1968 (2) TMI 113 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Whether the contract in question essentially consisted of two contracts, one for the supply of materials for money consideration, and the other for service and labour done.
2. Whether the Deputy Commissioner of Sales Tax was competent to determine the question under section 27 of the Bombay Sales Tax Act, 1953, on the application made under section 52 of the Bombay Sales Tax Act, 1959.

Issue-wise Detailed Analysis:

Issue 1: Whether the contract in question essentially consisted of two contracts, one for the supply of materials for money consideration, and the other for service and labour done.

The primary question was whether the contract was divisible into two separate contracts: one for the supply of materials and the other for services rendered and labour done. The applicants contended that the contract was a composite one, involving both supply of materials and execution of work, which from its very nature was never intended to be divisible. The Deputy Commissioner and the Sales Tax Tribunal had previously concluded that the contract was divisible, leading to the imposition of sales tax on the materials supplied.

Upon examining the terms of the contract, which were found in the correspondence, specification, and estimate submitted by the applicants, the court noted several key points. The contract involved the installation of an automatic sprinkler and fire alarm system, which included the supply of various materials and the execution of elaborate and technical work by skilled fitters. The terms specified that the property in the materials would remain with the applicants until the full purchase price was paid, and the risk of damage or destruction was borne by the Ginning Co. until payment was completed. The contract also included provisions for adjustments in the contract price due to changes in labour rates, material costs, and transport costs.

The court found that the predominant intention of the parties was to carry out the work of installation, and the contract was not intended to be divisible into two separate contracts. This conclusion was supported by the fact that the mode of payment was a composite amount, not related to the value of materials used from time to time. The court also noted that the absence of a provision for maintenance after installation did not necessarily indicate a contract of sale.

The court referred to the Supreme Court case of Carl Still v. State of Bihar, where a similar contract for the installation of a coke oven battery was held to be a works contract and not a contract for the sale of materials. The court also cited the case of the State of Madras v. Richardson Cruddas Ltd., where the Supreme Court held that contracts involving the fabrication, supply, and erection of steel structures and bottle coolers were works contracts, as the predominant idea was the bestowing of special skill and labour.

Based on these authorities and the terms of the contract, the court concluded that the contract in question was not intended to be divisible into two separate contracts. The court answered the first question in the negative, indicating that the Tribunal was not justified in concluding that the contract consisted of two separate contracts.

Issue 2: Whether the Deputy Commissioner of Sales Tax was competent to determine the question under section 27 of the Bombay Sales Tax Act, 1953, on the application made under section 52 of the Bombay Sales Tax Act, 1959.

The second question regarding the competency of the Deputy Commissioner of Sales Tax to determine the question under section 27 of the Bombay Sales Tax Act, 1953, on the application made under section 52 of the Bombay Sales Tax Act, 1959, was not pressed before the court. Therefore, the court did not address this issue.

Conclusion:

The court answered the first question in the negative, indicating that the contract was not divisible into two separate contracts for the supply of materials and services rendered. The second question was not pressed and therefore not addressed. The respondents were ordered to pay the applicants' costs of the reference, fixed at Rs. 250, and the sum of Rs. 100 deposited by the applicants was directed to be refunded to them. The reference was answered accordingly.