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TMI Blog1999 (5) TMI 583X X X X Extracts X X X X X X X X Extracts X X X X ..... s was to manufacture and supply of one number swimming pool water purification plant inclusive of erection and commissioning charges consisting of two numbers of vertical filters, the necessary re-circulation pump together with alum and lime dosing system, gas chlorinator, improving existing filtered water distribution system, etc., for a sum of Rs. 3,30,000 and that the works must be completed on turn key basis and therefore no sale was involved in the transaction. As regards motor control centre, it was contended that it is only a fabricated box and it has no function as electricity operated machinery or ancillary and that the levy of tax on this turnover under item 41 of the First Schedule is incorrect. The Appellate Assistant Commissioner stated that the assessee did not raise the claim of works contract on a turnover of Rs. 2,21,209.23 assessed to tax at 4 per cent. Therefore, he remanded the issue pertaining to this turnover to the assessing authority for verification of the assessment records so as to come a conclusion. As regards motor control centre, he held that it is an accessory for motors and machineries coming under item 81 of the First Schedule to the Act and there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has failed to appreciate that the turnover of Rs. 2,21,209.23 related to contract for work and labour since the contract was given on turn key basis for the improvement of swimming centre at Shenoy Nagar, Chennai. The petitioner was required to provide water purification plant including erection and commissioning of filters, re-circulation pump and other connected facilities. Further, the contract included civil work also. The petitioner was entitled to settlement of lump sum contract amount only after complete erection and commissioning of the plant. Therefore, the treatment of the turnover in question as sale of goods is unwarranted. Referring to letter No. 1926/C/76 dated August 5, 1980 of the Director of Sports and Youth Services, Chennai, the learned counsel for the petitioner stated that the contract is to design, manufacture and supply of one number swimming pool water purification plant inclusive of erection and commissioning charges consisting of two numbers of vertical filters, the necessary re-circulation pump, together with alum and lime dosing system, gas chlorinator, improving existing filtered water distribution system, etc., for a sum of Rs. 3,30,000. The work inclu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed only when erection is completed in every way. The price charged by the contractor from the owner of the premises is one lump sum without at all specifying as to what part is meant for the materials used or fabricated and what part for the services or labour put in by the contractor. It is, therefore, clear that in the facts and circumstances of the present case, the transaction is a composite consolidated contract which is one and indivisible comprising labour and services executed for a lump sum. It is also clear that the materials are not merely supplied to the owner so as to pass as chattel simpliciter, but are actually fixed to an immovable property and after the same are fixed and erected they become a permanent fixture so as to become an accretion to the immovable property. In these circumstances, the conclusion is inescapable that the present contract cannot be said to be a pure and simple sale of goods or materials as chattels but is a works contract. 7.. Mr. Md. Shafeeq, learned counsel for the petitioner, referred to the observations of the Supreme Court in State of Madras v. Richardson Cruddas Ltd. [1968] 21 STC 245 wherein it was held that the contract for the w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are sold as chattels and some work is undoubtedly done, but it is done only as incidental to the sale. No difficulty arises where a contract is of the first type, because it is divisible and the contract for sale can be separated from the contract for work and labour and the amount payable under the composite contract can be apportioned between the two. The real difficulty arises where the contract is of the second or third type, because in such a case it is always a difficult and intriguing problem to decide in which category the contract falls. The dividing line between the two types of contracts is somewhat hazy and thin partitions do their bounds divide . But even so the distinction is there and it is very much real and the court has to perform at times the ingenious exercise of distinguishing one from the other. 9.. On the basis of the principles stated above, it was held in this case that the contract for fabrication, supply, erection and installation of two rolling shutters in two sheds belonging to the company for a price which was inclusive of charges for erection at site was a works contract. Similarly, in the present case of the petitioner also, the contract has to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 28 STC 672 (SC) in the case of Kedarnath Jute Mfg. Co. Ltd. v. Commissioner of Incometax (Central), Calcutta it was observed at page 675 that whether the assessee is entitled to a particular deduction or not will depend on the provision of law relating thereto and not on the view which the assessee might take of his rights nor can the existence or absence of entries in the books of account be decisive or conclusive in the matter . In the case of Associated Cement Companies Ltd. v. State of Tamil Nadu [1986] 63 STC 63 (Mad.) it has been held that collection of tax is a mixed question of law and fact. 13.. In Arun Electrics, Bombay v. Commissioner of Sales Tax [1966] 17 STC 576 (SC) it has been held that invoices are not conclusive evidence to classify the transaction as sale. He further referred to Government of Andhra Pradesh