9911796707
TMI Blog1964 (7) TMI 52X X X X Extracts X X X X X X X X Extracts X X X X ..... bour bestowed by experienced mechanics and specialists engineers of the petitioner-company. 2. In this revision petition, which relates to the assessment year 1957-58, the dispute relates to three items. The first item is with regard to the turnover of a sum of ₹ 3,26,075.20 nP. received from its customers, Pandavapura Sahakara Sakhare Karkhane Ltd. (hereinafter called the sugar factory), for the fabrication, supply and erection of steel structures at the site of the sugar factory in Pandavapura, Mysore State, according to the written contract which was entered into between the sugar factory and the petitioner. The objection of the petitioner is that this item represents moneys received in respect of a "works contract" entered into between the petitioner, and its customer, the sugar factory, while the contention of the State is that it represents the price paid for the goods sold by the petitioner-company. The question for determination is whether the turnover in question relates to a works contract or a contract for the sale of goods. 3. The second item relates to a sum of ₹ 43,349-05 nP. representing payments received from the customers by the petitioner, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d universal rule applicable to all cases. In a majority of works contracts, the contractor, while carrying out his work supplies some component parts to complete the work, either by manufacturing or fabricating such parts or by delivering or supplying them simply from out. of his stock. But that does not necessarily mean that there is a sale of those component parts by the contractor. The crucial question is whether the agreement between the parties was that such parts should be treated as sold separately or they were merely supplied in the course of carrying out a works contract. In order to make it a contract for sale of goods, there should be clear proof of an intention to sell and purchase the materials as such, independently of the work that was to be carried out. If the contract is an entire indivisible contract in the sense that the consideration for the entire work including the fabrication and supply of materials is the payment of an inclusive lump sum, there is no scope for applying the notion of a contract of sale of goods. The materials supplied for the performance of a contract are merely accessory to the work and labour. 7. In cases, where the contract in question co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 10. In order to ascertain the real intention of the parties, we shall now consider the true scope and the proper interpretation of the contract between the parties. It must be mentioned at the outset that the petitioner-company are not dealers in raw steel materials, like girders, trusses, rivets, nuts, bolts, etc., but they carry on business essentially as structural engineers and contractors, employing experienced and specialised engineers and mechanics. Such stock of steel materials as they have in ready stock are not for sale in the market, but are only used by them in the course of the aforesaid businesses. This important aspect touching the nature of the business activity of the petitioner should be borne in mind in determining the true m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the fabrication and supply of all steel work will be for delivery F.O.R. our works siding, Madras. All freight, unloading and cartage charges from Madras to site will be your responsibility and at your cost. All A.C. materials to be delivered to us at site, free of cost. 5. Loss or Damage.--We regret we cannot accept liability for loss or damage after the goods have left our works unless the loss or damage results from negligence on our part. Further, we cannot undertake any steps to recover losses from the parties responsible as such steps must be taken by your goodselves, but all necessary assistance will be rendered by us wherever possible. 8. Method of payment.--We will require payment to be made as follows: Structural steelwork.--To be paid on the weight calculated according to B.S. weight from the nett lengths and sizes of sections as shown in our material lists, without deductions for holes, notches and skew cuts. Additions will be made for the weights of rivets and bolts and nuts at 5% of the above calculated weight. 9. Terms of payment: (a) 100% of the value of raw materials received in our Madras works to be paid against invoiced value of materials as receiv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompletion of erection of the buildings by us to suit the machinery erection programme. Due to this change the programme already given to you by our letter dated 19th July, 1957, has been cancelled and the following will be the revised tentative programme: (a) Boiling House.--Fabrication of stanchions will be completed by mid September, 1957. Fabrication of trusses, purlins, and beams will be completed by end of September, 1957: Provided the stanchions and trusses are received at site by the end of the first week of October, 1957, we will commence erection of the stanchions by mid October, 1957, and complete all steelwork and trusses, stanchions and purlins in this House by mid November, 1957. (b) Boiler House.