Appeal No 812 of 1966
Appeal by special leave from the judgment and order dated May 13 1965 of the Rajasthan High Court in DB 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  SH Windows W  Type SH Windows W1  Type TH 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 23480 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 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 CPWD
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 IWe 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
The work is to be completed in 6 months from the date of award of works
The windows are to be fitted with rawl plugs in cut stoneworks
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 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
Sales Tax or any other tax is applicable will be extra
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 article 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 the skill and labour as compared withthe 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 vs Gannon Dunkerley  Co Madras Ltd1 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 vs Guntur Tobaccos Ltd2 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 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 vs State of Orissa3 and Mckenzies Ltd vs 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 vs Arun Electrics5 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 STC 3533 16 STC 364 SC
216 STC 240 SC416 STC 518 SC
516 STC 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 vs Commissioner of Sales Tax Maharashtra State1 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 18 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 vs 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 1160 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 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 vs Norman Wright Builders Ltd 3 In that case the 1 17 STC 576
3 2 21 STC 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 LJ 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
YP Appeal dismissed


Summary:
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 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 vs Gannon Dunkerley  Co Madras  Ltd 9STC 353 The Government of Andhra Pradesh vs Guntur Tobaccos Ltd 16 STC 240 SC Patnaik and Company vs State of Orissa 16 STC 364 SC Mckenzies Ltd vs The State of Maharashtra 16 STC 518 SC Commissioner of Sales tax Maharashtra State Bombay vs Arun
 506 Electrics 16 STC 385 Arun Electrics Bombay vs Commissioner of Sales Tax Maharashtra State 17 STC 576 The State of Madras vs Richardson Cruddas Ltd 21 STC 245 Love vs Norman Wright Builders Ltd 1944 1 KB 484 referred to