible contract. 44. The aforesaid decision makes it limpid how many facets are to be taken care of for the purpose of installation of the elevator, regard being had to its technical facet, safety ....
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....ntract for sale or a works contract. The fundamental principle that was applied is that what was sold was a chattel as chattel or the contract was a composite one on a different base/foundation. 46. The other decisions which have been relied upon by Mr. Dwivedi to show that installation is a part of the manufacturing process are J. Marcel (Furriers) Ltd. (supra), Central India Machinery Manufacturing Company Ltd. (supra), Norman Wright (Builders) Ltd. (supra), Titan Medical Systems (supra), MIL India Ltd. (supra), Eastend Papers Industries Ltd. (supra) and Aspinwall & Co. (supra). In J. Marcel (Furriers) Ltd. (supra), the plaintiff had kept a stock of furs made up ready for sale and they also made up furs, coats, jackets, and boleros for customers. An order was placed by the defendant for a mutation mink jacket. As the jacket was not up to mark, it was rejected by the defendant. In that context, the Court observed that though huge degree of skill and craftsmanship had gone into making up of a fur jacket as was made for the defendant, yet it was no more than making an article for sale to the defendant on a special order and the transaction, in fact, related to sale of a complete ....
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.... a part of the manufacturing process. We are disposed to think so as there is a fundamental fallacy in the submission as far as installation of the lift is concerned. It is not a plant which is erected at the site. It is not a different item like coffee which comes into the market after processing. It is also not like a "weighbridge" as is understood under the excise law. It has to be understood in the conceptual context of the manufacture and installation of a lift in a building. The lift basically comprises components like lift car, motors, ropes, rails, etc. having their own identity even prior to installation. Without installation, the lift cannot be mechanically functional because it is a permanent fixture of the building having been so designed. These aspects have been elaborately discussed in Otis Elevator (supra) by the High Court of Bombay. Therefore, the installation of a lift in a building cannot be regarded as a transfer of a chattel or goods but a composite contract. Hence, we unhesitatingly hold that the said decisions are not of much help to the learned senior counsel for the State of Orissa. 49. Coming to the submissions of Mr. Venkataramani, we find that the fun....
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.... put forth by Mr. Mishra, the same suffers from two basic fallacies, first, the supply and installation of lift treating it as a contract for sale on the basis of the overwhelming component test, because there is a stipulation in the contract that the customer is obliged to undertake the work of civil construction and the bulk of the material used in construction belongs to the manufacturer, is not correct, as the subsequent discussion would show; and second, the notification dated 17th May, 2010 issued by the Government of Haryana, Excise and Taxation Department, whereby certain rules of the Haryana Value Added Tax Rules, 2003 have been amended and a table has been annexed providing for "Percentages for Works Contract and Job Works" under the heading "Labour, service and other like charges as percentage of total value of the contract" specifying 15% for fabrication and installation of elevators (lifts) and escalators, is self-contradictory, for once it is treated as a composite contract invoking labour and service as a natural corollary, it would be works contract and not a contract for sale. To elaborate, the submission that the element of labour and service can be deducted from ....
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....ied is: when and how the property of the dealer in such a transaction passes to the customer: is it by transfer at the time of delivery of the finished article as a chattel or by accession during the procession of work on fusion to the movable property of the customer? If it is the former, it is a "sale"; if it is the latter, it is a "works contract". Therefore, in judging whether the contract is for a "sale" or for "work and labour", 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 provide 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" ....
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....icated that the assessee divided 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 and the said "supply" part included installation of lift. Therefore, the learned Judges further observed that the 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. The Court took note 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 and ruled that it was clear that the transaction in question was a contract of "sale" and not a "works contract". The Court perused the brochure of the assessee Company and noticed that the assessee was in the business of manufacturing of various types of lifts, namely, passenger lifts, freight el....
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....uct by the assessee qua the customer has to be constituted as a sale and not a works contract. 58. To understand the reasons ascribed in the said decision, it is requisite to appreciate the principle relating to the overwhelming component test or major component test. We have already referred to the decision in Bharat Sanchar (supra) wherein it has been clearly stated that the dominant nature test has no application. The said principle has been reiterated in Larsen and Toubro (supra) by stating thus: - "87. It seems to us (and that is the view taken in some of the decisions) that a contract may involve both a contract of work and labour and a contract of sale of goods. In our opinion, the distinction between contract for sale of goods and contract for work (or service) has almost diminished in the matters of composite contract involving both a contract of work/labour and a contract for sale for the purposes of Article 366(29-A)(b). Now by legal fiction under Article 366(29-A)(b), it is permissible to make such contract divisible by separating the transfer of property in goods as goods or in some other form from the contract of work and labour. A transfer of property in ....
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....act are not goods involved in the execution of the works contract, but a conglomerate, that is, the entire building which is actually constructed. 60. The aforesaid analysis has to be understood on the anvil of Article 366 (29A) of the Constitution. In this regard, we may fruitfully reproduce a passage from Builders' Association case: - "... After the 46th Amendment the works contract which was an indivisible one is by a legal fiction altered into a contract which is divisible into one for sale of goods and the other for supply of labour and services. After the 46th Amendment, it has become possible for the States to levy sales tax on the value of goods involved in a works contract in the same way in which the sales tax was leviable on the price of the goods and materials supplied in a building contract which had been entered into in two distinct and separate parts as stated above." 61. Explaining the said passage, the Constitution Bench, in Gannon Dunkerley-II (supra), has opined thus:- "This would mean that as a result of the Fortysixth Amendment, the contract which was single and indivisible has been altered by a legal fiction into a contract which is....
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....is Elevator (supra), various technical aspects go into the installation of the lift. There has to be a safety device. In certain States, it is controlled by the legislative enactment and the rules. In certain States, it is not, but the fact remains that a lift is installed on certain norms and parameters keeping in view numerous factors. The installation requires considerable skill and experience. The labour and service element is obvious. What has been taken note of in Kone Elevators (supra) is that the company had brochures for various types of lifts and one is required to place order, regard being had to the building, and also make certain preparatory work. But it is not in dispute that the preparatory work has to be done taking into consideration as to how the lift is going to be attached to the building. The nature of the contracts clearly exposit that they are contracts for supply and installation of the lift where labour and service element is involved. Individually manufactured goods such as lift car, motors, ropes, rails, etc. are the components of the lift which are eventually installed at the site for the lift to operate in the building. In constitutional terms, it is tr....
