Case: Vanguard Rolling Shuttersand Steel Works Ltd Vs. Commissioner Of Sales Tax, U.P

( 1 ) THIS is an appeal by special leave by the assesee 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. 1,08,633-08 in the execution of such contracts. This amount was claimed by the assessee as not being liable to sales tax during the assessment year 1965-66 on the ground that the same represented the proceeds of work contracts. The Sales Tax Officer rejected the plea of the assessee and the Assistant Commissioner (Judicial) on appeal also affirmed the order of the Sales Tax Officers. 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 :-"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 work contract?"The High Court, after hearing the parties and considering the materials on the record, came to the conclusion that the contract entered into 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.

Reasoning:
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 lump sum. 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 immovable 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 conclusion 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 contact. It is well settled that a work contract is a contract for construction of bridges, buildings etc. , and includes contracts which combine labour, skill and materials executed for a lump sum. The question as to under what circumstances a contract can be said to be a work contact 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 recongized tests which are laid down by decided cases of this Court which afford 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 exigible to sales tax. On the other hand where the contract is primarily a contact 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 circumstance 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 fixture and an accretion to the said property, the contract prima facie would be a work contract. This is exactly what has happened in the present caseWe are, however, unable to agree with this contention, because as 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 (AIR 1969 SC 1245  ) (supra) fully covers the facts of the present caseIt is not possible to accept his 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 finally assembled at the site and fixed according to the specifications which was essentially the responsibility of the contractorThat 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 moveable property no immovable property was at all involved 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 also was moveable 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 detachable. The High Court failed to have noticed these important features which distinguish the aforesaid decision from the facts of the present case( 8 ) WE are of the considered opinion that the present case is clearly convered by the tow decisions of this Court referred to in Man Industrial Corporation Ltd. s case (AIR 1969 SC 1245  ) and Nanu Rams case (1970) 26 STC 268 (SC), (supra) and applying the same we hold that the contract in the present case was a work contract and the transaction was, therefore, 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