- (1.) This is an appeal by special leave by the assesee 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 Officers. 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 :- "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 - The High Court, after hearing the parties and considering the materials on the record, came to the conclusion that the contract entered into 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.
(2.) The assessee's case as 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...... of the following dimensions 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 site of woke at cost of the party. Our responsibility ceases when the same leaves our premises. 3. x x x x 4. We do not hold ourselves responsible for any structural damage or dispute with the landlord. Masonry work done by the praty at his cost according to our instructions. 5. x x x x 6. No responsibilities for non-delivery or late dispatch 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 same at the premises. In an application given to the Assistant Commissioner (Judicial), which is Annex. '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 to the premises certain masonry 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 lintels and they become permanent fixtures which are not detachable. The allegations made in Annex. '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 of embedded in grooves, depending on the method of fixing. All these operations take place at the site after dispatch 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 inter-locked together and rolled in one piece, but the other parts like guide channels, bracket plates, rollers etc., are dispatched 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 lump sum 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 lump sum. 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 contact. It is well settled that a work contract is a contract for construction of bridges, buildings etc., and includes contracts which combine labour, skill and materials executed for a lump sum. The question as to under what circumstances a contract can be said to be a work contact 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 recongized tests which are laid down by decided cases of this Court which afford 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 contact 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 fixture and an accretion to the said property, the contract prima facie would be a work contract. This is exactly what has happened in the present case.
(3.) In state of Rajasthan v. Man Industrial Corporation Ltd., 24 STC 349 at p. 355 : (AIR 1969 SC 1245 at p. 1249), 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 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.;