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.... the decision of the three-Judge Bench in Kone Elevators case. Considering the factual matrix, we direct that the show-cause notices, which have been issued by taking recourse to reopening of assessment, shall stand quashed. The assessment orders which have been framed and are under assail before this Court are set aside. It is necessary to state here that where the assessments have been framed and have attained finality and are not pending in appeal, they shall be treated to have been closed, and where the assessments are challenged in appeal or revision, the same shall be decided in accordance with the decision rendered by us. 66. The writ petitions and the civil appeals are disposed of with no order as to costs. JUDGMENT Fakkir Mohamed Ibrahim Kalifulla: 1. I had the benefit of reading the illuminating judgment of my brother Justice Dipak Misra. With respect, I state that I am not able to subscribe to the views and conclusions of His Lordship. Therefore, I wish to record my reasoning and conclusions holding that the manufacture, supply and installation of lifts are to be treated as a contract of 'Sale' in the following paragraphs. 2. By an Order dated 13.0....
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....yers of LIFTS was nothing but a 'contract for works' and consequently, whatever materials used in the performance of the contract could be taxed only based on the prescription contained in Article 366(29A)(b) and that the transaction could not be categorized as one of 'Sale' attracting payment of Sales Tax under the various State enactments, as well as the Central Sales Tax Act. 7. At the very outset, it must be stated that in the light of the three Judge Bench decision in Kone Elevators (India) Pvt. Ltd. (supra) and the decision of the same strength of Judges reported in Larsen & Toubro Ltd. (supra), the ultimate answer to the question would result in affirming either of the views of the above two decisions. Further, certain Constitution Bench decisions should also have to be kept in mind, wherein the basic principle/test to be applied to find out as to whether the contract is one for 'Sale' or 'Works Contract'. The first decision is the M/s. Patnaik and Company vs. State of Orissa reported in AIR 1965 SC 1655, wherein the principle stated by the High Court was affirmed by the Constitution Bench of this Court. The said principle was to the effect....
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...., the same are to be noted in the forefront. With that in view, I wish to refer to the specimen documents relating to the supply of the elevators by the Petitioner for its customers. Annexure A1 consists of the order of acknowledgement of the model, details of the benefits of the elevator to be supplied, the preparatory work to be carried out by the customer, the document containing price variation clause and elevator works contracts, the general conditions of Contract, the acceptance document by both parties and the invoice raised along with the various bills for purchase of the model items. A detailed reference to each one of the documents has to be noted in order to examine the question as to whether the manufacture, supply and installation of LIFT by the Petitioner should be treated either as a 'Sale' or 'contract for work'. 9. The above documents are found in Volume 1 of I.A. No. 2 of 2013. The details of the above documents are available in Annexure A-1, which are at pages 6 to 27. The first document is dated 23.12.2009, addressed to one of the customers of the Petitioner. The subject column reads as under: "Order Acknowledgment for One (1) No. OTI....
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....d, various details about the operating mechanism, which is part of the elevator such as motor, electromechanical brake, chromium molybdenum steel worm, bronze gear etc., have been mentioned. The brake system has been described as direct current brake with spring applied and electrically released and designed to provide for smooth stop under variable loads. As far as the motor is concerned, it is mentioned that the A.C. motor has been designed for elevator service, which will have high starting torque with low starting current. That apart, the advance technological system, which is called as 'Microprocessor Based Control' that will be provided in the LIFT has been stated in detail. The details about the digital control provisions, other user friendly features included in the Microprocessor Based Control has also been furnished. It is finally mentioned in the said document that the system would continuously monitor critical aspects of system health, self-health, diagnostic capabilities, which are built into the control system to speed up trouble-shooting, which can be monitored from seven segment display provided in the logic board and that it will facilitate quick identifica....
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....to accommodate the Petitioner's equipment with other detailed specifications, to furnish and install necessary HOIST WAY DOOR FRAMES and allied provisions, to provide continuous SILL BEARING AREA for each hoist way entrance of such constructions, to do all painting except elevator material, to do all CUTTING OF WALLS, floors, partitions including grouting of all bolts, sills etc., to furnish REQUIRED POWER at the top floor landing terminating in suitable main switches for power and light circuits with allied provisions, to furnish LIGHT OUTLET POINTS at the middle of the hoist way and a light point in the pit, to be furnished during the erection of the elevators, ELECTRIC POWER SUPPLY of necessary characteristics to provide illumination and operation of tools and hoists etc., to guard and protect the hoist way, TO COMPLETE ALL THE WORKS IN SUCH SPECIFIED TIME so that no delay is caused in carrying out the installation by the Petitioner, to relieve the Petitioner of any responsibility in respect of expenses relating to power supply or expenses of any nature relating to the rest of the building and other contractor's work, to pay all fees that may be required in connection wi....
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....olesale Price Index Number for Metal Products and All India Average Consumer Price Index Number for Industrial Workers as specified in the said document and that in case of any variation in the index numbers, the price would be subject to adjustment up or down in accordance with the formula. Though, a formula is set out in the said document, based on enquiries with the counsel appearing for the Petitioner, it is revealed that the said formula is a formal one and is never applied for the purpose of determining the cost. For the purpose of working out the formula, the details of various abbreviations noted in the formula are furnished. Inasmuch as it was informed to this Court that the formula as a matter of practice is not worked out, there is no need to go into the details of those abbreviations mentioned in the formula. There are two notes, namely, Note 1 and Note 2 at the bottom of the said document, which states that the sole purpose of the above stipulation is to arrive at the amount of the entire contract under the various situations and the above stipulations do not indicate any intentions to sell materials under this contract as movables. Note No.2 states that the indices MP....
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....riation Clause as per 'IEEMA Price Variation Clause'. Condition No.4 again shifts the burden on the Purchaser to furnish the Petitioner within two weeks from the date of the agreement, all required data for performance of the contract, that the PURCHASER TO AGREE TO PREPARE THE HOIST WAY STRUCTURE and make it ready with proper electric power supply as per the required data to enable the Petitioner to have uninterrupted use for installation and adjustment of the elevator. It also mentions that if the electric power supply is not provided, the installation of the equipment would still be completed and the Purchaser should be prepared to take over the elevator and make the payment as they fall due. Condition No.5 consists of the payment schedule and also a default clause. The payment schedule is 90% on acceptance of the proposal and the balance 10% by way of final payment either on commissioning or in the event of delay by any cause beyond the control of the Petitioner, which is to be paid within 90 days from the date the materials are ready for dispatch. In the event of any fault on the part of the Purchaser in making the Preparatory Work unavailable to enable the Petitioner ....
