Bhagwati, J. - (1.) The short question that arises for determination in this appeal by special leave is whether a contract for fabrication and erection of a 3-motion electrical overhead travelling crane is a contract of sale or a contract for work and labour. The question is fortunately not beset with much difficulty since there is a recent decision of this Court in Sentinel Rolling Shutters and Engineering Co. (P.) Ltd. v. Commr. of Sales Tax, Maharashtra, C. A. No. 1001 of 1977, decided on 12-9-1978:(reported in AIR 1978 SC 1747) which affords considerable guidance and almost concludes the determination of the question in favour of the assessee.
(2.) The assessee, who is the appellant before us, is a partnership firm carrying on the business inter alia of manufacturing and erection of cranes. During the assessement year 1965-66, the assessee entered into two contracts for supply and erection of 3-motion electrical overhead travelling cranes, one with M/s. Kamlapat Moti Lal Sugar Mills and the other with M/s. Upper Doab Sugar Mills Ltd. The contract with M/s. Kamlapat Moti Lal Sugar Mills provided for supply and erection of one 3-motion electrical overhead travelling crane at the price of Rs. 1,34,500 and on the terms and conditions set out in a letter addressed by M/s. Kamlapat Moti Lal Sugar Mills to the assessee: "We confirm all the specifications given in your above referred quotation with the following changes: 1. Structural capacity will be suitable for safe-load of two unloading crabs, i.e. 10 tons. 2. Span of the long gantry which is given 50' will be confirmed shortly. 3. Your supply will also include gantry of 35'X50' to make the crane three-motions. 4. We shall not be required to give any material except electric line up to the crane. 5. You will be supplying crane-drivers cabin with automatic control panel free provided its trial is successful. 6. The minimum number of operations will be 30 per hour approx. 7. You will give us working trial of the equipment at least by 30th September, 1965. 8. The price of the above equipment will be Rs. 1,34,500 f.o.r. Khatauli, sales tax, excise duty will be extra, if payable. This price includes erection charges. 9. Terms of payment 40% advance with the order, 10% after one month from the date of the order, 25% after the erection of bridge and columns, 15% after trial, 10% after one month's satisfactory performance. A penalty of 11/2% will be payable per week by you in case of delay per week after 30th September, 1965, and to a maximum of 5% of the total value. You will send your staff for erecting the unloader and we shall be providing you necessary tools and tackles and welding set when required. Available accommodation will also be provided." The contract between Upper Doab Sugar Mills Ltd. was for supply and erection of two 3-motion electrical overhead travelling cranes with two crabs each at the price of Rs. 1,19,000 for each crane and it was on the following terms and conditions: "That the contractor will supply the company two cranes with two crabs each as under:- (i) Crane bridge:The structural design of the crane bridge will be in accordance with the structural specifications of B.S.S. 466 for electric overhead travelling crane. The structural parts will be fabricated from good quality Tata tested steel sections. The girders for the main bridge will be of lattice construction type heavy duty. (ii) Driver's cabin:The driver's cabin will be of weather proof outdoor construction. It will be with material in a position that the operator's view is not obstructed during the load handling and will travel along with the crane crab. (iii) Electrical equipment for driver's cabin:The driver's cabin will be provided with the following electrical equipment and other necessary fittings:- 1. One protective paner for electrical equipment. 2. Drum controllers for all the motors. 3. Plug and sockets for hand lamp. 4. One electric light point. 5. One alarm bell and all other necessary fittings. Steps ladders will be provided from the crane bridge for easy access to the cabins. (iv) Wiring:Wiring with V.I.R. Wrain steel conduit pipes will be provided between individual motors and controllers, current collectors and resistances in the cabin. For connection of current to the trolley, a set of bare copper conductors complete with insulators and strainers mounted on the bridge will be provided. A set of current collectors will be mounted on the trolley, containing renewable graphitic carbon collectors. PRICE:That for two complete cranes of the above mentioned specifications with two crabs each including erection, the company will pay to the contractor at the rate of Rs. 1,19,000 per crane with two crabs each including erection complete in all respects with necessary equipment. Mode of Payment, 1. 30% with the order, 2. 