--Fabrication of stanchions will be completed in the first week of November, 1957, and trusses, etc., by end November, 1957. Assuming the stanchions will -arrive at site by the 3rd week of November, and complete the steelwork erection in stanchions, trusses, purlins by 3rd week of December, 1957. (c) 'C Boiler House.--Completion of fabrication of stanchions, trusses and purlins will be completed by mid December, 1957. Erection of steelwork will commence by end Dece ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... No. 2. New Sugar Factory at Pandavapuram, Your letter dated 26th February, 1957. Rupees seventy-eight thousand, one hundred and fifty-seven and naya Paise twenty only. 12. We have perused all the relevant clauses of this agreement and we are clearly of the opinion that judged by all tests the contract in question is one entire indivisible contract for the execution of works, and it is impossible to read into this contract any notion of an element of a contract for sale of goods. The predominant intention of the parties is the performance or carrying out of certain works, and there is no contract for the sale of goods separately . Whether one looks at the terms of the quotation or considers the real intention and the animus of the parties, there is not the slightest warrant for dissecting or splitting up this contract into parts, one portion for labour charges, and the rest as a contract for the sale of goods. We have no hesitation in stating that such a view of the matter is impossible on the facts of the instant case. 13. In respect of the first clause of the quotation, a consolidated lump payment is stipulated and the payment has got to be made on the basis of the weight ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er. It should not be overlooked that the petitioner had stipulated for the payment at the rate of ₹ 1,160 per ton of steelwork for fabrication and supply and erection at site of the entire steel structure. Clause I, standing alone, by itself, would mean that as the contract is for the. construction of the structure at the site the petitioner should be deemed to have undertaken the entire responsibility for every portion of the work, supply of materials, fabrication, erection as well as the charges for loading, unloading, cartage, railway freight, etc. In other words, clause I would take in every piece and every incident of the work till the erection work is completely over. But the petitioner is specially bargaining that ₹ 1,160, the lump sum payment for ton of steel work, should not include the loading and unloading charges, cartage, freight, etc., but that the same should be borne by the factory. Clauses 4 and 9 have been put in only to make that position clear in favour of the petitioner and as a safeguard against any claim that may be made by the petitioner with regard to the incidental charges. If the contract is otherwise a works contract, as unambiguously declare ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t for the labour involved, on the ground that the factory had become the owner of the goods stocked at the spot from time to time. The petitioner would be entitled to take away the goods gathered at the spot as their own and make a claim for damages against the factory for breach of contract. In other words, so far as the property in the goods is concerned, it throughout remains with the petitioner till the erection work is over and the fabricated materials are fastened to the site proper. To sum up, therefore, the following features are conclusive and decisive to hold that the contract in question is a works contract for work and labour; (a) The stipulation for a consolidated lump payment of ₹ 1,160 per ton for fabrication, supply and erection at site of all steelwork, etc.; (b) No provision for the passing of the property in the goods to the factory before the actual completion of the erection work; (c) No provision under the contract for dissecting the value of the goods supplied and the value of the remuneration for the work and labour bestowed in the execution of the work; (d) The petitioner not being a dealer carrying on business in the steel and component parts require ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ployer, i.e., the factory, as that is regarded as one of the tests. But it does not necessarily follow that in all cases in which the property in the component parts used in the work in question passes to the employer the contract will be regarded as a contract for sale of goods. Even if property had passed it is merely accessory to work and labour and the contract will nevertheless be an indivisible contract for work and labour if the paramount intention of the parties was a bargain for work and labour and not for sale and purchase of goods. In other words, in such a case the property in the goods passes in pursuance of the contract for work and labour, and not in pursuance of any independent contract for purchase and sale, as the intention is plainly not to make a sale of movables but to fabricate and erect a steel