1975 (4) TMI 116 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Determination of whether the contract was for the sale of goods or for work and labour.
2. Examination of the terms and conditions of the agreement to ascertain the nature of the contract.
3. Analysis of the legal principles applicable to contracts involving the manufacture and supply of goods.

Issue-Wise Detailed Analysis:

1. Determination of whether the contract was for the sale of goods or for work and labour:
The primary issue in these tax revision cases was whether the turnover in dispute related to a transaction of sale or to a contract for work and labour. The petitioner-firm contended that the contract with the Kerala State Electricity Board (Board) was for work and labour, not for the sale of specific chattels, and thus, the turnover should not be taxable. This contention was rejected by the Sales Tax Officer, the Appellate Assistant Commissioner, and the Kerala Sales Tax Appellate Tribunal. The Tribunal concluded that the contract involved the transfer of concrete poles manufactured by the petitioner to the Board for valuable consideration, making the turnover taxable.

2. Examination of the terms and conditions of the agreement to ascertain the nature of the contract:
The court examined the agreement between the petitioner and the Board, noting that the contract was for the manufacture and supply of concrete poles according to the Board's specifications. The agreement emphasized the performance of work by the contractor under the supervision of the Board's engineer. Key materials for manufacturing the poles, such as cement and M.S. rods, were supplied by the Board, with unused materials to be returned to the Board. The agreement also required the contractor to carry out extra work as needed, with payment based on the Board's schedule of rates without contractor's profit.

3. Analysis of the legal principles applicable to contracts involving the manufacture and supply of goods:
The court referred to established legal principles distinguishing between contracts for the sale of goods and contracts for work and labour. It emphasized that in a contract for work or service, the primary objective is the execution of work involving skill and labour, not the transfer of a chattel. The court concluded that the transaction in question was a works contract, as the poles were manufactured on behalf of the Board, and the title to the materials remained with the Board. The consideration paid to the contractor was for the work performed, not for the sale of the poles.

In conclusion, the court held that the assessee's turnover related to the execution of the agreements for the manufacture and supply of concrete poles to the Board was not liable to sales tax, as it pertained to a works contract. The orders of assessment passed against the petitioner were set aside, and the tax revision cases were allowed. The court also applied the same reasoning to similar cases involving the same assessee for the years 1968-69 and 1969-70, setting aside the orders of assessment in those cases as well.