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.... in which event the cost escalation would be mutually agreed between the parties and finalized. As per Condition No.14, the Petitioner wants to call the Contract as indivisible Works Contract and states that the materials such as packing cases, left over materials, tools tackles, instruments, etc., brought to site by the Petitioner would remain the property of the Petitioner and also its right to sub-contract any of the work which it deems fit. Under Condition No.15, the Petitioner wants to make it clear that any descriptive matter, drawings or illustrations brochures furnished along with its proposal are not accurate but are approximate. Under Condition No.16, it is made clear that the specifications of the Petitioner will be the one which can be relied upon even if such specifications varied with the requirements made by the Purchaser prior to the Contract. Condition No.17 is again a FORCE MAJEURE clause. Under Condition No.18, the Petitioner wants to reserve its right to effect the supply either from its factory at Karnataka or from any other place in India or by importing the LIFT from a foreign country. Condition No.19 is the provision under which the Petitioner's right to....
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....ry tax liabilities to be incurred are all mentioned. Along with the above document, the payment of Rs. 12,12,500/- already made by the Purchaser, as well as the final invoice raised for value of the full amount, namely, Rs. 12,50,000/- is also enclosed. 20. Before adverting to the other statutory provisions, which are to be noted while dealing with the issue involved, as well as the submissions made by either side, it will be appropriate to sum up the nature of the contract that is normally transacted by the Petitioner with its customers, based on the above Annexure A-1. From what has been noted from the said Annexure, the following facts emerge: (a) Every supply and erection of an elevator by the Petitioner is always preceded by a proposal furnishing the requirement of the customer. The model of the LIFT specifying its capacity load, technical aspects and other minute details relating to the LIFT to be supplied along with the works to be carried out at the instance of the Purchaser to enable the Petitioner to supply and erect the LIFT are also furnished. (b) Based on the proposal of the Petitioner, once the order is placed by the Purchaser by way of acknowledg....
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....at the instance of the customer, the commencement of the installation would get postponed at the risk of the customer. (h) Though, in the conditions of contract the expression used in condition number 10 is 'indivisible works contract' the reading of as many as 27 conditions disclose that it only highlights the overall responsibility of the customer to undertake the main work of providing a solid hoist/structure to enable the Petitioner to bring its LIFT and fix it in the said earmarked place with all the other provisions readily made available by the Purchaser, including the electric points. (i) As per condition No.5 of the conditions of contract, 90% of the value is to be paid on acceptance of the proposal. Balance 10% payment is payable either on commissioning or in the event of any delay being caused and not attributable to the Petitioner, within 90 days of the materials relating to the LIFT to be supplied being made and kept ready for dispatch. Therefore, the said condition is required to be examined in detail to ascertain as to whether the payment schedule really determines the nature of the contract. 21. Having noted the above salient features of....
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....mmissioning of any movable or immovable property." 25. It was also brought to our notice certain provisions in the Bombay Lifts Act, 1939. The relevant provisions are Sections 3(c),(d), (e)&(f), which defines 'Lift, Lift Car, Lift Installation and Lift way'. Section 4 stipulates that every owner of a place intending to install a LIFT after the commencement of the said Act, should make an application to the concerned authority of the State Government for permission to erect such a LIFT and while seeking for such a permission, the obligation is on the applicant to furnish the various details about the LIFT to be erected. Section 5 deals with the licence to be obtained to use a LIFT, which states that every owner of a place who is permitted to install a LIFT under Section 4 should within one month after completion of the erection of such LIFT, inform the Authorized Officer of the State Government who has been empowered to issue a licence for the working of the LIFT. Such intimation about the erection of the LIFT and the nature of licence to be issued in the prescribed format has been specified. The required fee to be paid is also mentioned in the said section. Section 7 spe....
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....herefore, reference to the above provisions in my view is not decisive for finding out as to whether the manufacture, supply and installation of a LIFT would fall within the expression 'Works Contract' or not. 27. Mr. Salve, learned Senior Counsel in his submissions also made reference to the definition 'Commissioning and Installation Agency' and 'Taxable Service' under Section 65(29) and (105)(zzd) of the Finance Act, 1994 as was brought out w.e.f. 14.05.2003 and subsequently w.e.f. 10.09.2004 and 16.06.2005. In fact, the learned Senior Counsel also referred to the definition of 'Erection, Commissioning and Installation' as was inserted as sub-section (39a) to Section 65 by the Finance Act (No.2) of 2004 w.e.f. 10.09.2004. The definition of the above provisions were made w.e.f. 16.06.2005. Lastly, learned Senior Counsel brought to our notice the definition of 'Taxable Service' under sub-clause (zzzza) to sub-section (105) of Section 65, which was inserted by the Finance Act, 2008 w.e.f. 16.05.2008. The said provision reads as under: "105 - Taxable Service means any service provided,- "(zzzza) to any person, by any other ....
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....challenges in mind, the provisions will have to be examined. As has been stated in the opening part of this Judgment, the answer to the question referred to us will have to be made, keeping in mind the statutory provisions relating to charging of tax vis-à-vis the impact of Article 366 (29A)(b) of the Constitution. 29. Sub-section (29) of Section 65 of the Finance Act, 1994 defines what is 'Commissioning and Installation Agency' providing services in relation to commissioning and installation. Sub-clause (zzd) to subsection (105) of Section 65 defines the 'taxable service' to mean any service provided to a customer by a commissioning and installation agency in relation to commissioning or installation. These definitions relating to taxable service of commissioning and installation agency as was prevailing w.e.f. 14.05.2003, were general and there was no specified category or class of service referred to therein. With effect from 10.09.2004, there was an addition made in sub-section (29) of Section 65 by which while defining a 'commissioning and installation agency', the expression 'erection' came to be added. A further subsection, namely, s....
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....e that this definition of 'Works Contract' by way of an explanation to sub-clause (zzzza) to sub-section (105) of Section 65 came to be introduced for the first time w.e.f. 16.05.2008. 31. Therefore, while examining the question referred to this Bench in the order of reference dated 12.05.2005, in an attempt to answer the said reference, it will have to be necessarily noted at the very outset that as and from 16.05.2008, the erection, commissioning or installation of LIFT and Escalator would fall within the expression 'Works Contract' having regard to the specific definition so brought out under the Finance Act, 1994 w.e.f. 16.05.2008 for the purpose of Service Tax. However, the question still remains whether the same would hold good for levy of Sales Tax on the anvil of Article 366(29A) (b) of the Constitution read along with the provisions of the Sales Tax Act and that to for the period prior to the said date, namely, 16.05.2008. As noted by us, in the Writ Petitions, the challenge is to the revised pre-assessment notices under the Central Sales Tax Act or under the respective State General Sales Tax Act for the assessment periods related to the years 1999-2000....
