1995 (2) TMI 379 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Whether the transaction evidenced by invoice No. 209/76-77 dated February 23, 1977, is a transaction of works contract or a transaction of 'sale' within the meaning of section 2(28) of the Bombay Sales Tax Act, 1959.

Issue-Wise Detailed Analysis:

1. Nature of the Transaction:
The primary issue was to determine whether the transaction in question, involving the supply, erection, and installation of plastic machinery, constituted a works contract or a sale. The assessee argued that the transaction was a works contract, while the Revenue contended it was a sale.

2. Assessee's Argument:
The assessee, a manufacturer of plastic machinery, entered into agreements for the supply, erection, and installation of machinery. The assessee provided detailed documentation, including invoices, contracts, and reports, to demonstrate that the transaction involved significant work beyond mere supply of goods. The contract required the machinery to be installed on a foundation provided by the customer, with the assessee's engineers performing technical examinations, installations, and trial productions before the property in the plant passed to the customer.

3. Revenue's Argument:
The Revenue argued that the erection and installation were incidental to the supply of machinery, making it a sale. The Revenue emphasized clauses in the contract, such as the requirement for the customer to insure the machinery during transit and the payment terms, to support their argument that the transaction was a sale.

4. Tribunal's Findings:
The Tribunal concluded that the transaction was a works contract based on the detailed activities and terms of the contract. The Tribunal's decision was based on the comprehensive involvement of the assessee in the installation and commissioning of the machinery, indicating that the transaction was not merely a sale of goods.

5. Legal Precedents and Tests:
The Court referred to various Supreme Court decisions to establish the distinction between a contract of sale and a works contract. Key precedents included:
- Government of Andhra Pradesh v. Guntur Tobaccos Ltd.: Emphasized that a sale involves a contract for the transfer of goods for a money consideration.
- Sentinel Rolling Shutters & Engineering Company Pvt. Ltd. v. Commissioner of Sales Tax: Highlighted that the main object of the parties, gathered from the terms of the contract, determines whether a contract is for sale or work and labour.
- Vanguard Rolling Shutters & Steel Works v. Commissioner of Sales Tax: Stated that if materials are supplied and fixed to an immovable property, the contract is prima facie a works contract.

6. Application of Precedents:
The Court applied these precedents to the present case, noting that the contract involved significant work and labour in erecting and installing the machinery. The all-inclusive price for supply, erection, and commissioning, and the fact that the machinery only became a complete unit upon installation, indicated that the transaction was a works contract.

7. Conclusion:
The Court concluded that the transaction in question was a works contract. The terms of the contract and the nature of the activities performed by the assessee supported this conclusion. The Court held that the Tribunal was justified in its decision and answered the reference in the affirmative, in favor of the assessee.

8. Costs:
The Court made no order as to costs.

Reference Answered:
The reference was answered in the affirmative, confirming that the transaction was a works contract and not a sale.