Case: Ram Singh &amp; Sons Eng. Works Vs. Commissioner Of Sales Tax, U.P

publication of the Indian Standards Institution which lays down the Code of Practice for Design of Overhead Travelling Cranes and Gantry Cranes clearly shows that a 3-motion electrical overhead travelling crane consists of 44 main component parts and it is only when they are put together and assembled at the site that they assume the shape of a crane. It is not as if a 3-motion electrical overhead travelling crane is fabricated by the manufacturer and then sold and delivered to the customer as a chattel. One single 3-motion electrical overhead travelling crane covers an area of 10, 549 Square Feat at the site. When an order for fabrication and erection of 3-month electrical overhead travelling crane is received by the manufacturer from the customer alongwith the specifications of the size and the materials, the manufacturer designis the machine according to the specifications and prepares the necessary drawings for its fabrication and manufacture and two copies of the drawings are sent to the customer for preparing the foundation at the site for erection of the columns which are ten in n umber along with four supporting columns. Each column has to be placed on a grouted foundation which is 7 feet deep and is securely bolted with foundation bolts, 5 on each side. which are grouted so as to be able to support the weight of the column s. The columns thus become permanent fixtures on the land of the customer and they constitute a permanent foundation for the 3-motion electrical overhead travelling crane. The detailed specifications of the foundation bolts and the columns are given in the publication of the Indian Standards Institution. It may be noted that even so far as the columns are concerned, they are not fabricatetd by the manufacturer in his factory and then taken to the site. Each column has a height of about 40 feet and it is made in three or four pieces and these pieces are joined together with bolts and welded at the time of erection at the site. Thereafter a 120 feet long gantry is assembled by the manufacturer in eight pieces and each piece is placed on two columns and the erection of the gantry on both sides is completed after bolting and svelaing the gantry with the columns. Then about 60 pieces are fixed on to the gantry on both sides to form a platform to facilitate the operation and maintenance of the crane and the component parts of the railings are assembled at the site with bolts and welded to the gantry. Two distance pieces assembled out of diverse component parts are then fixed between both ends of the gantry to ensure stability. The manufacturer has to examine and ensure the levelling and alignment of the gantry and then the component parts of the rails are assembled and fixed on both sides of the gantry by means of M.S. cleats and bolts. The bridge which is fabricated out of numerous component parts at the site, is then put on the rails so that it can run on the gantry and travel about 180 feet from one end Or the gantry to another. Then rails are fixed on the bridge and the trolley is put on the rails. The trolley consists of several component parts which are brought and assembled at the site. There is also a platform erected on the bridge for maintenance of the bridge and trolley and lastly, there is a lifting grab which is made of 3 6 pieces assembled at the site and this grab is fitted on to the trolley. It would thus be seen that the fabrication and erection of a 3-motion electrical overhead travelling crane is a highly skilled and specialised job and the component par ts have to be taken to the site and they are assembled and erected there and it is only when this process is complete then a 3-motion electrical overhead travelling crane comes into being. The process of assembling and erection, requires a high degree of skill and it is not possible to say that the erection of a 3-motion electrical overhead travelling crane at the site is merely incidental to its manufacture and supply. The fabrication and erection is one single indivisible process and a 3-motion electrical overhead travelling crane comes into existence only when the erection is complete. The erection is thus a fundamental and integral part of the contract, because without it the 3-motion electrical overhead travelling crane does not come into being. The manufacturer would undoubtedly be the owner of the components parts when he fabricated them but at no stage does he become the owner of the 3-motion electrical overhead travelling crane as a unit so as to transfer the property in it to the customer. The 3-motion electrical overhead travelling crane comes into existence as a unit only when the component parts are fixed in position and erected at the site, but at that stage it becomes the property of the customer because it is permanently embedded in the land belonging to the customer. The result is that as soon as 3-motion electrical overhead travelling crane comes into being it is the property of the customer and there is, therefore, no transfer of property in it by the manufacturer to the customer as a chattel. It is essentially a transaction for fabricating component parts and putting them together and erecting them at the site so as to constitute a 3 motion electrical overhead travelling crane. The transaction is no different than one for fabrication and erection of an open godown or shed with asbestos or tin sheets fixed on columns. There can, therefore, be no doubt that the contract in the present case was a contract for work and labour and not a contract for sale. This view which we are taking is completely supported by the decision of this Court in the Sentinel Rolling Shutters & Engineering Co. (P) Ltd. v. Commissioner of Sales Tax, Maharashtra (supra).10.

