1984 (11) TMI 306 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Nature of the contract: Whether it is a works contract or a divisible contract containing separate agreements for the sale of goods and payment for services and work done.

Detailed Analysis:

Nature of the Contract:
Issue: Whether the agreement dated 11th April 1975, between the applicants and Gujarat State Fertilizers Company Limited is a works contract or a divisible contract containing two agreements, one for the sale of goods and the other for payment of remuneration for services and work done.

Contract Analysis: The applicants, Uni Abex Alloy Products Ltd., entered into a contract with Gujarat State Fertilizers Company Limited for the fabrication, supply, and erection of 208 reformer tube assemblies. The Deputy Commissioner of Sales Tax, followed by the Tribunal, held that the agreement was a divisible contract. The applicants contested this decision.

Contract Terms:
- Clauses 2.101 and 2.102: The SELLER is to engineer, fabricate, supply, and install 208 reformer tube assemblies at the BUYER's premises.
- Clause 1.30: Defines "reformer tubes" as assemblies excluding certain parts.
- Clause 1.50: Defines "erect and install" as putting the reformer tubes in the furnace and aligning them as per approved drawings.
- Clauses 2.109 and 2.110: Specify the scope of work, excluding certain items and removal of existing items.
- Clause 2.20: Details delivery requirements, allowing part deliveries at the SELLER's discretion.
- Article V: Specifies a lump sum payment rate of Rs. 103 per kg for the reformer tube assemblies, inclusive of design, drawings, and installation charges.
- Article VII: Outlines the payment schedule in installments, treating initial payments as advances to be cleared upon submission of final bills.

Key Findings:
1. Composite Nature: The contract involves both supply and installation of reformer tube assemblies, with detailed specifications and rigorous testing requirements indicating a highly specialized work.
2. No Complete Delivery: The reformer tubes are not fully assembled when dispatched; some parts are inserted and welded on-site after testing.
3. Payment Structure: The lump sum payment covers the entire scope of work, including design, fabrication, and installation, with no clear separation into price for goods and charges for services.
4. Provisional Invoice: The invoice dated 30th April 1976, shows a part payment for partially assembled reformer tubes, not a transaction for the sale of complete assemblies.

Legal Precedents:
- Richardson and Cruddas Ltd. v. State of Madras: A contract for fabrication and erection of steel structures was held as an integrated contract for work and labour.
- Sentinel Rolling Shutters & Engineering Company Pvt. Ltd. v. Commissioner of Sales Tax: A contract for manufacturing and erecting rolling shutters was deemed a works contract, not divisible into sale and labour.
- State of Rajasthan v. Man Industrial Corporation Ltd.: A contract for fabricating and fixing windows was held as a works contract, with property passing only upon completion of installation.
- Otis Elevator Company (India) Ltd. v. State of Maharashtra: A contract for supply and erection of lifts was considered a works contract.
- V.S. Raju & Sons Engineering Works v. State of A.P.: A contract for delivery and erection of a boiler was deemed a contract for work and labour.

Conclusion: The High Court concluded that the contract is an integrated works contract involving supply and installation, with no separable transaction of sale of reformer tube assemblies. The intention of the parties, as evidenced by the contract terms and payment structure, does not support the division into separate agreements for sale and services.

Final Judgment: The agreement dated 11th April 1975, is not a divisible contract but a works contract. The respondents are directed to pay the applicants' costs, and the amount deposited by the applicants before the Tribunal is to be refunded to them.