PETITIONER:
VANGUARD ROLLING SHUTTERSAND STEEL WORKS LTD.
Vs.
RESPONDENT:
COMMISSIONER OF SALES TAX, U.P.
DATE OF JUDGMENT08/03/1977
BENCH:
FAZALALI, SYED MURTAZA
BHAGWATI, P.N.
CITATION:
1977 AIR 1505 1977 SCR (3) 165
1977 SCC (2) 250
ACT
Sales Tax--Contract for sale of material and works
contract--Tests for distinguishing.
HEADNOTE
The assessee. who was a manufacturer of iron shut-
ters, fabricates the different parts ,and components and
fits them into shutters. The shutters are prepared ac-
cording to the specific requirements of the customer and
fixed in the customer’s premises. Though the masonary work
connected with the fitting of the shutters was done by the
customer, it was done according to the contractor’s instruc-
tions. The contract was complete after the shutters were
taken to the premises of the customer and affixed to the
building; and when fitted into the walls the shutters
become permanently embedded into the wall and are not
detachable. The price charged by the contractor from the
customer was a lumpsum and did not show a break up, of the
materials used or fabricated or the cost of services or
labour.
The assessee claimed that the contract being a works con-
tract the proceeds from such contracts are not exigible to
tax. But this plea was rejected by the Sales Tax Officer.
The assessee’s appeal was rejected by the Assistant Commis-
sioner (judicial). The Judge (Revisions) Sales-Tax upheld
the assesee’s contention. On reference the High Court held
that the contract was not a works contract but a contract
for the supply of goods simpliciter.
Allowing the assessee’s appeal,
HELD . The contract in the present case was a works
contract and the transaction was not exigible to tax. The
High Court was in error in holding that the assessee was
liable to pay tax on the sale proceeds of the contract
[171E]
(1) The question whether a contract can be said to be a
works contract has to depend on the facts of each case. It
is difficult to lay down any rule of universal application
but some of the important tests evolved by this Court are:
[168 H]
(i) Where the contract was primarily a contract for the
supply of materials at a price agreed to between the parties
for the materials so supplied and the work or service ren-
dered is incidental to the execution of the contract. the
contract is one for sale of materials and the sale proceeds
would be exigible to sales-tax. [169 A-B]
(ii) Where the contract is primarily for work and la-
bour, and materials are supplied in execution of such con-
tract, 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, that is, by affixing
them to the building would be prima facie indicative of a
works contract. 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. [169 C]
In the instant case the transaction was a composite,
consolidated contract which was one and indivisible compris-
ing labour and services executed for a lumpsum. The con-
tract could be completed when materials with various compo-
nent parts had been taken to the site, fitted into one
another and then finally fixed into a frame so that the
fixture became permanent and a, part of
166
the premises. This operation could not be, said to be
merely incidential to the contract, but was fundamental part
of the contract itself. [168 F & 170 A]
(2) It is not correct to say that the contract could not
be a works contract because the price was paid in advance
and the title passed to the customer as soon as the shutters
were packed and despatched to the site. Advance payment of
the price was a term meant for the convenience of the par-
ties as the contractor did not want to take any risk for
delayed payment; the contract would be completed only after
the shutters were finally assembled at the site and fixed
according to specifications, which was essentially the
responsibility of the contractor. [170 D]
State of Rajasthan v. Man Industrial Corporation Ltd. 24
S.T C. 349, 355 and State of Rajasthan v. Nanu Ram 26 S.T.C.
268 followed.
State of Madras v. Richardson and Cruddas Ltd. 21 S.T.C.
245 (S.C.) and Commissioner of Sales Tax. M.P. v. Purshottam
Premji 25 S.T.C. 38 referred to.
M/s T.V. Sundram lyengar & Sons v. The State of Madras
35 S.T.C. 24-[19751 2 S.C.R. 372 distinguished.
JUDGMENT
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 106 of 1976.
(Appeal by Special Leave from the Judgement and Order
dated 30.9.1975 of the Allahabad High Court in S.T.R. No.