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....n of the Purchaser was to provide certain facilities such as hoist way, power supply, procurement of permits, licences, etc. under certain other enactments, the payment schedule with the time schedule along with the default clauses are stipulated. There are also provisions in the contract relating to the time within which the LIFT will be commissioned, namely, within 52 weeks and if for any reason any delay is caused beyond the control of the Petitioner, even then there would be a requirement of making the full payment by the Purchaser to the Petitioner. This is on the Petitioner informing its readiness with the materials of the LIFT to be commissioned available at the premises of the Petitioner with no obligation for its commissioning. Also a period of 90 days is stipulated for effectuating the final payment. 34. The arguments on behalf of the Petitioners was mainly addressed by Mr. Salve, learned Senior Counsel. In his submissions, learned Senior Counsel contended that after the decision of this Court in Kone Elevators (India) Pvt. Ltd. (supra), the various States who were earlier contending that supply and erection of a LIFT was a 'Works Contract', took a diametricall....
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....Counsel also relied upon the decision in State of Madras vs. Richardson Cruddas Ltd. reported in [1968] 21 STC 245 in support of his submissions. By referring to the provisions contained in the Bombay Lifts Act, 1939 in particular Sections 3, 4, 5 and 7 and Rules 3, 5, 6, 9 and 9A along with Form A1, the learned Senior Counsel contended that the said provisions in the Acts and the Rules, also goes to show that the installation of a LIFT, having regard to the nature of the activity and the functions involved can only be held to be a 'Works Contract' and not a 'Sale'. According to the learned Senior Counsel, the contract being an indivisible contract for supply and erection of the LIFT to the customer and the erection part of it is so intertwined with the supply of the LIFT, the contract can only be construed as 'Works Contract' and not a 'Sale'. 38. The learned Senior Counsel also relied upon a decision of the Government of India in In re: OTIS Elevator Co. (India) Ltd. (1981) ELT 720 in support of his submissions. That was a decision of the Government of India in an appeal filed by OTIS Elevator Company under the provisions of the Central Excise A....
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.... dominant intention of the contract is not to transfer the property in goods and rather it is rendering of service or the ultimate transaction is transfer of immovable property, then also it is open to the States to levy Sales Tax on the materials used in such contract, if such contract otherwise has elements of 'Works Contract'. Ultimately, it was held that the enforceability test is also not determinative. The learned Senior Counsel drew our attention to paragraphs 17, 19, 21, 47, 60 to 65 and 76, as well as paragraph 101 where the legal position was summarised while answering the question referred to it. 41. The learned Senior Counsel by drawing our attention to the definition contained in the Finance Act of 1994, in particular subsections (29), 39(a) of Section 65 and sub-clause (zzd) to sub-section (105) of Section 65, contended that such definitions in the Finance Act under Chapter V for imposition of Service Tax, would show that the installation of a LIFT is nothing but a 'Contract for Works' and not 'Sale'. The learned Senior Counsel drew our attention to sub-clause (zzzza) to sub-section (105) of Section 65 wherein, in the explanation to the said....
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....rks Contract' or one of 'Sale'. The learned Senior Counsel, however, fairly brought to our notice the provisions contained in the Orissa Value Added Tax Act, 2004, in particular Rule 6 and the Appendix, to show that by virtue of the said Act in the State of Orissa, as far as value added tax is concerned, erection of a LIFT, Elevator and Escalator would fall under the category of 'Works Contract' and that in the Appendix, a provision of 15% is made for deduction towards labour charges, while arriving at the taxable turnover. 43. Mr. R. Venkataramani, learned Senior Counsel, appearing for the State of Tamil Nadu and Andhra Pradesh, drew our attention to the definition of 'Sale' and 'Works Contract' under the Andhra Pradesh General Sales Tax Act, 1957 as defined in Section 2(n) & (t) and submitted that going by the definition of 'Sale' every transfer of the property in goods in pursuance of a contract or otherwise by one person in the course of his trade or business, for cash, or for deferred payment or for any other valuable consideration, the same would be a sale and by referring to the definition of 'Works Contract' under Secti....
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....and nontaxable sales of services or intangibles is sometimes difficult, especially where property that was largely created by personal services is transferred. (Hellerstein, State Taxation (3d ed.2007) 12.08[1], p.1). Where services and tangible property are inseparably bundled together, determination of the taxability of the translation turns upon whether the purchaser's "true object" was to obtain the finished product or the service." 45. The learned Senior Counsel, therefore, contended that when the true object of the transaction in the case on hand was to obtain a finished product whatever services involved should be held to be incidental and also should be treated as part of a sale of the tangible property and thus subject to 'sales' or 'use tax'. 46. Dr. Singhvi, learned Additional Advocate General appearing for the State of Rajasthan prefaced his submission by contending that the first question to be examined is whether the transaction is a 'Sale' or 'Works Contract'. According to the learned Counsel, the test that was prevailing pre 46th Amendment, continued to hold good and that the sale of a LIFT is definitely not a 'Works Con....
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....r of Central Excise, Ahmadabad vs. Solid and Correct Engineering Works and others reported in (2010) 5 SCC 122. The learned Senior Counsel attempted to distinguish the decision in M/s Vanguard Rolling Shutters and Steel Works (supra). In so far as the decision in Solid and Correct Engineering Works and others (supra), the learned Counsel after making reference to paragraph 16, 23 and 25, submitted that erection or installation of a LIFT could not, therefore, be held to be a structure which was embedded to the earth on a permanent basis in order to call it an immovable property. 51. Having heard the learned Counsel for the Petitioners and the Respondents and having considered the material papers placed before us and the various decisions relied upon by the Petitioners as well as the Respondents, at the foremost, what has to be first ascertained is whether the contract between the Petitioner and its Purchaser would fall within the definition of 'Works Contract' in order to attract clause (b) to Sub-Article (29-A) of Article 366 of the Constitution. In fact, if an answer to the said question can be held in the affirmative, then that would axiomatically lead to an answer in ....
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....d that it is a 'Works Contract'. Therefore, at the risk of repetition, it will have to be stated that the initial exercise to be carried out is as to what are the terms of the contract. 54. I have set out in detail the said terms based on the specimen contract filed before us in the form of Annexure A-1 along with its enclosures. These terms have been set out in detail in paragraphs 8 to 19 and 32. I have also found that the Purchaser placed an order with the Petitioner for supply of LIFTS/ELEVATORS mentioning the specifications. In fact, the document dated 23.12.2009, along with which all the other connected annexures have been enclosed states that it is by way of acknowledgement of the order of the proposed features of the LIFT to be supplied. It is true that in the enclosures annexed along with the said document, in few places, the expression 'Works Contract' has been used. It is needless to state that simply because someone calls an activity as a 'Works Contract' that by itself will not ipso facto make the activity a 'Works Contract' unless the activity as explained in the document affirms and confirms to the effect that the said activity is n....
