Full Judgment Text
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 1 of 7
PETITIONER:
STATE OF RAJASTHAN
Vs.
RESPONDENT:
MAN INDUSTRIAL CORPORATION LTD.
DATE OF JUDGMENT:
04/02/1969
BENCH:
SHAH, J.C.
BENCH:
SHAH, J.C.
RAMASWAMI, V.
GROVER, A.N.
CITATION:
1969 AIR 1245 1969 SCR (3) 505
1969 SCC (1) 567
CITATOR INFO :
D 1974 SC2309 (14)
R 1977 SC1505 (8)
RF 1978 SC1747 (5)
R 1979 SC 545 (4)
ACT:
Sales Tax-Contract for providing and fixing goods in
building-Whether sale of goods or for rendering service.
HEADNOTE:
The respondent, a fabricator of steel windows, submitted a
tender for ’Providing and fixing’ window leaves in a
building. The window leaves. were to be fabricated
according to the specifications in the contract and. were to
be fixed within six months from the date of acceptance to
the: building with rawl plugs in cut stone work. The ’rate
quoted by the respondent was based on the current price of
mild steel billets and the price was to be revised in the
light of cost revision of the controlled price of steel.
The tender was accepted and the respondent carried out the
contract. The Sales Tax Officer levied sales tax on the
amount received.. under the contract holding that the
contract was for sale of goods and to promote its sale the
respondent undertook to fix the windows without demanding
any charge for that service. But in appeal the Deputy
Commissioner Exercise & Taxation held that two contracts
resulted : one for Providing windows and the other for
fixing them in the building, and that the price of goods
supplied, but not the charge for service was taxable. The
Board of Revenue confirmed the order passed by the Deputy
commissioner observing that the contract was not a contract
of service. On reference, the High Court held that it was a
building contract and amount received was not taxable. In
appeal, this Court,
HELD : It was a contract for rendering service and the
amount received by the respondent was not taxable.
Whether a particular contract is for sale of goods or is a
contract for service depends upon the main object of the
parties gathered from the. terms of the contract, the
circumstances of the transaction, and the custom, of the
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 2 of 7
trade, and no universal rule applicable to all transactions
can be evolved. [509 A]
In this case, the primary undertaking of the respondent was
not merely to supply the windows but to ’fix’ the windows.
This service was not rendered under a separate contract, nor
was shown to be rendered customarily or normally as
incidental to the sale by the person who supplied’ window
leaves. The fixing of the windows in the manner stipulated
required special technical skill. If the windows were not
properly ’fixed’ the contract would not be complete, and the
respondent could not claim the amount agreed to be paid to
it. It was only upon the ’fixing’ of the window-leaves and
when the window eaves had become a part of the building
construction that property in the goods passed under the
terms of the contract. [512 E-G]
The State of Madras v. Gannon Dunkerley & Co. (Madras-) Ltd.
9S.T.C. 353; The Government of Andhra Pradesh v. Guntur
Tobaccos Ltd., 16 S.T.C. 240: (S.C.); Patnaik and Company v.
State of Orissa, 16 S.T.C. 364 (S.C.); Mckenzies Ltd. v. The
State of Maharashtra, 16 S.T.C. 518 (S.C.); Commissioner of
Sales-tax, Maharashtra State, Bombay v. Arun.,
506
Electrics 16 S.T.C. 385; Arun Electrics, Bombay v.
Commissioner of Sales Tax, Maharashtra State, 17 S.T.C. 576;
The State of Madras v. Richardson Cruddas Ltd., 21 S.T.C.
245; Love v. Norman Wright (Builders) Ltd., [1944] 1 K.B.
484, referred to.
JUDGMENT:
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 812 of 1966.
Appeal by special leave from the judgment and order dated
May 13, 1965 of the Rajasthan High Court in D.B. Civil Ref.
No. 18 of 1963.
M. C. Chagla and K, Baldey Mehta, for the appellants.
Sanpat P. Mehta, 0. P. Mathotra, J. B. Dadachanji and 0. C.
Mathur, for the respondent.
The judgment of the Court was delivered by
Shah, J. The respondent carries on the business of
fabricating steel doors, windows, sashes and other goods".
