Appeal No 106 of 1976
Appeal by Special Leave from the Judgement and Order dated 3091975 of the Allahabad High Court in STR No 69870 SC Manchanda Mrs Urrnila Kapoor Y D Jain and Miss Kamlesh Bansal for the appellant
GN Dikshit and OP 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 108633 08 in the execu tion of such contracts
This amount was claimed by the 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 rejectedthe 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 108633 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
Material will be carried to the side of work at cost of the party
Our responsibility ceases when the same leaves our premises
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
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 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 240SCI77 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 111 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 121 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 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 vs Man Industrial Corporation Ltd1 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 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 STC 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 vs State of Madras1 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 vs Richardson and Cruddas Ltd2 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 vs Nanu Ram3 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 MP vs Purshottam Premji4 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 STC 827
2 21 STC 245 SC
3 26 STC 268
4 26 STC 38
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 Ms TV Sundram Iyengar  Sons vs The State of Madras1
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
PBR Appeal allowed


Summary:
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 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 vs Man Industrial Corporation Ltd 24 ST C 349 355 and State of Rajasthan vs Nanu Ram 26 STC 268 followed
State of Madras vs Richardson and Cruddas Ltd 21 STC 245 SC and Commissioner of Sales Tax
MP vs Purshottam Premji 25 STC 38 referred to
Ms TV Sundram lyengar  Sons vs The State of Madras 35 STC 24 19751 2 SCR 372 distinguished