Summary
The appellant assessee was a partnership firm carrying on business inter alia of manufacture and erection of cranes. During the assessment year 1965-66, the assessee entered into two contracts for supply and erection of 3- motion electrical overhead travelling cranes. The assessee carried out both the contracts and fabricated and erected 3- motion electrical overhead travelling cranes according to the contract specifications. A question arose in the assessment of the assessee to sales tax for the assessment year 1965-66 whether the amount of Rs. 1,34,500/- received by the assessee under the contract with M/s. Kamlapati Motilal Sugar Mills and the amount of Rs. 2,38,000/- received under the contract with M/s. Upper Doab Sugar Mills Ltd., formed part of the turnover of the assessee and was liable to sales tax. The Sales Tax Officer took the view that the contracts were essentially contracts of sale of ready made cranes and the erection of the cranes at the factory site was merely incidental to the sales and the amounts of Rs. 1,34,500/- and Rs. 2,38,000/- received under the contracts were, therefore taxable. This view was upheld by the Assistant Commissioner in appeal, but in revision the Additional Judge (Revisions) held that each of the two contracts was a works contract not involving any sale of goods and hence the amounts were not exigible to sales tax.
On a reference to the High Court at the instance of the Commissioner of Sales Tax, the High Court took the view that each of the two contracts was for supply of 3-motion electrical overhead travelling cranes as a complete unit and"the predominant object was supply of crane as complete unit" and "the bestowing of labour and skill in the execution of the contract" appeared to have been incidental to the supply of the machine." The High Court observed that in its view parties "intended the property to pass in the subject matter of the contract, namely, the completed crane as movable property" and concluded that it was a contract of sale of goods and not a contract for work and labour. The High Court accordingly answered both the questions referred to it against the assessee and in favour of the Revenue.Allowing the appeal by special leave the Court,^HELD: 1. The primary test to find out whether a contract is a contract of sale or a contract for work and labour is whether the contract is one whose main object is transfer of property in a chattel as a chattel to the buyer, though some work may be required to be done under the contract as ancillary or incidental to the sale or it is carrying out of work by bestowal of labour and service and materials are used in execution of such work. The Court's have evolved some subsidiary tests to resolve the difficulty arising in the application of this primary test as there are a large number of cases which are on the 622border line and fall within what may be called "grey area".One such test formulated by the Supreme Court in Commissioner of Sales Tax, Madhya Pradesh v. Purshottam Premji, 26 STC 38 is: "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."[628 C-G]Commissioner of Sales Tax, M.P. v. Purshottam Premji, 26 STC 38; State of Rajasthan v. Man Industrial Corporation 24 STC 349; Sentinel Rolling Shutters & Engineering Co. (P) Ltd. v. Commissioner of Sales Tax, Maharashtra, [1979] 1 SCR 644; applied.2. Each of the two contracts for fabrication and erection of a 3-motion electrical overhead travelling crane is not a contract for sale but a contract for work and labour, (a) It is essentially a transaction for fabricating component parts and putting them together and erecting them at the site so as to constitute a 3-motion electrical overhead travelling crane. The transaction is no different than one for fabrication and erection of an open godown or shed with asbestos or tin sheets fixed on columns, (b) It is not as if a 3-motion electrical overhead travelling crane is fabricated by the manufacturer and then sold and delivered to the customer as a chattel, (c) The fabrication and erection of a 3-motion electrical overhead travelling crane is a highly skilled and specialised job and the component parts have to be taken to the site and they are assembled and erected there and it is only when this process is complete, then a 3-motion electrical overhead travelling crane comes into being. The process of assembling and erection requires a high degree of skill and it is not possible to say that the erection of a 3-motion electrical overhead travelling crane at the site is merely incidental to its manufacture and supply. The fabrication and erection is one single indivisible process and a 3-motion electrical overhead travelling crane comes into existence only when the erection is complete. The erection is thus a fundamental and integral part of the contract, because without it the 3- motion electrical overhead travelling crane does not come into being. The manufacturer would undoubtedly be the owner of the component parts when he fabricated them but at no stage does he become the owner of 3-motion, electrical overhead travelling crane as a unit so as to transfer the property in it to the customer. The 3-motion electrical overhead travelling crane comes into existence only when the component parts are fixed in position and erected at the site, but at that stage it becomes the property of the customer because it is permanently embedded in the land belonging to the customer. The result is that as soon as 3- motion electrical overhead travelling crane comes into being, it is the property of the customer and there is, therefore, no transfer of property in it by the manufacturer to the customer as a chattel. [630C-D, 631E-H-632 A]Sentinel Rolling Shutters & Engineering Co. (P) Ltd. v.Commissioner of Sales Tax, Maharashtra, [1979] 1 SCR page 644: followed.See the full content of this document
Extract
Ram Singh & Sons Eng. Works VS. Commissioner Of Sales Tax, U.P.
PETITIONER: RAM SINGH & SONS ENG. WORKS Vs.RESPONDENT: COMMISSIONER OF SALES TAX, U.P.DATE OF JUDGMENT07/12/1978BENCH: BHAGWATI, P.N.BENCH: BHAGWATI, P.N.PATHAK, R.S.CITATION: 1979 AIR 545 1979 SCR (2) 621 1979 SCC (1) 487CITATOR INFO : F 1984 SC 774 (25)ACT: Contract of sale and contract for work and labour, distinction and test of-Whether a contract for fabrication and erection of 3-motion electrical overhead (travelling cranes) is a contract of sale or contract for work and labour.JUDGMENT: CIVIL APPELLATE JURISDICTION: Civil Appeal No. 1314 of 1975.Appeal by Special Leave from the Judgment and Order dated 29-1-1975 of the Allahabad High Court in S.T.R. No.771 of 1972.623S.C. Manchanda, Mrs. Urmila Kapoor and Miss Kamlesh Bansal for the Appellant.G.N. Dikshit and O.P. Rana for the Respondent.The Judgment of the Court was delivered byBHAGWATI, J. The short question that arises for determination in this appeal by special leave is whether a contract for fabrication and erection of a 3-motion electrical overhead travelling crane is a contract of sale or a contract for work and labour. The question is fortunately not bese...
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