On April 20, 1957, the respondent submitted in pursuance of
an invitation by the Executive Engineer, Ajmer Central
Division, its tender for providing and fixing " S.H. Windows
’W’ Type", "S.H. Windows ’W1’ Type" "T.H. Windows" and
"Composite Windows" of certain sizes "in accordance with the
specifications, designs, ’drawing and instructions". The
tender wag accepted and the respondent carried out the
contract.
The Sales Tax Officer ’B’ Circle, Jaipur City included in
the taxable turnover of the respondent Rs. 23,480/- received
under the contract. He held that the contract with the
Executive Engineer was one of sale of goods and the
respondent had with a view, to promote sales of goods
manufactured by it "voluntarily offered to fit" the goods
and had made no separate charge for that service. The
Deputy Commissioner Excise & Taxation in appeal held that
from the acceptance of the tender, two contracts resulted :
one for providing doors and windows and another for "fixing"
those doors and windows in a specified building, and that
the price of, the supplied but not the charge for service,
was taxable. He accordingly remanded the case with a
direction to assess tax on. the price for sale of materials
only. The Board of Revenue exercising revisional power
confirmed the order passed: by the Deputy Commissioner
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 3 of 7
observing that the contract undertaken by the respondent was
not a contract of service.
The following question was referred by the Board of Revenue
to the High Court of Rajasthan
"Whether on the proper interpretation of the
contract between the applicant and the
Executive Engineer, C.P.W.D.,. Ajmer,
regarding; the providing and fix’ of the steel
windows to the Accountant General’s
507
Office, Jaipur, and looking to the terms of
the transaction of the, type undertaken by the
applicant the Board were justified in holding
that the contract was,, divisible between two
parts representing the sale of the window,-,
and the labour charges in fixing the same and
thus partly liable to sales-tax ?"
The High Court held that the contract between the respondent
and the Executive Engineer was a "building contract" and the
amount received by the respondent was not taxable.
The relevant terms of the tender which was accepted by the
Executive Engineer were :
"Item Rate-tender for Works
I/We hereby tender for the execution for the
President of India of the work specified in
the under-written memorandum within the time
specified in such memorandum at the rates
specified therein, ’and in accordance in all
respects with the specifications, designs,
drawing, and instructions in writing referred
to in Rule 1 hereof and in Class 11 of the
conditions of contract and with such
materials as are provided for by and in all
other respects in accordance with such
conditions so far as applicable."
This recital was followed by a memorandum setting out the
general description,, of the building in respect of whichthe
window-leaves, were to be supplied the estimated cost of
thecontact and the description and the number of items of
work offered to be done’ The items of work offered to be
done were "providing and fixing" four different types of
windows. The relevant conditions were-
"1. The work shall be executed. as per the
specifications attached.
2. The work is to be completed in, 6 months
from the date: of award of works.
3.
4. The windows, are to be fitted with rawl
plugs in cut stoneworks.
5. Work will be executed either by plain
glass or ground glass as may be decided by the
Engineer in- Charge,.
Note
1.
2. We are offering windows which will be
glazed with plain glass only. If at a
later date it is
508
desired to have windows glazed with ground
glass, the difference in cost of glass will
have to be-Paid by you.
3.
4.
5. The quotation is based on the current
prices of mild steel billets fixed by the
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 4 of 7
Government. Should there be any change in the
controlled price of billets supplied to us,
proportionate revision in the cost of rolled
sections used in the fabrication will be made
in the quotation.
6. Sales Tax or any other tax is applicable
will be extra.
7. Work will be completed in 6 months from
the date of order."
These were followed by, specifications relating to the steel
to be used in the fabrication, glazing, fittings and finish
of the windows.
The respondent offered to execute and complete the "work"
mentioned in the written memorandum according to the
specifications and conditions. In the view of the High
Court the contract was for work, in the execution of which
some movable property passed : it was not a contract for
sale of windows and for rendering service in connection with
the fixing of those windows.