698/70)
S.C. Manchanda, Mrs. Urrnila Kapoor, Y. D. Jain and
Miss Kamlesh Bansal, for the appellant.
G.N. Dikshit and O.P. Rana, for the respondent.
The Judgment of the Court was delivered by
FAZAL ALI, J.--This is an appeal by special leave by the
assessee who was a contractor dealing in fabrication of
Vanguard rolling shutters and steel works. The assessee
manufactures iron shutters according to specifications given
by the parties and fixes the same at the premises of the
customers. In the assessment year 1965-66 the assessee
received an aggregate sum of Rs. 1,08,633-08 in the execu-
tion of such contracts. This amount was claimed by the
assessee as not being liable to sales tax during the assess-
ment year 1965-66 on the ground that the same represented
the proceeds of work contracts. The Sales Tax Officer
rejected.the plea of the assessee. and the Assistant Commis-
sioner (Judicial) on appeal also affirmed the order of the
Sales Tax Officer. But the plea of the assessee appears to
have found favour with the Judge (Revisions) Sales Tax who
decided that the amount was not exigible to sales tax,
because the contracts in question were work contracts.
Thereafter at the instance of the Commissioner, the Revising
Authority made a reference to the High Court and referred
the following question of law for its opinion:
.LM15
"Whether under the circumstances of the
case and under the terms of the contract the
supply of shutters and iron gates worth Rs.
1,08,633-08 was sale or amounted to work
contract ?"
.LM0
The High Court, after hearing the parties and considering
the materials on the record, came to the conclusion that the
contract entered into
167
by the appellant was not a work contract but a contract for
the supply of goods simpliciter and the assessee, was,
therefore, liable to pay tax. The question referred to the
High Court was answered accordingly.
The assessee’s case was that having regard to the
circumstances of the present case, the terms and conditions
of the contract and the nature of the work done by the
appellant the contract in question was out and out a work
contract and not a contract for supply of goods or materi-
als. In order to decide this question it may be necessary
first to give the salient features of the contract between
the parties. A specimen of the contract has been filed by
the assessee as Annexure ’A’ in the Paper Book the relevant
portions of which may be extracted thus:
"Please erect at our premises ......Nos.
of .....Nos. of following dimension against’
the contract price of Rs.......
1. Full payment against delivery prior to
despatch or documents by Bank. It is clearly
understood that there will be no such thing as
to make payment after fixing.
2. Material will be carried to the side of
work at cost of the party. Our responsibility
ceases when the same leaves our premises.
3. x x x
4. We do not hold ourselves responsible
for any structural damage or dispute with the
landlord. Masonary work done by the party at
his cost according to. our instructions.
5. x x x
6. No responsibilities for non-delivery or
late despatch of goods due to any reason
beyond our control."
It would appear from the terms extracted above, that the
assessee was required under the contract to fabricate the
rolling shutters in the first instance, .to bring them to
the site and thereafter to erect the saine at the premises.
In an application given to the Assistant Commissioner (Judi-
cial), which is Annexure ’C’ of the Paper Book, by the
assessee he explains the various steps which the contractor
had to take in order to fix the rolling shutters to the
factory premises of the owner. First the different parts
and components of the rolling shutters are fabricated. It
is only when the various component parts are fitted into one
that they constitute the rolling shutter as one unit, and
taken separately they have no separate existence. It was
further explained that the component parts do not constitute
a rolling shutter unless they are affixed to and erected in
the building in position and in the required manner. It was
further alleged that the contract was not concluded merely
by delivery of fabricated materials but was completed only
after the same were taken to the site and finally erected
and affixed to the site of the building. In order to fix
them
12---240SCI/77
168
to the premises certain masonary work had to be done by the
owner and that too according to the instructions of the
contractor. It was also averred that in erection of the
shutters some parts were permanently embedded into the walls
and lintals and they become permanent fixtures which are not
detachable. The allegations made in Annexure ’C’ have not
been controverted by the State either in this Court or
before the High Court. Moreover, the Indian Standard
Specification Book for Metal Rolling Shutters and Rolling
Grills the particulars of the fittings of rolling shutters,
whose authenticity has not been doubted by counsel for the
parties, clearly shows that rolling shutters consist of
curtains, lock plates, guide channels, bracket plates,
rollers, hood covers, gears, worms, fixing bolts, safety
devices, anchoring rods, central hasp and staple. Each
guide channel has to be provided with a minimum of three
fixing cleats or supports for attachment to the walls or
column by means of bolts or screws. The guide channels are
further attached to the jambs, plumb either in the overlap-
ping fashion, projecting fashion or embedded in grooves,
depending on the method of fixing. All these operations
take place at the site after despatch of the component
parts of the rolling shutter. Hood covers are fixed in a
neat manner and supported at the top at suitable intervals.
