1981 (9) TMI 250 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Taxability under the Tamil Nadu General Sales Tax Act.
2. Taxability under the Central Sales Tax Act.
3. Distinction between taxable sales and works contracts.

Detailed Analysis:

1. Taxability under the Tamil Nadu General Sales Tax Act:

The primary issue in the tax case appeal was whether the assessee's receipts from a contract with Satyanarayana Brothers amounting to Rs. 21,32,500 could be included in the taxable turnover under the Tamil Nadu General Sales Tax Act. The contract involved designing, manufacturing, and constructing cranes at the customer's site. The assessee was responsible for the entire process, including laying rails for crane movement. The assessing authority treated the transaction as a sale, but the Appellate Assistant Commissioner viewed it as a works contract. The Board of Revenue, however, reversed this decision, treating the transaction as a sale. The Court held that the Board's interpretation was incorrect, emphasizing that the contract's terms clearly indicated a works contract, as the design and construction were integral parts of the process, making it inseparable from the erection of the cranes. Thus, the receipts should not be included in the taxable turnover.

2. Taxability under the Central Sales Tax Act:

The revision case involved three transactions:

a. Cochin Shipyard Contract:
The contract with Cochin Shipyard involved designing, supplying, erecting, and commissioning cranes. The payment terms indicated that the subject-matter was not merely the supply of cranes but also their erection at the customer's site. The Court concluded that this was a works contract, not a sale, as the erection and commissioning were integral to the contract.

b. Lower Jhelum Hydel Project Contract:
The contract with the Kashmir Government for the Lower Jhelum Hydel Project included designing, manufacturing, testing, supplying, and erecting a crane. The contract specified that the equipment must pass tests both at the factory and after erection at the project site. The Court held that this was a works contract, as the erection and commissioning were inseparable from the rest of the contract, and the receipts could not be treated as taxable turnover.

c. Baira Siul Project Contract:
The contract with the Himachal Pradesh Government for the Baira Siul Project involved supplying a crane f.o.r. Madras. The contract included a provision for erection charges, but the crane was to be delivered to the project area by goods train. The Court noted that the contract was primarily for the supply of the crane at a price, and the ultimate bill supported this interpretation. Thus, the receipts from this contract were taxable as sales turnover.

3. Distinction between Taxable Sales and Works Contracts:

The Court emphasized the importance of examining the terms of the contract to determine whether a transaction is a sale or a works contract. Citing Supreme Court precedents, the Court noted that the nature of the transaction must be assessed based on the contract terms, circumstances, and trade customs. In the case of Ram Singh & Sons Engineering Works, the Supreme Court had observed that the fabrication and erection of cranes were integral parts of a works contract, not a sale. Applying this principle, the Court concluded that the contracts with Cochin Shipyard and Lower Jhelum Hydel Project were works contracts, while the Baira Siul Project contract was a sale.

Conclusion:

The appeal was allowed, and the revision was allowed to the extent indicated. The Court held that the transactions with Cochin Shipyard and Lower Jhelum Hydel Project were works contracts, not sales, and thus not taxable as sales turnover. The transaction with Baira Siul Project was deemed a sale and taxable as such. The Tribunal's decision was partially upheld and partially overturned based on the detailed examination of the contract terms. There was no order as to costs.