Counsel for the State of Rajasthan contends, that the
respondent carried on the business of fabricating and
selling window and door leaves and sashes etc. and entered
into a contract for "sale of windows", and to promote sale
of its manufactured goods, undertook to fix the windows
without demanding any charge for that service, and the High
Court was in error in holding that the contract was one of
service in the execution of. which property in the materials
supplied by the respondent passed. Counsel urged that the
terms of the tender were not decisive and the Court was
entitled to ascertain the true effect of the contract as
disclosed by the nature of the work, and the "invoice" for
payment made out by the respondent. Counsel submitted that
it is usual for manufacturers or dealers in specialized
articles to arrange to "fix and "service" the articles. sold
by them and on that account the contract does not acquire
the character of a contract of service. He gave instances
of sale of motor-tyres, luggage carriers, air-conditioning
units, refrigerators and contended that in undertaking to
install or fix these units or articles the sellers do not
enter into a works contract merely because they undertake to
install or for the articles sold. so as to make them fit for
immediate service. But whether a particular contract is one
for sale of goods or is
509
a contract for service depends upon the main object of the
parties gathered from the terms of the Contract, the
circumstances of the transaction, and custom of the trade,
and no universal rule applicable to all transactions may be
evolved.
As observed in Halsbury’s Laws of England, 3rd Edn., Vol. 34
Art. 3 at p. 6
A contract of sale of goods must be
distinguished from a contract for work and
labour. 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 the main object of work
undertaken by the payee of the price is not
the transfer of a chattel qua chattel, the
contract is ’one for work and labour. The
test is whether or not the work and labour
bestowed and in anything that can properly
become the subject of sale; "neither the
ownership of the materials, nor the value of
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 5 of 7
the ’skill and labour as compared with,the
value of the materials is conclusive, altho
ugh. 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."
What did the respondent agree to do when it offered its
tender ? Did the respondent agree to sell the window-leaves
as described in the tender or did it,, as part of a works
contract, agree to "fix" windows of certain Specifications
in the building intended to be used for the offices of the
Accountant-General ? On a consideration of all the
circumstances, We are of the view that the object of the
respondent was to enter into a works contract. That clearly
appears from the terms of the tender and its acceptance.
The windows were to be fabricated according to the
specifications with glass-plain or ground as decided by the
Engineer in Charge, and were to be "fixed" within six months
from the date of its acceptance "to the building with rawl
plugs in cut stone-work." The rate quoted by the respondent
was based on the current price of mild steel billets, and
the price was to be revised in the light of cost revision of
the controlled price of steel supplied to the respondent.
The contract undertaken by the ’respondent was to prepare
the window-leaves according to the specifications and to fix
them to the building. There were not two contracts-one of
sale and another of service. "Fixing" the windows to the
building was also not incidental or subsidiary to the sale,
but was an essential term of the contract; The window-leaves
did not pass to the Union of India under the terms of the
contact as window-leaves. Only on the fixing of the windows
as stipulated, the contract
Sup. C1169-14
510
could be fully executed and the property in the windows
passed on the, completion of the work and not before.
It was said by this Court in The State of Madras v. Gannon
Dunkerley & Co. (Madras) Ltd.(1) that in a building contract
which is one. entire and indivisible, there is no sale of
goods. In the case of a building contract the property in
materials used does not pass to the other party to the
contract as movable property. In the absence of an
agreement to the contrary, the materials in the construction
of a building become the property of the other party, to the
contract only on the theory of accretion.
In The Government of Andhra Pradesh v. Guntur Tobaccos
Ltd.(2) this Court pointed out (at p. 255):
"A contract for work in the execution of which
goods are used may take one of three forms.
The contract may be for work to be done for
remuneration and for supply of materials used
in the execution of the works for a price; it
may be a contract for work in which the use of
materials is ’accessory or incidental to the
execution of the work; or it may be a
contract for work and use or supply of
materials though not accessory to the
execution of the contract is voluntary or
gratuitous. In the last class there is no
sale because though property passes it does
not Pass for a price. Whether a contract is
of the first or the second class must depend
upon the circumstances; if it is of the first,
it is a composite contract for work and sale
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 6 of 7
of goods; where it is of the second category,
it is a contract for execution of work not
involving sale of goods."
The contract in question in this case is of the second
variety.
Counsel relied upon Patnaik and Company v. State of
Orissa(3) and Mckenzies Ltd. v. The State of Maharashtra.
(4) But in both these cases the Court held on a
consideration of the terms of the contract and the
circumstances that the assessees had agreed to and did
supply "motor bus being one for sale of chattels, they were
liable to pay sales-tax.
Our attention was also invited to Commissioner of Sales Tax,
Maharashtra State, Bombay v. Arun Electrics.(5) In that case
a firm of electrical contractors undertook the job of
installing electrical fittings in the houses of their
customers, which involved the supply and fixing of goods,
such as wire, brass clips, wall brackets ’and tube lights
with accessories. The assessees charged
(1) 9 S.T.C. 353.(3) 16 S.T.C. 364 (S.C.).
