1975 (9) TMI 166 - HC - VAT and Sales Tax

Summary

Issues:
1. Determination of whether a contract constitutes a sale of goods or a works contract under the U.P. Sales Tax Act.
2. Interpretation of the main object of the contract based on terms, circumstances, and trade customs.
3. Application of legal principles from previous court decisions to the current case.
4. Analysis of the contract terms to ascertain the intent of the parties.
5. Examination of the passing of property and completion of delivery in relation to the contract.

Detailed Analysis:
The judgment by the Allahabad High Court pertains to a reference under section 11(3) of the U.P. Sales Tax Act, involving a manufacturer and dealer of iron shutters. The issue at hand is whether the amount received for supplying and fixing iron shutters constitutes a sale of goods or a works contract. The court refers to the Supreme Court's decision in State of Rajasthan v. Man Industrial Corporation Ltd., emphasizing that the main object of the contract determines its classification as a sale of goods or a contract for service, based on the terms, transaction circumstances, and trade customs.

The court further cites legal principles from Halsbury's Laws of England to distinguish between a contract of sale and a contract for work and labor. It highlights a Division Bench decision in Commissioner of Sales Tax v. Haji Abdul Majid and Sons, which determined a similar issue regarding a bus body construction contract. The court emphasizes that the transfer of property is crucial in discerning the nature of the contract.

Analyzing the specific contract terms in the present case, the court finds that the intent of the parties was for the manufacturer to supply iron shutters as per specifications, with fixing at the purchaser's premises being incidental. The contract stipulates that full payment is due upon delivery at the factory premises of the manufacturer, absolving the manufacturer of responsibility post-delivery. Notably, the masonry work for fixing the shutters is the purchaser's obligation, further indicating that the fixing aspect is secondary to the main supply contract.

Drawing from recent Supreme Court decisions, including T.V. Sundram Iyengar & Sons v. State of Madras, the court underscores that the completion of the entire product is pivotal for property transfer, distinguishing it from cases where property transfer is incremental during construction. The court also references a Division Bench decision in Commissioner of Sales Tax, U.P. v. Ram Singh and Sons Engineering Works, which upheld a similar contract as a sale of goods based on the clear intent of the parties.

Additionally, the court briefly mentions other cases where the classification of contracts hinged on the specific terms and circumstances. Notably, the court references cases like State of Madras v. Richardson Cruddas Limited and State of Rajasthan v. Nenuram to illustrate how property transfer and completion of work impact the classification of contracts.

Ultimately, the court concludes that the amount received for the iron shutters represented a turnover of sale of goods subject to tax, based on the analysis of the contract terms, property transfer, and the main intent of the parties. The Commissioner is awarded costs, and the reference is answered accordingly.