1970 (3) TMI 138 - HC - VAT and Sales Tax

Summary

Issues:
Assessment of taxable turnover for a company claiming exemption based on work and labor involved in transactions.

Analysis:
The case involved the assessment of a company's taxable turnover for the year 1962-63, where the company claimed exemption on a turnover related to work and labor involved in their dealings with customers. The revenue initially denied the exemption, but the Sales Tax Appellate Tribunal later ruled in favor of the company, stating that no element of sale was involved in the transactions. The State challenged this ruling in the present tax case.

The company, specialized in fabricating and installing humidifying plants and accessories, worked alongside the construction of the customer's building. The contracts were lump sum contracts with specific amounts, and all components supplied became part of the building structure. The Tribunal, after inspection, concluded that the property in the materials passed only after the erection work was complete, thus deeming the contracts as indivisible composite contracts of work and labor, not subject to tax.

The State argued that there was a predominant element of sale in the contracts, which should be assessed separately for taxation. However, the company's counsel cited previous court decisions, including the Supreme Court and High Court, supporting the classification of such contracts as works contracts without any element of sale.

Referring to relevant legal precedents, the court emphasized the importance of analyzing whether the customer bargained for the sale of component parts used in the fabrication and erection work. If the contract indicated that materials became the property of the customer only after being affixed to the land, it would be considered a works contract. The court also highlighted a recent Supreme Court case where a similar contract was deemed as work not involving the sale of goods.

In the case under consideration, the court found that the installation of the humidifying plant and components involved embedding them in the structure, indicating that the property passed to the customer only after completion. As there was no intention to sell the plant or parts before embedding them, the Tribunal's decision to exclude the disputed turnover from assessment was upheld, leading to the dismissal of the tax case.

In conclusion, the court ruled in favor of the company, stating that the contracts were works contracts with no element of sale, and therefore, the disputed turnover was not assessable for taxation.