1968 (1) TMI 46 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Whether the contract dated 10th June, 1958, was a composite and divisible contract.
2. Whether the contract was an indivisible contract for work and labour.

Detailed Analysis:

Issue 1: Composite and Divisible Contract
The applicants contended that the contract was an indivisible lump sum contract for the supply and installation of two lifts. They argued that the materials furnished were only in execution of the works contract and there was no sale of any goods and materials. The Deputy Commissioner concluded that the contract was one and indivisible of lump sum value, but its essence was the transfer of property in the goods for money consideration, thus involving a sale of lifts. The Tribunal upheld this view, stating that the contract was composite and divisible, one for the sale of goods and the other for labour and service charges for installation.

The Tribunal observed that the intention of the parties, as reflected in the contract and surrounding circumstances, indicated a composite and divisible contract. The Tribunal noted that the price of the materials supplied was subject to adjustment, which suggested a sale of goods. The Tribunal also highlighted that the value of the materials was 80%, while the labour charges were 20%, indicating a sale of goods.

Issue 2: Indivisible Contract for Work and Labour
The applicants argued that the contract was for the erection and installation of lifts, not for the sale of materials. They emphasized that the contract terms and the surrounding circumstances indicated an indivisible works contract. The High Court examined the terms of the contract, noting that it was for "Otis Electric Traction Elevator Installation" and involved detailed specifications and installation requirements. The contract included provisions for maintenance and required the building contractors to do preparatory work.

The High Court found that the contract was not merely for the sale of lifts but for their erection and installation. The Court noted that the applicants were not engaged in the business of selling lifts but in manufacturing and installing them. The Court emphasized that the contract was for an all-inclusive price for the totality of materials and services, and the property in the goods was to pass only upon final payment and completion of installation. The Court concluded that the contract was indivisible and not capable of severance into separate contracts for the sale of goods and services.

Conclusion:
The High Court answered the questions as follows:
1. Question 1: The Tribunal was not justified in holding that the contract was composite and divisible. The contract was found to be indivisible.
2. Question 2: The contract was one and indivisible for work and labour.

The High Court held that the contract dated 10th June, 1958, was a composite but indivisible contract for work and labour, and no sale of goods could be spelt out of the contract. The applicants were entitled to costs and a refund of the deposit amount.