v. Guntur Tobaccos Ltd. [1965] 16 STC 240 (SC) for the proposition that the burden of proof lies on the taxing authorities to show that there was taxable sale. He also referred to the following passage in Everest Copiers v. State of Tamil Nadu [1996] 103 STC 360 (SC): .......Mere passing of property in an article or commodity during the course of per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of the assessee and the buyer was for sale of goods with reference to the contract and only in such circumstances, the assessee submitted the accounts by showing the transaction as sales which was accepted by the assessing authority. Only in the first appeal stage, this transaction was claimed as works contract. When all these details are available in assessment record the first appellate authority merely remanded the case for further verification by the assessing authority. Therefore, the order of the appellate authority was considered as prejudicial to the interests of Revenue and therefore the Joint Commissioner of Commercial Taxes resorted to suo motu revision under section 34 of the Tamil Nadu General Sales Tax Act, 1959 (hereinafter referred to as the Act ). The Joint Commissioner of Commercial Taxes has very wide powers to revise the orders of either the assessing authority or the Appellate Assistant Commissioner, so long as the order is not a subject of further appeal or revision and is made within a period of five years from the date of the said order revised. Thus, we find that there is no substance in the arguments of the learned counsel for the petitioner that the su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ily a contract for supply of materials at a price agreed to between the parties for the materials so supplied and the work or service rendered is incidental to the execution of the contract. If so, the contract is one for sale of materials and the sale proceeds would be exigible to sales tax. On the other hand, where the contract is primarily a contract for work and labour and materials are supplied in execution of such contract, there is no contract for sale of materials but it is a works contract. The circumstance that the materials have no separate identity as a commercial article and it is only by bestowing work and labour upon them, as for example, by affixing them to the building in case of window-leaves or wooden doors and windows that they acquire commercial identity, would be prima facie indicative of a works contract. So also where certain materials are not merely supplied but fixed to an immovable property so as to become a permanent fixture and an accretion to the said property, the contract prima facie would be a works contract. 20.. While distinguishing this case from the decision in T.V. Sundram Iyengar Sons v. State of Madras [1975] 35 STC 24 (SC), it was hel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nstructing a building where considerable quantity of materials is required to be used in the execution of the work. This would clearly be a contract for work and labour and fall within the latter category. But, as we pointed out earlier, there may be, and indeed as the decided cases show, there are a large number of cases which are on the border-line and it is here that difficulty is often experienced in the application of this primary test. To resolve this difficulty, the courts have evolved some subsidiary tests. One such test is that formulated by this Court in Commissioner of Sales Tax, M.P. v. Purshottam Premji [1970] 26 STC 38 (SC) where it has been said: 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......... 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 to the other party for price. This was the tes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion. Thus, in the present case, the contract as well as the invoice clearly showed that it is for sale of goods. To repeat, in Halsbury s Laws of England, Third Edition, Volume 34, a contract of sale of goods has been clearly distinguished from a contract for work and labour. The distinction is often a fine one: A contract of sale is a contract whose main object is the transfer of the property in, and the delivery of the possession of, a chattel as a chattel to the buyer. Where however the main object of work undertaken by the payee of the price was not the transfer of chattel qua chattel, the contract is one of 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 was in substance one for work and labour and one for the sale of a chattel. 24.. In short, the essence of the contract as a whole must be seen and that nature of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fixing it up is incidental to the sale [Sentinel Rolling Shutters case [1978] 42 STC 409 (SC) cited at page 17]. But when the contract provides for installation of an air-conditioning system in a building involving supply of the machinery and bestowing of labour and skill in setting up the system, the property over the goods does not pass to the buyer till after the machines and other equipments are installed in the building; such a contract is therefore one of work [State of Madras v. Voltas Limited [1963] 14 STC 446 and 861 (Mad.)]. 25.. Thus, when air-conditioning is to be installed in a building as a system, it has been held as works contract, whereas mere provision of air-conditioner fixed in the premises not as a system has been considered as a sale of goods. Thus, in the present case also, it has been clearly established that the contract for fabrication and supply of swimming pool water purification plant is as an improvement to the existing swimming centre and the purification plant has to be only attached to the existing filtered water distribution system in the swimming pool. Further, as has been considered in the case of bus bodies in T.V. Sundram Iyengar Sons ..... X X X X Extracts X X X X X X X X Extracts X X X X
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