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....r a fixed price, mere mentioning of the expression 'Works Contract' or by making reference to the basis for fixing the cost of labour involved in the manufacture or by simply using the expression 'Works Contract' without any scope of performing any work at the command of the Purchaser, in my opinion, the Petitioner's claim to hold its activity as a 'Works Contract' cannot be accepted on mere asking. In other words, the contract must disclose in no uncertain terms that it was one for carrying out 'the work' and the supply of the materials were part of such agreement to carry out any such specified work. Here, it is the other way around, the contract is only for supply of LIFTS/ELEVATOR and whatever element of works which the Petitioner claims to carry out in effecting the supply is virtually very insignificant as compared to the element of sale, which is paramount as found in the terms of the contract. The whole of the preparatory work for the erection of the LIFT is that of the Purchaser and the Petitioner merely goes to the Purchaser's premises and fixes the various parts of the LIFT in the slots created for it. 57. While making a deeper ....
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....s called as Elevator hoist way/structure to provide in its building to enable the Petitioner to supply its LIFT and locate it. It contains as many as 21 different aspects of preparatory work wherein, what all the Petitioner has come forward to provide is a ladder for having access to the pit. The other one which the Petitioners agreed to provide is a steel fascia for each sill. The third one is the cutting of walls, floors or partitions together with any repairs to be made necessary including, grouting of all bolts, sills, members indicator and button boxes, etc. and a steel scaffolding to be made in the course of erection, which the Petitioner undertakes to provide. 60. As far as the provision of a ladder in the pit is concerned, it can again be taken only as a material part of the LIFT and it does not involve any work to be performed. Similarly, provision of a steel fascia at every sill level is again another part of the LIFT and here again there is no element of work or service to be rendered. The provision relating to cutting of walls, floors or partitions together with any repairs to be made necessary including grouting of all bolts, sills, members indicator and button boxe....
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....act'. Merely because the price is likely to vary based on the variation in the indices of the price of Metals and Consumer Price, I fail to understand as to how that has any relevance or a reference to those indices would determine the nature of the contract as a 'Works Contract'. Therefore, the caption 'Elevators Works Contract', while referring to the Price Variation Clause is a total misnomer and based on the said caption simpliciter, the whole contract cannot be called as a 'Works Contract'. Under the very same head it is stipulated by way of payment terms that claim for manufactured materials should be paid along with the material invoice and claim for installation should be paid along with their final invoice, which according to the Petitioner would relate to the labour costs. It however, states that the price quoted in the proposal would be formed upto a particular date and thereafter, if there is any delay in completion of installation and commissioning due to reasons attributable to the Purchaser, the price would be varied in accordance with the above costs indices. The price variation is supposedly agreed between the parties to prevail upto a s....
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....n 90 days from the date of the commencement of the contract, the Petitioner will have the right to demand for the entire payment without doing anything towards the erection part of it. Alternatively, while the Purchaser would be liable to pay the entirety of the contracted amount for the supply of the LIFT, the Petitioner after receiving the full payment would still have sufficient time to effectuate the supply in the event of the supply not being effectuated within the due date, then, on that ground the inability to commission the LIFT within 30 days or within 90 days after the materials are ready for dispatch will not for any reason be attributable to the Petitioner. In fact, Condition No.8 at the end states that if for any reason the Petitioner is not able to supply any equipment within 52 weeks, then at its option, it can cancel the contract without there being any liability for payment of damages or compensation. Therefore, those terms relating to payment in Condition No.5 and the right retained by the Petitioner to cancel the contract for any reason whatsoever under Condition No.8 disclose that for mere signing of the contract for supply of the LIFT, the Petitioner would get ....
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....lability of materials for dispatch without any other stipulation as to such equipments or components being delivered at the spot of the Purchaser for its installation. If the conditions of the contract relating to payment are discernable to that effect, it can only be stated that the contract of the Petitioner with the Purchaser is virtually for the manufacture of the materials and for its absolute readiness to supply those materials and nothing more. The sum and substance of the conditions of the contract de hors the other clauses is only to that effect. 66. As far as the other clauses are concerned, they have nothing to do with the execution of the works or creating any duty or responsibility on the Petitioner to carry out such execution and thereby, any corresponding liability being fastened on the Petitioner in the event of its failure to carry out the erection/installation part of it will not become attributable. It will also be relevant to note that if for any reason, the contract is not fulfilled due to reasons attributable to the Purchaser, the apportionment clause will enable the Petitioner to retain such part of the amount of 90% already received to cover its costs and....
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....t, 1947 and contended that applying the said definition of 'Works Contract' to the present contract, the same would squarely fall within the said definition. When examining the said contention, it will be relevant to make a detailed reference to the said provision under the Orissa Sales Tax Act. For appreciating this provision, a reading of it is required and has been extracted in paragraph 24 of this judgment. The definition of 'Works Contract' under Section 2(jj) of the Orissa Sales Tax Act states that it would include any agreement for carrying out for cash or deferred payment or other valuable consideration, among other activities, fabrication, erection, installation or commissioning of any movable or immovable property. 71. As far as a LIFT is concerned, in one sense it can be called as a movable property when it is in the course of operation after its installation and that it is not embedded to the earth permanently while, in another sense, having regard to the manner in which the LIFT is installed in a premises, it can also be stated to be part of an immovable property. In my view, whether as a movable property or immovable property, it may not make any di....
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....movable property. Further, such an agreement should also be one for cash or deferred payment or other valuable consideration. 74. Keeping the above statutory prescriptions in mind, the same can be applied to the case on hand. As has been pointed out in the earlier part of the judgment, where the various terms of the contract as between the Petitioner and the Purchaser have been examined, in particular the consideration part of it, it is found that the majority of the consideration was payable to the Petitioner within one month from the date of commissioning or within 90 days of keeping the materials ready for supply in its premises. This is on the ground that the commissioning could not be effected as agreed or within 30 days of its readiness to commission and by stating that its inability to commission was delayed due to reasons beyond its control. This provision in the Contract is de hors the stipulation in Condition No.25(a) under which a minimum of 16 weeks is prescribed for commissioning while the maximum period is 52 weeks, which again depends upon the fulfillment of the agreed conditions fastened on the Purchaser. It also provides for extending the contract periods. To re....
