1992 (9) TMI 339 - HC - VAT and Sales Tax

Issues Involved:
1. Whether the contract for the manufacture, supply, and installation of rolling shutters is a works contract or a contract of sale.
2. Whether the turnover related to the works contract is liable to sales tax.
3. Whether the Tribunal's decision to exempt the turnover from sales tax was correct.
4. Whether the incomplete installation of some shutters affects the nature of the contract.

Issue-wise Detailed Analysis:

1. Whether the contract for the manufacture, supply, and installation of rolling shutters is a works contract or a contract of sale:

The respondents-assessees contended that their contract was for the manufacture, supply, and installation of rolling shutters, which should be considered a works contract, not attracting sales tax. They relied on the Supreme Court decision in Sentinel Rolling Shutters & Engineering Company Pvt. Ltd. v. Commissioner of Sales Tax, which held that such contracts are primarily for work and labour. The first appellate authority, however, viewed the contract as one primarily for the transfer of property, with the labour being incidental, thus upholding the tax levy. The Tribunal, after analyzing the contract and relevant Supreme Court decisions, concluded that the contracts were indeed works contracts and not contracts of sale.

2. Whether the turnover related to the works contract is liable to sales tax:

The assessing officer initially found that the claimed exemptions were not permissible and determined a taxable turnover, including the receipts from the works contract. The first appellate authority upheld this view, considering the contract mainly for the transfer of property. The Tribunal, however, reversed this decision, holding that the contracts were for work and labour and thus not liable to sales tax. The Tribunal's decision was based on the nature of the contract and the Supreme Court's guidelines on distinguishing works contracts from contracts of sale.

3. Whether the Tribunal's decision to exempt the turnover from sales tax was correct:

The Tribunal's decision to exempt the turnover from sales tax was based on its conclusion that the contracts were works contracts. The Tribunal referred to several Supreme Court decisions, including Man Industrial Corporation Ltd. v. State and Vanguard Rolling Shutters & Steel Works v. Commissioner of Sales Tax, which emphasized that contracts involving fabrication and installation are works contracts if the materials become part of immovable property upon installation. The Tribunal found that the contracts in question were similar and thus not subject to sales tax.

4. Whether the incomplete installation of some shutters affects the nature of the contract:

The State argued that the incomplete installation of some shutters meant that the contract, as performed, was one of sale and supply of shutters, not a works contract. The respondents-assessees countered that they completed the installation of the remaining shutters later, and the nature of the contract as a works contract remained unchanged. The High Court agreed with the Tribunal that the contracts for the 265 installed shutters were works contracts. However, for the 135 shutters where installation was incomplete, the Court remitted the matter to the assessing authority to verify if the installation was eventually completed. If the assessees could prove the completion of installation, those contracts would also be considered works contracts and exempt from sales tax.

Conclusion:

The High Court held that the contracts for the 265 installed shutters were works contracts and not liable to sales tax. For the 135 shutters with incomplete installation, the matter was remitted to the assessing authority for verification. If the assessees could prove that they completed the installation, those contracts would also be exempt from sales tax. The petition was thus partly allowed and remitted for further consideration.

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