structure. It is sufficient to refer to the following statement of the law in Sundaram Motors (Private) Ltd. v. State of Madras [1958] 9 S.T.C. 687: It has been pointed but that a mere passing of the property in the particular chattel is not decisive of the question whether the component parts of that chattel were sold or not. That is to say if a particular motor par ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... count of the price such as they considered proportionate to its value. The House of Lords negatived that contention and held that the property of that part of an unfinished ship which had not been actually constructed could not be held to have passed to the purchaser. Lord Watson observed at page 381 as follows:-- There is another principle which appears to me to be deducible from these authorities and to, be in itself sound, and that is, that materials provided by the builder and portions of the fabric, whether wholly or partially finished, although intended to be used in the execution of the contract, cannot be regarded as appropriated to the contract, or as sold, unless they have been affixed to or in a reasonable sense made part of the corpus. That appears to me to have been matter of direct decision by the Court of Exchequer Chamber in Wood v. Bell (1856) 6 E. & B. 355. In Woods v. Russell 5 B. & Al. 942, the property of a rudder and some cordage which the builder had bought for the ship was held to have passed in property to the purchaser as an accessory of the vessel; but that decision was questioned by Lord Chief Justice Jervis, delivering the judgment of the Court in Woo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he sale of these chattels within the meaning of the Sale of Goods Act, it appears to me that the sections of that Act have no application whatever to the case. 24. It is unnecessary to refer to other cases, and it is sufficient to refer to the decision of the Supreme Court in Carl Still g.m.b. H. v. State of Bihar [1961] 12 S.T.C.449 as the contract involved and the facts of that case bear close resemblance to the instant case. In that case, the contractor agreed to set up a complete coke oven battery and by-products plants according to the specifications given by the customer. The installation was to be made at the site of the owner, and the contractor was to erect and construct buildings and plants and machineries and deliver and supply accessories and articles from Germany and also locally from India and rendering service fully described in the agreement for an all inclusive price of ₹ 2,31,50,000. The Supreme Court held that on a true construction of the contract, it was not a combination of two distinct agreements, one to sell materials and the other to supply labour and services, but it was one agreement, entire and indivisible, for execution of the works for an all in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... abrication and supply of the component parts. It can by no means be said that the installation of the cooler equipment in the premises of the customer is merely auxiliary or mechanical or incidental, and that the predominant part of the contract relates only to the supply of the equipment. The terms of the contract and the affidavit filed by the assistant to the petitioner clearly show that the skill and labour employed by the specialist engineers of the petitioner-company both while manufacturing and fabricating the component parts as well as during the installation of the unit play a predominant part in the transaction. We may now extract one sample of an order placed by a customer with the petitioner-company, as well as the report of the assistant at the time of the installation of the equipment. The sample of an order is as follows: "713/58-FW(C) 6/58, 29th November, 1957. B. Govinda Rao Esq., Proprietor, Sri Gajanana Restaurant, Bus Stand, Hospet. Your order placed with our Mr. V. K. Visweswaran on 20th October,1957. Rupees four thousand six hundred and twenty four only. Despatched by goods train to Hospet Railway Station, R/R. No. 057537 of 23rd Novem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lation work is over a template of the top is taken and the selected top will be manufactured to cover the top of the cooler. Required size of connections and fittings will be attached to the evaporator coils along with the suitable gasket sheets. The compressor, motor pulley drive belt, etc., required for the installation will be selected and fitted with suitable slide rails. The insulated tank with all the component parts as fitted above will be moved to the spot by rail or lorry. As soon as the customer makes the place of installation ready with the required electric supply the engineer of the petitioner will take up the erection work. He selects a suitable site with a compact lay-out and arranges for the suitable base and foundation for the cooler and the refrigerating unit. After the building work is completed the cooler and the refrigerating unit will be fixed in their respective position. 