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....ch a consequence would be inevitable having regard to the terms of the contract, which in spite of my best efforts, was not able to discern any specific clause which would entitle the Purchaser to seek for such enforcement for erection/installation. On one hand, a provision from the contract states that the Purchaser may be entitled to retain the materials even in uninstalled position in the event of the contract not being fulfilled in its fullest terms. 76. On the other hand, in the event of any failure on the part of the Purchaser in effectuating the payment or in fulfilling certain other aspects, such as construction of hoist way and other works related, obligations to be performed on its part, the Petitioner has retained every right to charge interest for such delay, if any, caused at the instance of the Purchaser and in the event of the Contract failing to fructify, the Purchaser would be liable to pay compensation/damages to the Petitioner and not vice versa. Since the above conclusion is the outcome based on the relevant terms of the Contract, the mentioning in Clauses 10 and 14 that the contract is otherwise indivisible 'Works Contract' will not by itself make it....
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....e Field Installation Manual show that what was agreed as between the parties would fall within the definition of 'Works Contract' and therefore, be held as the same. In the previous paragraphs, it has been stated as to how the contract between the Petitioner and its Purchaser is mainly for the supply of the LIFT and the agreement is not in any way conditional to the installation part of it. Therefore, the reference to the Field Installation Manual will be of no assistance to the Petitioner, since it only describes as to how various steps are to be followed by the personnel of the Petitioner while erecting the LIFT. Since, the agreement, namely, the proposal for the supply and the consideration was agreed as between the Parties, without creating any legally enforceable rights as regards the installation part of it, the reference to the Field Installation Manual, which is an internal document of the Petitioner issued to its employees for their guidance, does not in anyway advance the case of the Petitioner. Therefore, for the very same reasons, the said contention of the learned Senior Counsel is also liable to be rejected. 79. I have also highlighted how as per the paymen....
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.... Central Excise Act which has been dealt with in paragraph 39 of this judgment. Here again I fail to see any acceptable grounds to apply any of the reasoning for such conclusion. When I examined the nature of the contract of the Petitioner for manufacture, supply and installation of the LIFTS to its Purchaser, I do not find any scope at all to apply those decisions or the conclusions taken by the concerned authority under the provisions of Central Excise Act. 83. The learned Senior counsel for the petitioner lastly made reference to sub-Sections 29, 39(a) and sub-clause (zzd) to sub- Section 105 of Section 65 along with a further reference to sub- Clause (zzza) to sub-Section 105 to Section 65, which has been dealt with in paragraph 41 of this judgment. Though in the first blush, the submission appears to be forceful, on a meticulous examination of the provisions with particular reference to the contract as between the Petitioner and its Purchaser, I am compelled to reject the said submission as it has no force. 84. To note the fallacy in the submission, a clear understanding of the said provision is required. At the very outset, it will have to be stated that the present att....
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....t makes it clear that such transfer of goods would attract levy of tax as sale of goods, under the relevant statutes, namely, Sales Tax Acts; State or Central. In Clause (ii) of the Explanation, it specifically includes erection, commissioning or installation of LIFT and Escalator. It will be profitable also to refer to Section 65(50), which defines 'goods' to mean what is assigned to it in clause (7) of Section 2 of the Sale of Goods Act, 1930. Section 2(7) of Sale of Goods Act defines it to mean every kind of movable property other than actionable claim, etc. Similar such definitions are attributed to 'goods' under the Sales Tax Acts. Since Section 65 and the various subsections, namely, (29), (39a), (105), (zzd), (zzzza) put together only relatable to Service Tax, the question of importing the said definition of 'Works Contract' in the explanation to Section (65)(105)(zzzza) to the provisions of Sales Tax Acts cannot be made. Further, clause (i) of the Explanation to sub clause (zzzza) of Sub-section 105 to Section 65, distinctly refers to transfer of goods in any such contract to mean such goods leviable to tax as a sale of goods. It will have to be stat....
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....and the other for labour and service charges for the installation of the goods so sold. 2. Whether the said contract was one and indivisible contract for work and labour." 87. While examining the above two questions apart from the various terms of the contract, the Division Bench has referred to a very vital term in the contract, which again related to the payment of consideration. The said term has been extracted at page 531, which reads as under: "531. We propose to furnish and erect the elevator, installation outlined in the foregoing specifications for the sum of price of two passenger lifts as above duly delivered and erected at site @ Rs. 28,156/- each." 88. The Division Bench, thereafter, noted clause (iv) of the Agreement, which related to the payment of price. The said clause was as under: "30% within 30 days of the builders accepting the proposal; 60% on receipt of shipping documents from the applicants' factories; and the remaining 10% (+) or (-) any adjustments required on completion of erection or in any case within 6 months of delivery of equipment." 89. After referring to the above clauses in the agreement and also the various ....
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....s follows:- Question No.(1) in the negative. Question No.(2) in the affirmative." 93. The Division Bench ultimately held that the contract was a composite and indivisible contract for work and labour and, therefore, no sale of goods can be spelt out of the contract. As observed from the said judgment, the Division Bench has noted the agreed terms of the parties, which stated that the proposal was to manufacture/erect/install the elevator, for which the price was agreed upon. The payment term also made it clear that the entirety of the payment would be made on completion of the erection or in any case within six months of delivery of the equipment. It has further noted that the price was all inclusive for supply, erection and installation which were the specific terms of the contract. Therefore, the said judgment having regard to the special facts, namely, the specific terms contained in the contract as between the parties, can have no application to the facts of this case. In the case on hand, the payment has really nothing to do with the erection and installation. It has also got no relation to the delivery of the LIFT, either in its full form or in any semi-i....
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....agraph 12: "12. On a careful study of the afore-stated clause in the Delivery Schedule, it is clear that the customer was required to do the actual work at the site for installation of lift. On reading the above clause, it may be observed that the entire onus of preparation and making ready of the site for installation of lift was on the customer. It was agreed that under no circumstances would the assessee undertake installation of lift if the site was not kept ready by the customer. Under clause 4(g) of the "Customers' Contractual Obligations", the assessee reserved the right to charge the customer for delay in providing the required facilities. These facts clearly indicate that the assessee divided 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 oblig....
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....irm the said decision and hold that the activity of the Petitioner in the manufacture, supply and installation of LIFT/ELEVATOR is a 'Sale' and not a 'Works Contract', having regard to the specific terms of the contract placed before this Court. 96. On behalf of the Petitioners, reliance was heavily placed upon the three Judge Bench decision of this Court in Larsen & Toubro Ltd. (supra). That decision came to be rendered pursuant to a reference by a two judge Bench of this Court in K. Raheja Development Corporation vs. State of Karnataka, (2005) 5 SCC 162. In the order of reference dated 19.08.2008, the two judge Bench after noticing the relevant provisions of the Karnataka Sales Tax Act, 1957 and the distinction between the 'contract of sale' and the 'Works Contract' felt it necessary to refer the question to a larger Bench. In the order of reference, it was held that prima facie it faced difficulty in accepting the proposition laid down in Raheja Development (supra), in particular, paragraph 20, inasmuch as Larsen & Toubro being a developer undertook the contract to develop the property of one Mr. Dinesh Ranka, owner of the land and subsequently....
