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2014 (5) TMI 265 - SUPREME COURT
Nature of contract - sales or works contract - whether a contract for manufacture, supply and installation of lifts in a building is a "contract for sale of goods" or a "works contract". - Decision by constitution bench by majority order - Held that:- the principles stated in Larsen and Toubro [2013 (9) TMI 853 - SUPREME COURT] as reproduced by us hereinabove, do correctly enunciate the legal position. Therefore, "the dominant nature test" or "overwhelming component test" or "the degree of labour and service test" are really not applicable. If the contract is a composite one which falls under the definition of works contracts as engrafted under clause (29A)(b) of Article 366 of the Constitution, the incidental part as regards labour and service pales into total insignificance for the purpose of determining the nature of the contract.
If there are two contracts, namely, purchase of the components of the lift from a dealer, it would be a contract for sale and similarly, if separate contract is entered into for installation, that would be a contract for labour and service. But, a pregnant one, once there is a composite contract for supply and installation, it has to be treated as a works contract, for it is not a sale of goods/chattel simpliciter. It is not chattel sold as chattel or, for that matter, a chattel being attached to another chattel. Therefore, it would not be appropriate to term it as a contract for sale on the bedrock that the components are brought to the site, i.e., building, and prepared for delivery.
The conclusion, as has been reached in Kone Elevators [2005 (2) TMI 519 - SUPREME COURT OF INDIA], is based on the bedrock of incidental service for delivery. It would not be legally correct to make such a distinction in respect of lift, for the contract itself profoundly speaks of obligation to supply goods and materials as well as installation of the lift which obviously conveys performance of labour and service. Hence, the fundamental characteristics of works contract are satisfied. Thus analysed, we conclude and hold that the decision rendered in Kone Elevators [2005 (2) TMI 519 - SUPREME COURT OF INDIA] does not correctly lay down the law and it is, accordingly, overruled.
Keeping in view the conclusions of the majority, expressed in the judgment of Dipak Misra, J., it is held that the decision rendered in State of A.P. v. Kone Elevators [2005 (2) TMI 519 - SUPREME COURT OF INDIA] does not correctly lay down the law and it is accordingly overruled.
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. - Decided in favor of assessee.