20% after two months of the actual commencement of work, 3. 25% after the completion of erection of columns and bridge, 4. 15% of after completion and giving satisfactory trials, 5. 10% after one month's satisfactory work. That the contractor will execute the entire work i.e. fabrication, erection and construction latest by 30th day of September, 1964 so that the trials can begin on the 1st October, 1964. The defects will be rectified by the 10th October, 1964. If the work is not completed by the 30th September, 1964, a penalty of Rs. 400 per day from the 1st October, 1964 will be paid by the contractor to the company till the date of completion and satisfactory operation of the cranes. That all such items which are considered defective by the company will be replaced at the contractor's cost within the above specified date to the company's entire satisfaction so that regular working of the cranes is ensured. That all materials will be provided by the contractor and electricity will be charged at cost if consumed by the contractor. Only such tools which are available in the stores of the Co., will be given to the contractor on loan on returnable basis and the contractor will pay to the company the cost of such material which are not returned to the company. The final payment of the bills of the contractor will be made on his getting NOTHING DUE clearance certificate from the Stores Department of the Company. That there will be no liability and responsibility of the company whatsoever besides payment of price of the cranes. That sales tax or excise duty and other government duty, if any, will be extra. Packing and forwarding charges will also be extra." The assessee carried out both these contracts and fabricated and erected one 3-motion electrical overhead travelling crane at the factory of M/s. Kamlapati Moti Lal Sugar Mills and two 3-motion electrical overhead (travelling cranes) at the factory of M/s. Upper Doab Sugar Mills Ltd. according to the contracts specifications.
(3.) The question arose in the assessment of the assessee to sales tax for the assessment year 1965-66 whether the amount of Rs. 1,34,500 received by the assessee under the contract with M/s. Kamlapat Moti Lal Sugar Mills and the amount of Rs. 2,38,000 received under the contract with M/s. Upper Doab Sugar Mills Ltd. formed part of the turnover of the assessee liable to sales tax. The answer to this question depended upon whether the contracts with M/s. Kamlapat Moti Lal Sugar Mills and M/s. Upper Doab Sugar Mills Ltd. were contracts of sale or contracts for work and labour. If they were contracts of sale, the amounts of Rs. 1,34,500/- and Rs. 2,38,000/- would be taxable as sale price forming part of the turnover, but not so, if they were contracts for work and labour. The Sales Tax Officer took the view that the contracts were essentially contracts of sale of ready made cranes and the erection of the cranes at the factory site was merely incidental to the sale and the amounts of Rupees 1,34,500/- and Rs. 2,38,000/- received under the contracts were, therefore, taxable. This view was upheld by the Assistant Commissioner in appeal, but on an application for revision being filed by the assessee, the Additional Judge (Revisions) held that each of the two contracts was a works contract not involving any sale of goods and hence the amounts of Rs. 1,34,500 and Rs. 2,38,000 were not exigible to sales tax. The Commissioner of Sales Tax thereupon applied for a reference and on his application, the following two questions of law were referred for the opinion of the High Court. 1. Whether in the facts and circumstances of the case turnover of Rupees 1,32,590 made by the assessee in respect of Kamlapat Motilal Sugar Mills amounts to a works contracts or sale of goods If so, to what extent 2. Whether in the facts and circumstances of the case the turnover of Rupees 2,38,000 made by the assessee in respect of the Upper Doab Sugar Mills amount to a works contract or sale of goods If so, to what extent The High Court took the view that each of the two contracts was for supply of 3-motion electrical overhead travelling cranes as a complete unit and "the predominant object was supply of crane as a complete unit" and "the bestowing of labour and skill in the execution of the contract" appeared "to have been incidental to the supply of the machine." The High Court observed that in its view that parties "intended the property to pass in the subject-matter of the contract, namely, the completed crane as movable property" and concluded that it was a contract of sale of goods and not a contract for work and labour. The High Court accordingly answered both the questions referred to it in favour of the Revenue and against the assessee. The assessee thereupon brought the present appeal with special leave obtained from this Court.;