This also has to be done at the site. Item 11.1 of the
specifications shows that the rolling shutter curtain and
bottom lock plate are interlocked together and rolled in one
piece, but the other parts like guide channels, bracket
plates, rollers etc., are despatched separately. Item 12.1
shows that all the rolling shutters are erected by the
manufacturer or his authorized representative in a sound
manner, so as to afford trouble-free and easy operation,
long life and neat appearance. Even after erection is done,
grease is applied to the springs and on the sides of the
guide channels. Thus the process involved in the fabrica-
tion of a rolling shutter and its actual fixing to the
premises at the site is a continuous one and is completed
only when erection is completed in every way. The price
charged by the contractor from the owner of the premises is
one lumpsum 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 lumpsum. 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 .immov-
able 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 con-
clusion 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 work contract. It is well settled that a
work contract is a contract for construction of bridges,
buildings etc., and in for a lumpsum. The question as to
under what circumstances a contract can be said to be a work
contract is not free from difficulty and has to depend on
the facts of each case. It is difficult to lay down any
rule of universal application, but there are. some well
recognized tests which are laid down by decided cases of
this Court which afford
169
guidelines for determining as to whether a contract in
question is a work contract or a contract for supply of
goods. One of the important tests is to find out whether the
contract is primarily 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 exigi-
ble 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 work contract. The circum-
stance 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 work contract. So also where
certain materials are not merely supplied but fixed to an
immovable property so as to become a permanent fixure and an
accretion to the said property, the contract prima facie
would be work contract. This is exactly what has happened
in the present case.
In State of Rajasthan v. Man Industrial Corporation
Ltd.(1), after discussing the entire case law on the sub-
ject, this Court’observed as follows:
"The test in each case is whether the
object of the party sought to be taxed is that
the chattel as chattel passes to the other
party and the services rendered in connection
with the installation are under a separate
contract or are incidental to the execution of
the contract of sale."
Although the aforesaid case appears to us to be on all fours
with the facts of the present case, the High Court merely
noticed the decision, but did not try to apply it to the
facts of the present case. In Man Industrial Corporation
Ltd’s case (supra) the contract was to prepare window-leaves
according to specifications and fix them to the building. It
was held that fixing the window leaves to the building was
not incidental or subsidiary to the sale but an essential
term of the contract, because the contract became complete
only after the windows were fixed as stipulated in the con-
tract. Similarly in the instant case, the contract could
not be completed merely by sending the materials at the site
but would be completed only after erection of the shutters
Had been made and the shutters fixed to the premises so as
to become an accretion to the premises.
Mr. Dikshit appearing for the State submitted that in
the present case the contract was merely for the supply of
shutters in one unit after being fabricated by the contrac-
tor and the price was paid for the shutters, the question
of fixing the shutters at the site was not an integral part
of the contract but was only incidental to the supply of
materials and, therefore, the contract was not a work con-
tract. We are, however, unable to agree with this conten-
tion, because as
(1) 24 S.T.C. 349, 355.
170
discussed above, the materials were sent with various
component parts which had to be taken at the site, fitted
into one another and then finally fixed into a frame so that
the fixture became permanent and a part of the premises.
