1990 (3) TMI 334 - HC - VAT and Sales Tax

Issues Involved:
1. Whether the contract between the assessee and the customer is an indivisible works contract or a divisible contract comprising a sale of goods and a service component.
2. Whether the turnover from the contract is liable for sales tax.

Issue-wise Detailed Analysis:

1. Indivisible Works Contract vs. Divisible Contract:

The primary issue revolves around whether the contract for supplying, laying, and polishing mosaic tiles is an indivisible works contract or a divisible contract with separate components for the sale of goods and services. The appellant argued that the contract was indivisible and relied on several Supreme Court decisions to support this. The Assistant Commercial Tax Officer and the Board of Revenue, however, concluded that the contract was divisible.

The Assistant Commercial Tax Officer found that the cost of the tiles constituted approximately 65% of the total contract value, with the remaining 35% representing labor charges. This conclusion was based on the payment terms, which required 65% of the total value to be paid upon delivery of the tiles. The Board of Revenue supported this view, likening the contract to the supply and installation of electric fans and lamps, where the installation is incidental to the sale.

However, the Appellate Assistant Commissioner had previously found the contract to be indivisible, setting aside the assessments. This view was supported by the appellant, who argued that the supply and installation of the tiles could not be separated.

The High Court examined the contract terms and the final bill, finding that the contract was indeed one for laying mosaic tiles and not merely for the supply of tiles. The Court noted that the true nature of the contract could not depend on the mode of payment, as emphasized by the Supreme Court in Sentinel Rolling Shutters & Engineering Company Pvt. Ltd. v. Commissioner of Sales Tax. The Court also distinguished the present case from the Bombay High Court decision in Hindustan Tiles and Cement Industries v. State of Maharashtra, noting that the specific clause in the Bombay case allowed for the contract to be severable, which was not present in the current case.

2. Liability for Sales Tax:

The second issue was whether the turnover from the contract was liable for sales tax. The assessing officer and the Board of Revenue had subjected 65% of the turnover to sales tax, treating it as the value of the tiles sold. However, the appellant contended that the entire turnover represented a works contract and was not liable for sales tax.

The High Court, after reviewing the facts and relevant case law, concluded that the contract was a works contract and not a sale of goods. The Court emphasized that the contract was for laying mosaic tiles at a particular rate for a particular area, and the fact that the customer provided water, electricity, and support labor did not change the nature of the contract. The Court also noted that any damage to the tiles during transport would be borne by the assessee, further supporting the view that the contract was for work and labor rather than a sale of goods.

The Court relied on the principles set out in Halsbury's Laws of England and various Supreme Court decisions, which distinguish between contracts for the sale of goods and contracts for work and labor. The Court concluded that the contract in question was an indivisible works contract and not subject to sales tax.

Conclusion:

The High Court set aside the order of the Board of Revenue and restored the orders of the Appellate Assistant Commissioner, concluding that the contract was an indivisible works contract and not subject to sales tax. The appeals were allowed with no order as to costs.

← Previous Next →