Vanguard Rolling Shutters and Steel
Works Ltd. Vs. Commissioner of Sales Tax, U.P  INSC 80 (8 March 1977)
FAZALALI, SYED MURTAZA FAZALALI, SYED MURTAZA
CITATION: 1977 AIR 1505 1977 SCR (3) 165 1977
SCC (2) 250
CITATOR INFO :
R 1978 SC1747 (7)
Sales Tax--Contract for sale of material and
works contract--Tests for distinguishing.
The assessee. who was a manufacturer of iron
shutters, fabricates the different parts ,and components and fits them into
shutters. The shutters are prepared according 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 instructions. 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 contract 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 Commissioner (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 rendered 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 labour, and materials are supplied in
execution of such contract, 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 comprising labour and
services executed for a lumpsum. The contract could be completed when materials
with various component 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 parties 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.
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.
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
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 execution of such contracts. This amount was claimed by the
assessee as not being liable to sales tax during the assessment 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 Commissioner
(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 materials.
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
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 (Judicial), 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 overlapping 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 fabrication 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 .immovable 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 conclusion 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 exigible
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 circumstance
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 subject, 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
contract. 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 contractor 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 contract. We are,
however, unable to agree with this contention, because as (1) 24 S.T.C. 349,
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 possible 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
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
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 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 (1) 16 S.T.C.
(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
relating 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 involved 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 detachable. 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 referred 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 Authority and
hold that the assessee was not liable to pay salestax. The appellant will be
entilled to his costs throughout.
P.B.R. Appeal allowed.