29. It is unnecessary to set out the further process of the work in great detail. It is sufficient to mention that after the motor is attached and fixed the motor will be energised to draw a vacuum in the evaporator coils. The requisite gas pressure will be applied to the coils and to the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the case of a contract of the sale of a chattel should not be viewed as a contract for works merely because a particular chattel is manufactured by the dealer according to the special specifications and requirements of a customer. By way of illustrative instances he referred to the case of a customer entering a shoe-mart and placing an order for a particular pattern of shoe, or a customer entering a shop where ready-made garments are sold and ordering a particular pattern of dress, say a dinner suit, or the case of a customer walking into a furniture mart and ordering a particular pattern of furniture for his drawing room. He urged that even though in all these cases a high degree of skill and craftsmanship goes into the manufacture or the making of the chattel in question nobody would regard these contracts as works contracts. He also urged that in the case of refrigerating units, or bottle-cooler units, services that are rendered at the premises of the customer by the dealer concerned are merely to assure and satisfy the customer that the particular unit has been supplied in a perfect working condition and that such auxiliary services are also rendered oftentimes with a view to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of air except through the air-conditioning apparatus. Had it been a case of a dealer supplying air-conditioning units of that type in large numbers to air-condition individual rooms even of a large building, it might perhaps follow that what was really involved was a sale of the air-conditioning unit, though certain charges might be levied for the purpose of fixing the unit. 33. We are free to confess that there is some force in this argument and as we prefaced, the dividing line is rather difficult to draw in cases relating to chattels. 34. We are of opinion that the instant case is governed by the principle of the Bench decision already referred to, i.e., State of Madras v. Voltas Ltd [1963] 14 S.T.C. 446 at p. 449), as well as State of Madras v. Voltas Ltd. No. 2 [1963] 14 S.T.C 861. The latter case dealt with a particular variety of air-conditioning unit installed in the business premises and the nature of the work is set out at page 864. We are of opinion that the instant case is a fortiori one as the nature of the engineering work and skill involved is far greater and more significant than in the case in State of Madras v. Voltas Ltd. No. 2 [1963] 14 S.T.C 861. 35. In th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut one to furnish materials and affix them to the freehold by work and labour, and, until the materials are affixed, title to the materials does not pass. 37. The following foot-note referring to the case of Crystal Recreation v. Seattle Ass'n of Credit Men 209 Pac. Rep. (Second Series) 358, is of great relevance to the instant case: (2) Contract whereby contractor agreed to construct and install fixtures and equipment for a restaurant to be operated by owner, which fixtures were to be specially constructed and were adapted to a particular location, was a contract for work, labour and materials, and not a contract for the sale of future goods within the Uniform Sales Act.... Auto trailer: Where plaintiff agreed to construct automobile trailer for defendant, on chassis, frame and wheels furnished by defendant, to be used in his business, and where trailer as agreed to be made was not saleable in usual course of plaintiff's business contract was one for work, labour, and materials, and not one of sale, and rights, remedies, and liabilities of parties were determined by their agreement--Sidney Stevens Implement Co. v. Hintze 67 Pac. Rep. (Second Series) 632. 38. In 37 Corp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n engine--not for the several parts but the whole. Fixing is as much a part of the engine as putting in the first screw; and it is not a main engine until it is fixed and put up fit for work. 40. Parke, B., dismissing the plaintiffs' action holding that the plaintiffs' claim should be a claim for work and labour observed as follows at page 796: Whenever a simple contract is executed, and terminates in a debt, which it is the duty of the defendant to pay, instanter, it is no doubt the subject of an indebitatus count; but the executed contract must be described properly; and the question here is, whether it is proper to describe this as a debt for a main engine or goods sold and delivered. We think not. The engine was not contracted for to be delivered, or delivered as an engine, in its complete state, and afterwards affixed to the freehold; there was no sale of it, as an entire chattel, and delivery in that character; and therefore it could not be treated as an engine sold and delivered. Nor could the different parts of it which were used in the construction, and from time to time fixed to the freehold, and therefore became part of it, be deemed goods sold and delivered, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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