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TMI Blog1967 (4) TMI 186X X X X Extracts X X X X X X X X Extracts X X X X ..... f India and the Superintending Engineer, Basin Bridge Power Station, and other items of their dealings as well. Their contention did not find favour with the Tribunal, with the result the petitioners have now come up to this Court and contended in the main that a sum of Rs. 2,44,121.62 received by them from the Life Insurance Corporation of India, and a sum of Rs. 1,26,958.55 received by them from the Superintending Engineer, Basin Bridge Power Station, are sums received by them in the course of execution of works contracts, which did not involve an independent sale of goods or materials and hence are exempt from taxation. No other point was urged before us. The contract with the Life Insurance Corporation of India was for electrification of the fourteen-storeyed L.I.C. building at Mount Road, Madras. On October 29, 1956, the petitioners tendered for the work of installation of electric services for the L.I.C. building at Mount Road, Madras. It was a lump sum contract. On a reading of the contract, it is clear that the job undertaken by the petitioners involved specialised work, skill and judgment. The complicity of the work, the enormity of the same and the meticulous details furn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bility for defects discovered within 12 months; (5) Provision for payment of damage at the rate of Rs. 8,500 per week if the work was not completed within a specified date; (6) Contract to be carried as per drawing; (7) Alteration in the work entitling the contractor to additional or lower payment depending upon the nature of the alteration; (8)Provision for overtime wages for causes beyond the contractors control; (9) Liability to rectify defects; (10) Provision for use by the contractor of the scaffolding erected by the main contractor; (11) Provision for workshops by the contractor; and (12) Provision for payment of part bills at 90 per cent. of the value of the work executed. We shall now consider the elements and ingredients of the other contract entered into between the petitioners and the Superintending Engineer, Basin Bridge Power Station. This was also a lump sum contract and a quotation to that effect was made. This involved equally high technical skill and knowledge. Mainly it was for providing underground cables and accessories including fire-proof sealing for cables below the oil-filled switch-gears and wood bushes for cables in other locations, 7/.029 Single Core Ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e bills were raised by the contractor as against the contractee, that by itself was sufficient to bring the transaction in the net of taxation. Those bills no doubt reflect the charges claimed by the contractor in respect of the goods supplied and affixed in the course of working of the contract. But it does not afford a guide to interpret the contract as such. Normally, the issuance of such a bill by itself cannot militate against the work involved being a works contract. It does not refer to the terms of the contract which have to be studied, scrutinised and adverted to before any conclusion, one way or the other, can be drawn. A bill by itself can never reflect the terms of the contract nor can it establish whether the transaction inter se between the parties is a contract for work or for sale of goods. As pointed out in Arun Electrics v. Commissioner of Sales Tax[1966] 17 S.T.C. 576., by the Supreme Court: "The question whether in respect of a transaction sales tax is exigible may be determined only on the terms of the contract and not from the invoice issued by the person entitled to receive money under the contract." The Appellate Tribunal, while considering the second co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en it came to the conclusion that the turnovers in both the contracts in question are exigible to tax. We are, however, unable to be persuaded that the contracts in question involved such sale of materials. A narrow and pedantic interpretation of a contract has to be avoided. Broadly and liberally the contracts in question have to be scrutinised for purposes of eligibility to tax. If there are overwhelming indications in the contract that it is a composite and an indivisible one and what has been agreed to and intended between the parties was not to supply materials in the course of the contract but as and when such materials are imbedded in the contractual work involved they become the property of the other party, then there would be no question of the sale of such materials by the contractor to the other. In a recent case disposed of by us, Mckenzies Ltd. v. Board of RevenueT.C. Nos. 101 and 102 of 1964; since reported at page 279 supra. , we have summarised the legal position as follows: "Whether a given transaction is a works contract or a sale of goods is a mixed question of law and fact, and will have to be answered invariably in relation to the terms of a particular contra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntract for execution of work not involving sale of goods." This Court again had occasion recently to consider one other decision of the Supreme Court reported in John Mowlem Co., Ltd. v. Commissioner of Sales Tax[1967] 19 S.T.C. 59. as providing a guide to determine whether a contract is a works contract or not. The following observations therein are apposite: "In a works contract, the agreement between the parties is that the contractor should construct the works according to the specifications contained in the agreement, and in consideration therefor receive payment as provided therein, and in such an agreement there is neither a contract to sell the materials used in the construction, nor does property pass therein as movables." One other principle has also been recently settled by the Supreme Court in State of Gujarat v. Kailash Engineering Co. (Pvt.) Ltd.[1967] 19 S.T.C. 13. It is as follows: If the terms of the contract indicate that the contractee is not to be the owner of the product contracted or built upon by the contractor and if the property in the finished product vests in the contractee even during the process of construction, the transaction is clearly a works ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... work, they become the property of the contractee. There is no agreement that the title in the material so imbedded should pass to the contractee only after the completion of the contract. The various tests laid down by this Court and by the Supreme Court do not enable us to construe the contracts in question as contracts of sale of materials pure and simple. The supply of materials and the erection are so knitted together that one aspect is not divisible from the other, such that both the contracts in question are composite contracts to render work to the contractee. The Tribunal has not rightly appreciated the principle in Udani Engineering Co. v. State of MadrasT.C. No. 55 of 1960. and has therefore wrongly approached the subject. We have no hesitation in holding that, having regard to the various clauses in the contracts already referred to by us and the predominant indicia which overwhelm the contracts in question,these are works contracts and they do not involve in any manner or in any wise a sale of materials as is popularly or legally understood. No other question was argued before us though it was raised before the Tribunal. We, therefore, set aside the order of the Tribu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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