GULATI,J. - (1.) THIS is a reference under section 11(3) of the U.P. Sales Tax Act at the instance of the Commissioner of Sales Tax, U.P., Lucknow.
(2.) THE assessee is a manufacturer and dealer in iron shutters and carries on business in the name of M/s. Vanguard Rolling Shutters and Steels Works. It manufactures iron shutters according to the specifications given by the parties and then fixes them at their premises. The price charged includes the price of shutters as also the cost of labour involved in fixing them at the premises. In the assessment year in dispute, namely, 1956-66, the assessee received a sum of Rs. 1,08,633.08 in the execution of such contracts. It was claimed before the Sales Tax Officer that the turnover in dispute was not liable to tax as it represented the proceeds of a contract of work and labour and not a contract of sale of goods. This contention was not accepted by the Sales Tax Officer nor by the Appellate Assistant Commissioner but found favour with the revising authority. The Commissioner, being aggrieved, asked for a reference to this court and the revising authority has submitted the statement of the case and the following question of law for our 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 works contract ?" In State of Rajasthan v. Man Industrial Corporation Ltd. [[1969] 24 S.T.C. 349 (S.C.)], the Supreme Court has held that whether a particular contract is one 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 custom of the trade and no universal rule applicable to all transactions can be laid down. The test to distinguish between a works contract and a contract of sale has been laid down in Halsbury's Laws of England, 3rd Edition, Vol. 34, Article 3, page 6, in the following words : "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 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 end in anything that can properly become the subject of sale; neither the ownership of the materials, nor the value of the skill and labour as compared with the value of the material is conclusive, although 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."
(3.) IN Commissioner of Sales Tax v. Haji Abdul Majid and Sons [[1963] 14 S.T.C. 435], a Division Bench of this Court had to deal with the question as to whether a bus body constructed by a person out of his own material and fixed on the chassis supplied by the customer amounted to a contract of sale of bus body or a contract of work and labour. It was held that the contract was a contract of sale of bus body and not a contract of work and labour. The following observations have a direct bearing on the question before us : "If an article is sold it makes no difference whether the assessee prepared it in accordance with the specifications given by the customer or had prepared it in anticipation of the order and exposed it for sale. When an assessee enters into a contract for sale of an article to be manufactured by him it is a contract of sale and not a contract of work even though he has to spend his labour and skill in producing it. The reason is that the essential contract between the parties is that he should transfer property in the article, after preparing it, to the customer. Transfer of property is the predominant element and the use of labour and skill is only an incidental and subordinate element." ;