Case: State of Madras Vs. Richardson and Cruddas Limited

1. The respondents carry on business as "engineers and contractors" and as dealers in iron and steel goods and refrigerating and cooling units etc. For the assessment yearthe assessing authority, Madras, included in the taxable turnover of the respondents for assessment to Central sales tax the following two items received by the respondents which they contended were not liable to be included :(i) Rs. 3, 26, 075.20 under a contract for the fabrication, supply and erection of steel structures with asociety which was setting up a sugar factory in the State of Mysore; and(ii) Rs. 43, 349.05 for the fabrication and installation of "bottle coolers" under orders from customers at different places.The assessing authority rejected the claim of the respondents. In the view of the assessing authority under the terms of the contract with thesociety the respondents manufactured certain articles according to specifications and despatched them to Mysore State and thereafter the articles were installed by the employees of the respondents at the site of the factory of the society, and on that account the transaction was one primarily for sale of steel structures to the society, and the respondents had in addition thereto contracted to instal or erect the structures. The assessing authority in dealing with the second item held that the respondents had sold bottle cooling units to their customers and the contracts for sale of the units were not converted into works contracts merely because the respondents installed the units in the premises of the purchasers.In appeal the Appellate Assistant Commissioner of Commercial Taxes held that the first item was one for execution of work, and was not assessable to sales tax. He agreed with the assessing authority that the turnover from the supply and installation of bottle cooling units was liable to sales tax. The Sales Tax Appellate Tribunal, Tribunal, Madras, held that the turnover from both the items was taxable.The respondents moved the High Court of Madras in revision and submitted that since the two items were received as consideration under works contracts, no sales tax was payable thereon. The High Court upheld the plea raised by the respondents. With special leave, the State of Madras has appealed to this Court.

Court's reasoning:
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.