Distinction between contract of sale and contract for work and labour - Indian Laws - General

Distinction between Contract of sale and Contract for work and labour The distinction between contract of sale and contract for work and labour has been so stated in Halsbury s Laws of England (4th Edn., Vol. 41, para 603): 603. Contract of sale distinguished from contract for work and labour. - A contract of sale of goods must be distinguished from a contract for work and labour. The distinction is often a fine one. A contract of sale is a contract the main object of which is the transfer of the property in, and the delivery of the possession of, a chattel as such to the buyer. Where the main object of work undertaken by the payee of the price is not the transfer of a chattel as such, the contract is one for work and labour. The test is whether or not the work and labour bestowed end in anything that can properly become the subject of sale. Neither the ownership of the materials, nor the value of the skill and labour as compared with the value of the materials, is conclusive, although such matters may be taken into consideration in determining in the circumstances of a particular case whether the contract is in substance one for work and labour or one for the sale of a chattel. In Govt. of Andhra Pradesh vs. Guntur Tobaccos Ltd.- 1964 (11) TMI 65 - SUPREME COURT , is relevant for the case on hand, which reads as under: 18. The fact that in the execution of a contract for work some materials are used and property in the goods so used passes to the other party, the contractor undertaking to do the work will not necessarily be deemed on that account to sell the materials. A contract for work in the execution of which goods are used may take one of three forms. The contract may be for work to be done for remuneration and for supply of materials used in the execution of the works for a price: it may be a contract for work in which the use of materials is accessory or incidental to the execution of the work: or it may be a contract for work and use or supply of materials though not accessory to the execution of the contract is voluntary or gratuitous. In the last class there is no sale because though property passes it does not pass for a price. Whether a contract is of the first or the second class must depend upon the circumstances: if it is of the first; it is a composite contract for work and sale of goods: where it is of the second category, it is a contract for execution of work not involving sale of goods. In Purshottam Premji - 1970 (4) TMI 127 - SUPREME COURT , That was also a case where the assessee was to quarry stones from the quarries belonging to the South-Eastern Railways and thereafter break those stones into pieces and convert them into ballast of a specified size and thereafter, supply them to the South-Eastern Railway. Dealing with the said contract, it was held that it was a Works Contract and not a Sale . In paragraph 7, the principle was stated as under: 7. The primary difference between a contract for work or service and a contract for sale of goods is that in the former there is in the person performing work or rendering service no property in the thing produced as a whole notwithstanding that a part or even the whole of the materials used by him may have been his property. In the case of a contract for sale, the thing produced as a whole has individual existence as the sole property of the party who produced it, at some time before delivery, and the property therein passes only under the contract relating thereto in goods used in the performance of the contract is not sufficient; to constitute a sale there must be an agreement express or implied relating to the sale of goods and completion of the agreement by passing of title in the very goods contracted to be sold ...