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

Explanation:
1[ds]This was the test applied by this Court in the State of Rajasthan v. Man Industrial Corporation for holding that a contract for providing and fixing four different types of windows of certain sizes according to "specifications, designs, drawings and instructions" set out in the con tract was a contract for work and labour and not a contract for sale Shah, J., speaking on behalf of the Court, analysed the nature of the contract and pointed out that"The window-leaves did not pass to the Union of India under the terms of the contract as window-leaves. Only on the fixing of the windows as stipulated, the contract could be fully executed and the property in the windows passed on the completion of the work and not before".The contract was not for transfer of property in the window leaves as window leaves. It was a contract for providing and fixing windows and windows could come into existence only when the window-leaves were fixed to the building by bestowing labour and skill and it was for this reason that it was held to be a works contract.The same test reasoning was applied by this Court in Sentinel Rolling Shutters &Engineering Co. (P) Ltd. v. Commissioner of Sales Tax, Maharashtra (supra). There the question was whether a contract for fabrication, supply and erection of certain types of rolling shutters was a contract of sale or a contract for work and labour. This Court analysed the nature of the contract and pointed out that "not only are the Rolling Shutters to be manufactured according to the specifications, designs, drawings and instructions provided in the contract, but they are also to be erected and installed at the premises of the company. The price stipulated in the contract is inclusive of erection an d installation charges and the contract does not recognise any dichotomy between fabrication and supply of the Rolling Shutters and their erection and installation so far as the price is concerned. The erection and installation of the Rolling Shutters is as much an essential part of the contract as the fabrication and supply and it is only on the erection and installation of the Rolling Shutters that the contract would be fully executed." This Court then proceeded to examine what is a rolling shutter and how it is erected and installed in the premises and observed that a rolling shutter consists of several component parts and the component parts do not constitute a rolling shutter until they are fixed and erected on the premises. It is only when the component parts are fixed on the premises and fitted into one another that they constitute a rolling shutter as a commercial article and till then they are merely component parts and cannot be said to constitute a rolling shutter. The erection and installation of the rolling shutter cannot, therefore, be said to be incidental to its manufacture and supply. It is a fundamental and integral part of the contract, because without it the rolling shutter does not come into being. The manufacturer would undoubtedly be the owner of the component parts when he fabricates them, but at no stage does he become the owner of the rolling shutter as a unit so as to transfer the property in it to the customer. The rolling shutter comes into existence as a unit when the components parts are fixed in position on the premises and it, therefore, becomes the property of the customer as soon as it comes into being. There is no transfer of property in the rolling shutter by the manufacturer to the customer as a chattel. It is essentially a transaction for fabricating component parts and fixing them on the premises so as to constitute a rolling shutter." The contract for fabrication, supply and erection o f the rolling shutters was, on this reasoning, held by the Court to be a contract for work and labour and not a contract for sale.If we consider what is a 3-motion electrical overhead travelling crane and how it is fabricated, erected an d installed, it will become immediately clear that the analogy of the decision in Sentinel Rolling Shutters &Engineering Co. (P) Ltd.s case (supra) to the present case is striking and it must lead us to the conclusion that each of the two contracts with which we are concerned here is not a contract for sale but a contract for work and labour. The publication of the Indian Standards Institution which lays down the Code of Practice for Design of Overhead Travelling Cranes and Gantry Cranes clearly shows that a 3-motion electrical overhead travelling crane consists of 44 main component parts and it is only when they are put together and assembled at the site that they assume the shape of a crane. It is not as if a 3-motion electrical overhead travelling crane is fabricated by the manufacturer and then sold and delivered to the customer as a chattel. One single 3-motion electrical overhead travelling crane covers an area of 10, 549 Square Feat at the site. When an order for fabrication and erection of 3-month electrical overhead travelling crane is received by the manufacturer from the customer alongwith the specifications of the size and the materials, the manufacturer designis the machine according to the specifications and prepares the necessary drawings for its fabrication and manufacture and two copies of the drawings are sent to the customer for preparing the foundation at the site for erection of the columns which are ten in n umber along with four supporting columns. Each column has to be placed on a grouted foundation which is 7 feet deep and is securely bolted with foundation bolts, 5 on each side. which are grouted so as to be able to support the weight of the column s. The columns thus become permanent fixtures on the land of the customer and they constitute a permanent foundation for the 3-motion electrical overhead