The operation to be done at the site as required by the
instructions in the Standard Book could not be said to be
merely incidental to the contract but was a fundamental part
of the contract itself. In our opinion, therefore, the
decision in Man Industrial Corporation Ltd’s case (supra)
fully covers the facts of the present case.
It was further argued by Mr. Dikshit learned counsel
appearing for the State that it will appear from the terms
of the contract that the price of the goods had to be paid
in advance before delivery of the same to the customer which
shows that the title to the shutters passed to the customer
as soon as the shutters were packed and despatched to the
site and the price paid and therefore the contract in the
instant case could not be a work contract. It is not possi-
ble to accept this contention, because the advance payment
of the entire price was a term meant for the convenience of
the parties as the contractor did not want to take any risk
for delayed payment of goods, but the contract would be
completed only after the ’shutters were fully assembled
at the site and fixed according to the specifications which
was essentially the responsibility of the contractor. In
Richardson’ and Cruddas Ltd. v. State of Madras(1) there was
a similar recital in the contract for full price to be paid
in advance and still the Madras High Court held that the
contract was a work contract. The decision of the Madras
High Court was approved by this Court in Man Industrial
Corporation Ltd’s case (Supra) and affirmed by this Court in
Stale of Madras v. Richardson and Cruddas Ltd.(2) For these
reasons the contention put forward by Mr. Dikshit on this
score is overruled.
In a later case of this Court in State of Rajasthan v.
Nanu Ram(3) tenders were invited by the Chief Engineer from
the contractors for supplying and fixing of wooden door and
windows, sashas together with frames and painting them in
the police lines building and for supplying and fixing the
wooden chowkhats and this was held to be a work contract.
The decision in Man Industrial Corporation Ltd’s case
(supra) was followed by this Court in that case. Again
in Commissioner of Sales Tax, M.P. v. Purshottam Premji(4)
this Court indicated the essential difference between a
contract for work and services and a contract for sale of
goods and observed as follows:
"The primary difference between a con-
tract 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 indi-
vidual existence as the sole property of the
party who produced it, at some time before
delivery, and the property (1) 16 S.T.C. 827.
(2) 21 S.T.C. 245 (S.C.).
(3) 26 S.T.C. 268.
(4) 26 S.T.C. 38.
171
therein passes only under the contract relat-
ing thereto to the other party for price."
The High Court placed great reliance on the decision in
M/s T.V. Sundram Iyengar & Sons v. The State of Madras(1).
In that case what had happened was that the contractor built
bus bodies and fitted the same to the chassis provided by
the customers and charged the price for building the body
and fitting the same to the chassis. It was held by this
Court that the contract was completed only when the complete
bus with the body fitted to the chassis was delivered to the
customer and, therefore, the supply of body being one single
unit constituted a sale of goods. That case is clearly
distinguishable from the facts and circumstances of the
present case. In the first place the supply of materials
and completion of the contract was indisputably in respect
of movable property, no immovable property was at all in-
volved at any stage in the process of completion of the
contract. The bus-body built by the contractor was moveable
property manufactured by the contractor and had merely to be
fitted to the chassis’ which was also movable property.
Secondly, the bodies constructed and fitted to the chassis
were easily detachable. In the instant case, the shutters
were fabricated and fixed to an immovable property so as to
become a permanent fixture and they were also not detacha-
ble. The High Court failed to have noticed these important
features which distinguish the aforesaid decision from the
facts of the present case.
We are of the considered opinion that the present case
is clearly covered by the two decisions of this Court re-
ferred to in Man Industrial Corporation Ltd’s case and Nenu
Ram’s case (supra), and applying the same we hold that the
contract in the present case was a work contract and the
transaction was, therefore, not eligible to tax. The High
Court was in error in holding that the assessee was liable
to pay tax ,on the sale proceeds of the contract.
We, therefore, allow this appeal, set aside the order of
the High Court and restore the order of the Revising Author-
ity and hold that the assessee was not liable to pay sales-
tax. The appellant will be entilled to his costs through-
out.
P.B.R. Appeal allowed.
172