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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

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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

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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

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             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

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             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

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             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

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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