travelling crane. The detailed specifications of the foundation bolts and the columns are given in the publication of the Indian Standards Institution. It may be noted that even so far as the columns are concerned, they are not fabricatetd by the manufacturer in his factory and then taken to the site. Each column has a height of about 40 feet and it is made in three or four pieces and these pieces are joined together with bolts and welded at the time of erection at the site. Thereafter a 120 feet long gantry is assembled by the manufacturer in eight pieces and each piece is placed on two columns and the erection of the gantry on both sides is completed after bolting and svelaing the gantry with the columns. Then about 60 pieces are fixed on to the gantry on both sides to form a platform to facilitate the operation and maintenance of the crane and the component parts of the railings are assembled at the site with bolts and welded to the gantry. Two distance pieces assembled out of diverse component parts are then fixed between both ends of the gantry to ensure stability. The manufacturer has to examine and ensure the levelling and alignment of the gantry and then the component parts of the rails are assembled and fixed on both sides of the gantry by means of M.S. cleats and bolts. The bridge which is fabricated out of numerous component parts at the site, is then put on the rails so that it can run on the gantry and travel about 180 feet from one end Or the gantry to another. Then rails are fixed on the bridge and the trolley is put on the rails. The trolley consists of several component parts which are brought and assembled at the site. There is also a platform erected on the bridge for maintenance of the bridge and trolley and lastly, there is a lifting grab which is made of 3 6 pieces assembled at the site and this grab is fitted on to the trolley. It would thus be seen that the fabrication and erection of a 3-motion electrical overhead travelling crane is a highly skilled and specialised job and the component par ts have to be taken to the site and they are assembled and erected there and it is only when this process is complete then a 3-motion electrical overhead travelling crane comes into being. The process of assembling and erection, requires a high degree of skill and it is not possible to say that the erection of a 3-motion electrical overhead travelling crane at the site is merely incidental to its manufacture and supply. The fabrication and erection is one single indivisible process and a 3-motion electrical overhead travelling crane comes into existence only when the erection is complete. The erection is thus a fundamental and integral part of the contract, because without it the 3-motion electrical overhead travelling crane does not come into being. The manufacturer would undoubtedly be the owner of the components parts when he fabricated them but at no stage does he become the owner of the 3-motion electrical overhead travelling crane as a unit so as to transfer the property in it to the customer. The 3-motion electrical overhead travelling crane comes into existence as a unit only when the component parts are fixed in position and erected at the site, but at that stage it becomes the property of the customer because it is permanently embedded in the land belonging to the customer. The result is that as soon as 3-motion electrical overhead travelling crane comes into being it is the property of the customer and there is, therefore, no transfer of property in it by the manufacturer to the customer as a chattel. It is essentially a transaction for fabricating component parts and putting them together and erecting them at the site so as to constitute a 3 motion electrical overhead travelling crane. The transaction is no different than one for fabrication and erection of an open godown or shed with asbestos or tin sheets fixed on columns. There can, therefore, be no doubt that the contract in the present case was a contract for work and labour and not a contract for sale. This view which we are taking is completely supported by the decision of this Court in the Sentinel Rolling Shutters & Engineering Co. (P) Ltd. v. Commissioner of Sales Tax, Maharashtrathe distinction between a contract of sale and a contract for work and labour has been pointed out in Halsburys Laws of England, 3 ed., volume 34, para 3 at page 6 in the followingcontract 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 with the value of the materials, is conclusive, although such matters may be taken into consideration in determinating, 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."The primary test is whether the contract is one whose main object is transfer of property in a chattel as a chattel to the buyer, though some work may be required to be done under the contract as ancillary or incidental to the sale or it is carrying out of work by bestowal of labour and service and materials are used in execution of such work. This test has been recognised and approved in a number of decisions of this Court and it may now be regarded as beyond controversy, but the real difficulty arises in its application as there are a large number of cases which are on the border line and fall within what may be called grey area. To resolve this difficulty, the courts have evolved some subsidiary tests and one of such tests is that formulated by this Court in Commissioner of Sales Tax, Madhya Pradesh v. Purshottam Premji where it has been said:The primary difference between a contract for work or service and a contract for sale o f 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 individual existence as the sole property of the party who produced it, at some time before delivery, and the property therein passes only under the contract relating thereto to the other party for price."