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TMI Blog1992 (8) TMI 252X X X X Extracts X X X X X X X X Extracts X X X X ..... r Corporation of India. Under the contract the respondent-company despatched some goods being components of material handling equipment, to Fertilizer Corporation of India. One such despatch was made under bill dated December 14, 1976. A doubt arose as to whether the sales tax charged by the opponent company was really leviable. Therefore the opponent company made an application on October 8, 1979, to the Deputy Commissioner of Sales Tax for determination under section 62 of the Act, whether the transaction of supply, erection and commissioning of N.P. handling system to Fertilizer Corporation of India as evidenced by the latter's purchase order dated September 4, 1975, was a transaction of sale of goods. The Deputy Commissioner of Sales Tax held that "there was a distinct contract for sale of goods accompanied by another contract for transportation, handling, erection, etc. " He further held that there was a "specific agreement to sell conveyors, belts and other equipments separately as chattel" and thus the transaction was a transaction of sale. Aggrieved by that order, the assessee preferred an appeal before the Gujarat Sales Tax Tribunal. The Tribunal did not agree with the con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... otwithstanding that a part or even the whole of material 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 some time before delivery and the property therein passes only under the contract relating thereto to the other party for price. It is necessary, therefore, in every case for the courts to find out whether in essence there was any agreement to work for a stipulated consideration. If that was so, it would not be a sale because even if some sale may be extracted that would not affect the true position. The nature and type of the transactions are important and determinative factors. What is necessary to find out, is the dominant object. The observations made by the Supreme Court in Government of Andhra Pradesh v. Guntur Tobaccos Ltd. [1965] 16 STC 240 are also helpful in deciding whether the contract is a real contract for work and service or a contract for sale of goods. The Supreme Court has observed that even though 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 c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n, material or workmanship within 18 months after delivery or 12 months after commissioning, whichever be later, the equipment was to be promptly rectified to Fertilizer Corporation of India's satisfaction without delay and at no cost. If the supplier failed to take proper corrective action to replace or repair deficiencies within a reasonable time, Fertilizer Corporation of India could take such corrective action at the supplier's cost and risk. The Fertilizer Corporation of India had also the right to reject the complete unit and to get full reimbursement of payments already made. Clause 15 thereof was in respect of scope of service and materials necessary for satisfactory execution of the contract, except in so far as any of those were expressly excluded. The supplier was to remain responsible for effective protection against damage of all finished and unfinished work, prior to such work being handed over to Fertilizer Corporation of India. Attachment No. 2 contained instructions to bidders. One such instruction was with respect to prices. The bidders were instructed to quote both unit and lump sum price. When we turn to the purchase order, we find that the order which was p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in order to secure the advances to be made against the goods delivered. From what is stated above, it appears clearly that it was a composite contract. It not only contemplated manufacturing and supply of product handling system, but also erection thereof at the premises of Fertilizer Corporation of India. Therefore, the question which arises for our consideration is whether in substance the said contract was a contract for sale of goods or whether it was a contract for work and labour. Another question which will have to be considered is whether the said contract was divisible. It was contended by the learned counsel appearing for the Revenue that the request for quotation and the purchase order clearly indicate that the contract was for purchase of product handling system and the work of erection was a minor work. The parties themselves regarded the two things as separate and therefore, separate prices were quoted for supply of the equipment and for the services like transportation, unloading, storage, erection, testing and commissioning. Whereas the price to be paid for the equipment was Rs. 29,68,025 it was only Rs. 4,25,000 for the services to be rendered by it. Even the ter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted equipments were required to be supplied and fixed, so as to convert them into a product handling system. The said work of installation and erection was to be done at the premises of Fertilizer Corporation of India at Trombay. There was nothing in the contract to indicate that the respondent-company was required to do any foundation work or carry any other work which would have made the complete product handling system part of the immovable property of Fertilizer Corporation of India before the system as a whole came into existence. From the scope of the contract as indicated by the aforesaid two documents, one thing becomes clear that none of the civil works necessary for the product handling system was to be done by the respondent-company. All the equipments and components making that system were to be placed or fixed over the towers and foundations prepared by the Fertilizer Corporation of India. The exclusion clause makes this position clear. Moreover, the condition that Fertilizer Corporation of India had a right to reject the unit as a whole, if while commissioning the same it was found to be defective and not satisfactory, also indicates that till then it was to remain th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... drawings and supervision of fabrication, while entering into a contract with the supplier. This factor may along with other factors go to show that the contract is really a works contract, but by itself it is not sufficient to lead to that conclusion. In this case, we do not find other features which can persuade us to hold that the contract was a works contract. The learned counsel for the respondent had relied upon the decision of the Supreme Court in Ram Singh Sons Engineering Works v. Commissioner of Sales Tax [1979] 43 STC 195 and State of Madras v. Richardson Cruddas Ltd. [1968] 21 STC 245. In the case of Richardson Cruddas Ltd. [1968] 21 STC 245 (SC) the facts were quite different. As found by the Supreme Court, there was no formal contract for fabrication and erection of steel structures required by the society. The price which was to be paid to the assessee in that case was a consolidated lump sum amount for the erection at the site of the work. As there was one consolidated lump sum price for the steel work to be done at the site of the purchaser, the Supreme Court held that it was not possible to consider one contract as two contracts, one for supply of fabricat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ds. In Ram Singh Sons Engineering Works v. Commissioner of Sales Tax [1979] 43 STC 195, the contract was for fabrication and erection of a 3-motion electrical overhead travelling crane. In that case also, the Supreme Court pointed out that fabrication and erection of a 3-motion electrical overhead travelling crane was a highly skilled and specialised job and the component parts had to be taken to the site and they were assembled and erected there and it was only when that process was completed that a 3-motion electrical overhead travelling crane came into existence. The three-motion electrical overhead travelling crane came into existence as a unit only when the component parts were fixed in position and erected at the site, but at that stage it became the property of the customer because it was by then permanently embedded in the land belonging to the customer. In both those cases the goods which were contracted to be sold came into existence only when they were fitted with immovable property of the customer and for that reason, it was held that the complete unit contracted for became property of the customer when it came into existence. Therefore, the property in the goods wa ..... X X X X Extracts X X X X X X X X Extracts X X X X
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