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....he prospective Purchaser after the construction of the flat and, therefore, there was only a sale element of the Flat along with the undivided share of the land jointly by the Developer/Owner in favour of the prospective Purchaser. Hence, it was claimed that the agreement can only be construed as 'Sale' and not a 'Works Contract'. It was also contended on the above footing as under: "21. ....Conversely a suit by an owner/developer against the flat Purchaser would be for payment of consideration of the flat/ fractional interest in the land. Such suit would never be for payment of work done at the behest of the flat Purchaser and payment of consideration therefor. It is, thus, submitted that the judgment in Raheja Development does not lay down good law and deserves to be overruled." 99. On the other hand, another learned counsel submitted that in a composite works contract transfer of immovable property will not denude it of its character of 'Works Contract' and that Article 366(29A)(b) takes care of such situations where the goods are transferred in the form of immovable property. 100. While dealing with the reference, the various contentions w....
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....was in that context the said judgment came to be rendered. In fact, this court has noted that in the peculiar facts of that case, the goods employed became part of the immovable property and in the ultimate process lost its form as goods. 105. In the above-stated background of the said case, what is relevant to be examined is, in order to invoke Article 366 (29A)(b), it will have to be found out whether a contract will fall within the four corners of the expression 'Works Contract'. Therefore, the endeavour is to find out the principles that have been stated in the various decisions, including in the decision of Larsen & Toubro Ltd. (supra), so that such principles can be applied to the case on hand to ascertain the nature of the contract. Keeping the said perception in mind, a detailed reading of the decision in Larsen & Toubro Ltd. (supra) can be made. 106. In paragraph 65 of the said decision reference was made to Bharat Sanchar (supra), wherein sub-clause (d) of Clause 29A of Article 366 came to be considered. It was laid down therein that all the sub-clauses of Article 366(29A) serve to bring transactions where essential ingredients of a 'Sale' as defined....
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....s a contract for undertaking or bringing into existence some 'works'. We are also in agreement with the submission of Mr. K.N. Bhat that the term 'Works Contract' in Article 366(29A)(b) takes within its fold all genre of works contract and is not restricted to one specie of contract to provide for labour and services above. The Parliament had all genre of works contract in view when clause 29A was inserted in Article 366." (Underlining is mine) 107. While examining the above reasoning to ascertain a contract as to whether it is 'Works Contract' or 'Sale', it is stated that the characteristics of 'Works Contract' would be satisfied in a contract irrespective of any additional obligations. In other words, while applying Article 366(29A)(b), it should not be limited to a contract for labour and service only. It was further held that it could not be confined to a contract to provide labour and services, but if a contract is for undertaking and bringing into existence some element of 'works', though the contract may be for supply of goods, it will become a 'Works Contract'. With great respect, it will have to be held that such a....
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.... to be considered, was as to in the first instance, whether a contract would fall within the four corners of 'Works Contract' by virtue of the essential ingredients of that very contract. Even by referring to Bharat Sanchar (supra), before finding out the application of Article 366(29A), it will have to be seen whether the transaction and essential ingredients of 'Sale' as defined in the Sale of Goods Act are present or absent for the purpose of levy of sales tax. In other words, if the essential ingredients of 'Sale' as defined in the Sale of Goods Act are present, then going by the ratio laid down in Bharat Sanchar (supra), the application of Article 366(29A) will not be available. Therefore, in every contract what is to be seen in the first instance is the relevant terms of the contract and finding out as to whether the essential ingredients of those terms would lead the Court to hold whether the element of 'Sale' that would fall within the definition of 'Sale' under the Sale of Goods Act is present. In this event, the question of construing the said contract as a 'Works Contract' covered by Article 366(29A) cannot be made. In fact....
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....a) would apply in the peculiar facts relating to that case where it related to construction of a building by virtue of the contract between the developer and owner on the one side and the prospective Purchaser on the other side. It is difficult to apply the said ratio rendered in the context of the said contract as applicable universally in all sorts of contracts where some element of work is involved and state that such contract would also fall within the definition of 'Works Contract'. 112. The said conclusion is also fully supported by the reasoning in Larsen & Toubro Ltd. (supra), as held in paragraph 94, which is to the following effect: "94. For sustaining the levy of tax on the goods deemed to have been sold in execution of a works contract, in our opinion, three conditions must be fulfilled: (i) there must be a works contract, (ii) the goods should have been involved in the execution of a works contract, and (iii) the property in those goods must be transferred to a third party either as goods or in some other form. In a building contract or any contract to do construction, the above three things are fully met. In a contract to build a flat there will ne....
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....ed to the present one, the relevant paragraph in page 249 can be usefully extracted which reads as under: "249. There is no formal contract in the present case for fabrication and erection of the steel structures required by the society. The agreement between the parties has to be ascertained from the correspondence between them. The correspondence may be briefly referred to. By letter dated December 4, 1956 the Corporative Society informed the Respondents that they had placed an order for a sugar plant and machinery for manufacture of sugar and they had to design the factory." (Underlining is mine) 116. Therefore, the above passage in the said judgment itself discloses that the contract itself had to be understood based on the correspondence as between the parties. There was no formal contract in any event. What was required to be fulfilled by the Respondent was setting up of a sugar plant and machinery for the manufacturing of sugar and that too to be decided by the contractor. It is difficult to understand as to how the conclusion reached in the said case based on the above contract could be applied to the case on hand. In the present case, the contract was put into ....
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.... "31. To constitute a sale there must therefore be an agreement and in performance of the agreement property belonging to one party must stand transferred to the other party for money consideration. Mere transfer of property in goods used in the performance of a contract is, however, not sufficient: to constitute a sale there must be an agreement - express or implied - relating to sale of goods and completion of the agreement by passing of title in the very goods contracted to be sold. It is of the essence of the transaction that the agreement and sale should relate to the same subject-matter i.e. the goods agreed to be sold and in which the property is transferred." (Emphasis Added) 119. Going by the above dictum of the Constitution Bench of this Court, the contract as a whole will have to be examined to see as to what was the real intention of the parties. In my opinion, the said legal principle will continue to apply even after the 46th Amendment while examining each case to find out as to whether the contractual terms would persuade the Court to hold that the said contract as a whole would fall within the definition of 'Works Contract'. This Court in paragraph 31 re....