(2)16 S.T.C. 240 (S.C.).(4)16 S.T.C. 518 (S.C.).
(5)16 S.T.C. 385.
511
their customers consolidated rates for the materials
consumed and labour involved, in carrying out the
contracts. The Sales Tax Officer charged to tax under the
Bombay Sales Tax Act, 1959, the value of materials supplied
in carrying out the contracts. It was held by the High
Court of Bombay that the transaction of the assesses with
their customers was not a pure works contract, but a
combination of two distinct and separate contracts, one for
the supply or the sale of goods for consideration, and the
other for the supply of work and labour, and only that part
of the contract, which consisted. of supply of goods for
consideration, was liable to tax under the Sales Tax Act.
That case was brought in appeal to this Court at the
instance of the assessees. This Court in Arun Electrics,
Bombay v. Commissioner of Sales Tax, Maharashtra State(1)
discharged the answer recorded by the High Court, holding
that the conclusion recorded by the Deputy Commissioner and
the Tribunal were based on no evidence, and the High Court could
not record, on the facts found, an answer to the
question referred. The Deputy Commissioner had proceeded
only upon the terms of the invoice in which a charge was
made for supplying and "fixing" the materials and providing
light points complete with 1/8 CTS wire, brass clips, tapes
and all approved accessories. The conclusion of the
departmental authorities was not based on any intention of
the parties as disclosed by the evidence, but plainly on the
terms of the bill which was ambiguous.
In The State of Madras v. Richardson & Cruddas Ltd. (2 ) the
assessees without a formal contract agreed to supply
fabricate and erect steel structures for a sugar factory.
The assessees completed the contract. A bill was submitted
by the assessees for charges for fabrication, supply and
erection of steel structures at certain rates. The High
Court of Madras on a consideration of the evidence held that
there was a stipulation for a consolidated lump-sum Payment
of Rs. 1,160/- per ton for fabricating, supplying and
treating at site all steel work etc; there was no
stipulation for passing of property in the goods to the
factory before actual completion of the erection work; there
the contract did not contemplate dissecting the value of the
goods supplied and, the value of work and labour bestowed in
the execution of the work; and the predominant idea
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 7 of 7
underlying the contract was the bestowing ,of special skill
and labour by the experienced engineers and mechanics of the
assessees. This Court agreed with the High Court and held
that the contract was a works contract and not a contract
for sale.
Our attention was invited to a judgment of the Court of
Appeal in Love v. Norman Wright (Builders) Ltd. (3) In that
case the
(1) 17 S.T.C. 576. (3) [1944] 1 K.B. 484.
(2) 21 S.T.C. 245.
512
respondents contracted With the Secretary of State for War
to do the work and supply the material mentioned jot the
Schedules to the contract, including the supply of ’black-
out curtains, curtain rails and battens and their erection
at a number of police stations. It was held by, the Court’
of Appeal that the respondents were liable to pay purchase-
tax. Reliance was placed upon the observations made by
Goddard, L.J. at p. 482:
"If one orders another to make and fix
curtains at his house the contract is one of
sale though work and labour are involved in
the making and fixing, nor does it matter that
ultimately the property was to pass to the War
Office under the head contract. As between
the plaintiff and the defendants the former
passed the property in the goods to the
defendants who passed it on to the War
Office."
We do not think that these observations furnish a universal
test that whenever there is a contract to "fix" certain
articles made by a manufacturer the contract must be deemed
one for sale and not of service. 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.
In the present case, the specifications of the windows were
set out in the contract. The primary undertaking of the
respondent was not. merely to supply the windows but to
"fix" the windows. The service is not rendered under a
separate contract nor is the service shown to be rendered
customarily or normally as incidental to the sale by the
person who supplies window leaves. The "fixing" of windows
in the manner stipulated required special technical skill.
If the windows were not properly "fixed" the contract would
not be complete, and the respondent could not claim the
amount agreed to be paid to it. We agree with the High
Court that it was only upon the "fixing" of the window-
leaves and when the window-leaves had become a part of the
building construction that the property in the goods’ passed
under the terms of the contract.
The appeal fails and is dismissed with costs.
Y.P. Appeal dismissed.
513