http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 1 of 7  

PETITIONER: VANGUARD ROLLING SHUTTERSAND STEEL WORKS LTD.

       Vs.

RESPONDENT: COMMISSIONER OF SALES TAX, U.P.

DATE OF JUDGMENT08/03/1977

BENCH: FAZALALI, SYED MURTAZA BENCH: FAZALALI, SYED MURTAZA BHAGWATI, P.N.

CITATION:  1977 AIR 1505            1977 SCR  (3) 165  1977 SCC  (2) 250  CITATOR INFO :  R          1978 SC1747  (7)

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

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 2 of 7  

       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

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 3 of 7  

       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

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 4 of 7  

       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-

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 5 of 7  

       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

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 6 of 7  

       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.

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 7 of 7  

                     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