State of Rajasthan Vs. Man Industrial
Corporation Ltd.  INSC 26 (4 February 1969)
04/02/1969 SHAH, J.C.
CITATION: 1969 AIR 1245 1969 SCR (3) 505 1969
SCC (1) 567
D 1974 SC2309 (14) R 1977 SC1505 (8) RF 1978
SC1747 (5) R 1979 SC 545 (4)
Sales Tax-Contract for providing and fixing
goods in building-Whether sale of goods or for rendering service.
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,
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 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.
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.,
 1 K.B.
484, referred to.
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
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
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
observing that the contract undertaken by the respondent was not a contract of
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
which the window-leaves, were to be supplied the estimated cost of the contact
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.
4. The windows, are to be fitted with rawl plugs
in cut stone works.
5. Work will be executed either by plain
glass or ground glass as may be decided by the Engineer in- Charge,.
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.
5. The quotation is based on the current
prices of mild steel billets fixed by the 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
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
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 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
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 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
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
(2)16 S.T.C. 240 (S.C.).(4)16 S.T.C. 518
(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 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)  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.