1967 (4) TMI 186 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Taxability of receipts from works contracts.
2. Nature of contracts with Life Insurance Corporation of India and Superintending Engineer, Basin Bridge Power Station.
3. Applicability of Madras General Sales Tax Act to the transactions.

Detailed Analysis:

1. Taxability of Receipts from Works Contracts:
The petitioners, General Electric Company of India Private Limited, disputed their liability on a turnover of Rs. 7,00,958.20, asserting these were receipts from works contracts, not sales of goods. The Court examined whether the sums received from Life Insurance Corporation of India (Rs. 2,44,121.62) and Superintending Engineer, Basin Bridge Power Station (Rs. 1,26,958.55) were exempt from taxation under the Madras General Sales Tax Act.

2. Nature of Contracts:
Life Insurance Corporation of India Contract:
- The petitioners undertook electrification of a fourteen-storeyed building.
- It was a lump sum contract involving specialized work, skill, and judgment.
- The contract included clauses on price variation, payment for increased rates, final measurements, liability for defects, damages for delays, and other detailed provisions.
- The work involved installing a sub-station with high and low tension switch-gears, specialized wiring, and concealed installations, indicating a high level of technical skill and integration into the building structure.

Superintending Engineer, Basin Bridge Power Station Contract:
- This was also a lump sum contract involving high technical skill.
- It included providing underground cables, fire-proof sealing, and other accessories.
- Similar to the first contract, it had provisions for security deposits, delivery periods, penalties for breaches, and price variation.
- Despite being labeled a "purchase contract," the Court noted this was a misdescription.

3. Applicability of Madras General Sales Tax Act:
- The Tribunal initially treated the transactions as sales of materials based on the invoices raised by the petitioners.
- The Court emphasized that the nature of the contract should be determined by its terms, not by the invoices.
- Citing *Arun Electrics v. Commissioner of Sales Tax*, the Court reiterated that sales tax applicability must be determined from the contract terms, not the invoices.

Analysis of Both Contracts:
- The Court found that both contracts were composite and indivisible, focusing on the execution of work rather than the sale of materials.
- The contracts involved significant technical skill and labor, and the materials became part of the property as they were integrated into the work.
- The Court referenced several precedents, including *Government of Andhra Pradesh v. Guntur Tobaccos Ltd.*, *John Mowlem & Co., Ltd. v. Commissioner of Sales Tax*, and *State of Gujarat v. Kailash Engineering Co. (Pvt.) Ltd.*, to support its conclusion that these were works contracts, not sales of goods.

Conclusion:
- The Court held that the contracts with Life Insurance Corporation of India and Superintending Engineer, Basin Bridge Power Station, were works contracts and did not involve the sale of materials.
- The Tribunal's decision to treat the turnover from these contracts as assessable under the Madras General Sales Tax Act was set aside.
- The petition was allowed with costs, and the turnover related to these contracts was excluded from assessable turnover.