1978 (12) TMI 147 - SC - VAT and Sales Tax

Whether a contract for fabrication and erection of a 3-motion electrical overhead travelling crane is a contract of sale or a contract for work and labour? Held that - Allow the appeal as relying on Sentinel Rolling Shutters Engineering Co. (P.) Ltd. v. Commissioner of Sales Tax, Maharashtra 1978 (9) TMI 157 - SUPREME COURT OF INDIA thus set aside the judgment of the High Court and hold that the contract in the present case was a contract for work and labour and not a contract for sale and, conformably with this view, we answer the question referred by the Sales Tax Tribunal in favour of the assessee and against the revenue

Summary

Issues Involved:
1. Whether the contracts for fabrication and erection of 3-motion electrical overhead travelling cranes were contracts of sale or contracts for work and labour.
2. Taxability of amounts received under these contracts as part of the turnover liable to sales tax.

Detailed Analysis:

Issue 1: Nature of Contracts
The core issue was to determine whether the contracts for the fabrication and erection of 3-motion electrical overhead travelling cranes were contracts of sale or contracts for work and labour. The court examined the nature of these contracts in light of established legal principles and precedents.

Relevant Legal Principles:
- According to Halsbury's Laws of England, a contract of sale is primarily aimed at transferring property in a chattel to the buyer, while a contract for work and labour focuses on the execution of work where materials are used incidentally.
- The test is whether the work and labour result in something that can be sold as a chattel. If the main object is to transfer a chattel, it is a sale; if it is to execute work, it is a contract for work and labour.

Precedents:
- Commissioner of Sales Tax, Madhya Pradesh v. Purshottam Premji: The court held that in a contract for work, the thing produced does not have an independent existence as the property of the contractor before delivery.
- State of Rajasthan v. Man Industrial Corporation: The contract for providing and fixing windows was deemed a contract for work and labour because the windows came into existence only upon being fixed to the building.
- Sentinel Rolling Shutters Engineering Co. (P.) Ltd. v. Commissioner of Sales Tax, Maharashtra: The contract for fabrication, supply, and erection of rolling shutters was held to be a contract for work and labour, as the shutters only became a commercial article upon being installed.

Application to the Present Case:
- The court noted that a 3-motion electrical overhead travelling crane consists of multiple components that are assembled and erected at the site. The crane does not exist as a chattel before its erection.
- The process involves significant skill and labour, and the crane becomes the property of the customer as soon as it is erected, embedded in the customer's land.
- The court concluded that the contracts were for work and labour, not for the sale of a chattel, as the cranes came into existence only upon being erected at the site.

Issue 2: Taxability of Amounts Received
The secondary issue was whether the amounts received under these contracts formed part of the turnover liable to sales tax.

Findings:
- If the contracts were deemed contracts of sale, the amounts received would be taxable as part of the turnover.
- Since the contracts were held to be for work and labour, the amounts received (Rs. 1,34,500 and Rs. 2,38,000) were not taxable as they did not constitute sale prices.

Conclusion:
The court allowed the appeal, setting aside the High Court's judgment, and held that the contracts were for work and labour. Consequently, the amounts received under these contracts were not part of the turnover liable to sales tax. The court answered the questions referred by the Sales Tax Tribunal in favor of the assessee and against the revenue, with the State ordered to pay the costs of the assessee throughout.

Appeal allowed.