Case: State of Madras Vs. Richardson and Cruddas Limited

for work and labour :(a) the stipulation for a consolidated lump payment of Rs. 1, 160 per ton for fabrication, supply and erection at site of all steelwork etc.;(b) no provision for the passing of the property in the goods to the factory before the actual completion of the erection work;(c) no provision under the contract for dissecting the value of the goods supplied and the value of the remuneration for the work and labour bestowed in the execution of the work;(d) the petitioner (the respondents) not being a dealer carrying on business in the steel and component parts required for the erection work and that the component parts had to be specially fabricated so as to be suitable for particular erection work;(e) the predominant idea underlying the contract being the bestowing of special skill and labour by the experienced engineers and mechanics of the petitioner (the respondents) company."4. We have carefully gone through the correspondence between the parties and after considering the arguments advanced by counsel for the State, we hold that the High Court was right in the conclusions they reached about the essential features of the contract between the parties.5. Counsel for the State invited our attention to the bills submitted by the respondents from time to time between October 31, 1957 and June 30, 1959. In these bills charge was made under the head "fabrication and supply of steelwork" at the rate of Rs. 1, 100 per ton. Counsel said that this disclosed that the original contract between the respondents and the society was modified, and it was stipulated to sell to the society certain steel parts required by the society and the price was to be paid at Rs. 1, 100 per ton; the balance of Rs. 60 was to be paid as remuneration for the work of erecting the steel parts supplied. It is true that the quotation submitted by the respondents was Rs. 1, 160 per ton and the bills submitted by the respondents from time to time were drawn at the rate of Rs. 1, 100 per ton. But there is no warrant for assuming from the preparation of the bills at the rate of Rs. 1, 100 per ton that there were two contracts - one for supply of fabricated steel parts at the rate of Rs. 1, 100 per ton and another for remunerating the respondents for the work of erection of the steel parts at the rate of Rs. 60 per ton.We may now turn to the second item relating to the turnover from the supply of fabrication and installation of "bottle cooling equipment" at the premises of the respondents customers. A customer desiring to obtain a bottle cooling equipment had to place an order. The respondents then fabricated the component parts according to the requirements and specifications of the customer. They then despatched the component parts to the site and installed the same on a suitable base and foundation at the premises of the customer. The installation of bottle cooling unit in the premises of the customer was not merely auxilliary or incidental to the supply of the unit. In respect of the bottle cooling equipment also there are no formal written contracts. The terms of the contract have to he gathered from the correspondence. Sample correspondence with a customer may be briefly set out. By letter dated November 15, 1957, addressed to K. V. Ananda Rao, Proprietor, Janata Hotel, the respondents sent their quotation for "one six hole double row combination bottle cooler complete as per their standard specification with vitrolite glass panelling for the three sides, the fourth side being fitted with eternite sheet panelling with marble top, one circular sleeve fitted with hand driven churner for making ice cream, with 2 Nos. G.I. ice can with suitable cover plate for making ice, four circular sleeves for storage of soft beverages in the drink side with Frigidaire ADI-33 model air-cooled condensing unit, driven by 1/2 HP, 220/230 volts, 50 cycles, single phase A.C. motor, 4 Nos. full and 2 Nos. half six brass tinned inner vessels (delivered F.O.R. Hubli and installed at their address) at Rs. 4, 619. The work order dated December 13, 1957, which recorded the work done at the site at which the bottle cooling equipment was installed, set out the various steps taken :Unpacked crates, checked up cooler, marble, vitrolite and found all intact. Placed the cooler on the plinth area, given measurements for the condensing unit, placed the unit in position, given pipe connections etc. evacuated system, allowed gas pressure, tested joints for leaks etc. and shut down the cooler and left the machine idle for want of motive power to continue the performance.6. After obtaining power connection, restarted the cooler, mixed up calcium chloride, tested joints for leaks etc., charged F 12 gas and oil to system; throttled suction line, opened up values fully, adjusted THV OS valve etc., checked up performance of the cooler, loaded the cooler, adjusted MX6 AC valve, checked up a few cycles of operation and left the machine in working order."7. An inclusive price was charged by the respondents for the work of fabrication of the bottle cooling equipment required in the premises of the customer and for installation of the equipment. Under the terms of the contract, the respondents undertook to instal a bottle cooling equipment, that is, to fabricate different parts of the unit according to the special requirements of the customer, and to instal the unit in the premises of the customer. Each bottle cooling equipment required special fabrication and had to be installed at the place selected by the customer and found suitable for installation of the unit. The contract being one for supplying for an inclusive price a specifically designed fabricated unit to be assembled and installed by specially trained technicians in the premises of the customer, it was not a contract for sale of a unit or different parts of the unit as specific goods, but a works contract.

Decision (1 = appeal accepted, 0 = rejected): 0

Explanation:
0[ds]Under the Act, turnover from sale of goods alone is chargeable to tax. To make the consideration received under the agreement between the respondents and the society it had to be established that the respondents had sold specific goods. It had therefore to be established that the consideration was received under a contract to sell specific goods for a price, and property in the goods contracted to be sold passed to the society, when the goods were delivered in pursuance of the contract. If the contract was for completing the stipulated work and for that purpose to use materials belonging to the respondents in the performance or execution of the contract as accessory to "work and labour", the contract must be regarded as a works contract, and not a contract for sale, even if the property in the goods ultimately passes as a result of theis no formal contract in the present case for fabrication and erection of the steel structures required by the society. The agreement between the parties has to be ascertained from the correspondence betweencondition No. 8 the method of payment was specified. It was stated that the respondents would "require payment" to be made in respect of the structural steelwork on the weight calculated according to B.S. weights from the nett. lengths and sizes of sections as shown in the material lists, without deductions for holes, notches and skew cuts. Condition No. 9 set out the terms of payment. Condition No. 10 set out the time schedule for completion.We have carefully gone through the correspondence between the parties and after considering the arguments advanced by counsel for the State, we hold that the High Court was right in the conclusions they reached about the essential features of the contract between theis true that the quotation submitted by the respondents was Rs. 1, 160 per ton and the bills submitted by the respondents from time to time were drawn at the rate of Rs. 1, 100 per ton. But there is no warrant for assuming from the preparation of the bills at the rate of Rs. 1, 100 per ton that there were two contractsone for supply of fabricated steel parts at the rate of Rs. 1, 100 per ton and another for remunerating the respondents for the work of erection of the steel parts at the rate of Rs. 60 perinstallation of bottle cooling unit in the premises of the customer was not merely auxilliary or incidental to the supply of the unit. In respect of the bottle cooling equipment also there are no formal written contracts. The terms of the contract have to he gathered from the correspondence.An inclusive price was charged by the respondents for the work of fabrication of the bottle cooling equipment required in the premises of the customer and for installation of the equipment. Under the terms of the contract, the respondents undertook to instal a bottle cooling equipment, that is, to fabricate different parts of the unit according to the special requirements of the customer, and to instal the unit in the premises of the customer. Each bottle cooling equipment required special fabrication and had to be installed at the place selected by the customer and found suitable for installation of the unit. The contract being one for supplying for an inclusive price a specifically designed fabricated unit to be assembled and installed by specially trained technicians in the premises of the customer, it was not a contract for sale of a unit or different parts of the unit as specific goods, but a works contract.