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.... within the meaning of the Central Sales Tax Act. We were referred to a number of cases of this Court and the High Courts, but it seems to us that the answer must depend upon the terms of the contract. The answer to the question whether it is a works contract or it is a contract of sale depends upon the construction of the terms of the contract in the light of the surrounding circumstances. In this case the salient features of the contract are as follows: '(1) ........ (2) ......... (3) ......... (4) ......... (5) ......... (6) ......... (7) .......' 13. On these facts it seems to us that it is a pure works contract. We are unable to agree that when all the material used in the construction of a coach belongs to the Railways there can be any sale of the coach itself. The difference between the price of a coach and the cost of material can only be the cost of services rendered by the assessee. If it is necessary to refer to a case which is close to the facts of this case, then this case is more in line with the decision of this Court in State of Gujarat v. Kailash Engineering Co. than any other case." (E....
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.... seller and the President/Railway Board being the buyer. It is true that technically the entire wagon including all the material and components used in its construction cannot be said to be the sole property of the Company before its delivery to the Purchaser. But as pointed out by Lord Halsbury in the above quoted passage from his renowned work neither the ownership of the materials nor the value of the skill and labour as compared with the value of the materials used in the manufacture is conclusive. Nevertheless, if the bulk of the material used in the construction belongs to the manufacturer who sells the end product for a price that will be a strong pointer to the conclusion that the contract is in substance one for the sale of goods and not one for work and labour. 32. Be that as it may clause (1) of Standard Condition 15 dispels all doubt with regard to the nature of the contract. This clause stipulates in unmistakable terms that as soon as a vehicle has been completed, the Company will get it examined by the Inspecting Officer and submit to the Purchaser an "On Account" Bill for 90% of the value of the vehicle and within 14 days of the receipt of such bill together....
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....rk or service rendered is incidental to the execution of the contract. If so, the contract is one for sale of materials and the sale proceeds would be eligible to sales tax. On the other hand where the contract is primarily a contract for work and labour and materials are supplied in execution of such contract, there is no contract for sale of material but it is a work contract...." (Emphasis Added) 127. Therefore, even as per the above principle stated in the said decision and applying the same to the facts of this case, it is found, based on the contractual terms as between the Petitioner and its Purchaser that the value of the LIFT upto the extent of 90% is payable, under certain contingencies, even when such materials are made ready and available for dispatch at the premises of the Petitioner. It has also been found based on the terms of the contract that the value of the labour content referable to the remaining 10%, becomes payable after the installation of the LIFT. That apart in the said decision the Constitution Bench decision of this Court in M/s. Patnaik and Company (supra) and Commissioner of Commercial Taxes Mysore, Bangalore (supra) were not brought to the notice o....
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..... In support of the said submission the learned Additional Advocate General relied upon a three Judge Bench decision of this Court in Bharat Sanchar (supra). Paragraph 43 of the said judgment is relevant for the case on hand, which reads as under: "43. Gannon Dunkerley survived the Forty-sixth Constitutional Amendment in two respects. First with regard to the definition of "sale" for the purposes of the Constitution in general and for the purposes of Entry 54 of List II in particular except to the extent that the clauses in Article 366(29-A) operate. By introducing separate categories of "deemed sales", the meaning of the word "goods" was not altered. Thus the definitions of the composite elements of a sale such as intention of the parties, goods, delivery, etc. would continue to be defined according to known legal connotations. This does not mean that the content of the concepts remain static. The courts must move with the times. But the Forty-sixth Amendment does not give a licence, for example, to assume that a transaction is a sale and then to look around for what could be the goods. The word "goods" has not been altered by the Forty-sixth Amendment. That ingredient of....
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....ndertaken by the payee of the price is not the transfer of a chattel as such, the contract is one for work and labour. The test is whether or not the work and labour bestowed end in anything that can properly become the subject of sale. Neither the ownership of the materials, nor the value of the skill and labour as compared with the value of the materials, is conclusive, although such matters may be taken into consideration in determining 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." 133. It must be stated that when the said principle to ascertain a contract of 'Sale' and 'Works Contract' is applied to the case on hand, it can be held that under the contract of the Petitioner with its Purchaser, what was agreed was to ultimately supply its product of LIFT/ESCALATOR to its customers. Therefore, after execution of the installation part of it, what is transferred by the Petitioner to its Purchaser is the LIFT as a chattel and this contract is nothing but a contract of 'Sale'. 134. Mr. K.N. Bhatt, learned Senior Counsel appearing for the State of Karnataka submitte....
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....iation of India (supra), as well as, the conditions set out in paragraph 94 of the Larsen & Toubro Ltd. (supra), it shall be ascertained whether the contract of the Petitioner with its Purchaser falls within the definition of 'Works Contract', in order to apply the implication of Article 366(29A). Hence, the said submission of the learned Senior Counsel therefore, does not appeal to us. 137. A useful reference can also be made to one other decision of this Court in Commissioner of Sales Tax, Gujarat vs. M/s. Sabarmati Reti Udyog Sahakari Mandali Ltd. reported in (1976) 3 SCC 592. In paragraph 6, this Court has laid down as to how to find an answer to a question whether a particular transaction is a contract of sale or a works contract. The said paragraph is as under: "6. It is well-settled that whether a particular transaction is a contract of sale or a works contract depends upon the true construction of all the terms and conditions of the document, when there is one. The question will depend upon the intention of the parties executing the contract. As we have observed in our judgment in Civil Appeal Nos. 1492 and 1493 of 1971 which we have just delivered there....
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....use though property passes it does not pass for a price. Whether a contract is of the first or the second class must depend upon the circumstances: if it is of the first; it is a composite contract for work and sale of goods: where it is of the second category, it is a contract for execution of work not involving sale of goods." The above ratio also demonstrates as to how to find out whether a contract is a 'Works Contract' or one for 'Sale'. 140. In light of the above discussions, it will have to be held that even after the 46th Amendment, if Article 366 (29A)(b) is to be invoked, as a necessary concomitant, it must be shown that the terms of the contract would lead to a conclusion that it is a 'Works Contract'. In other words, unless a contract is proved to be a 'Works Contract' by virtue of the terms agreed as between the parties, invocation of Article 366 (29A)(b) of the Constitution, cannot be made. Alternatively, if the terms of the contract disclose or lead to a definite conclusion that it is not a 'Works Contract', but one of outright sale, the same will have to be declared as a 'Sale' attracting the provisions of the re....