N. Muthiah Achary and Sons vs State of Madras

Ramaprasada Rao, J.—This tax case is directed against the order of the Madras Sales Tax Appellate Tribunal in T. A. 103 of 1963. The

assessment relates to the year 1960-61. The petitioners who are contractors and dealers, submitted a quotation to Messrs. Cannon Dunkerley and

Go. Madras, Pvt. Ltd., to provide and fix doors and window frames for certain quarters to be constructed by the aforesaid company. There is no

written contract evidencing the bargain between the parties. While quoting for the works, the assessee sent up to the company a memo which

reads as follows--

Providing and fixing best Indian teak wood frames only for doors, windows, ventilators, etc., including the cost of timber, labour charges, delivery

charges etc., complete, but Inclusive of the cost of clamps.

This quotation was accepted by M/s. Cannon Dunkerley & Co. which directed the assessees to take details from their site representative and put

the work on hand. The assessees having undertaken the work completed the same by providing doors and windows and fixing the same in the

quarters pointed out by the company, and also submitted a bill which is noted by the Tribunal in their order. The bill which is obviously a simple

one, whilst reiterating the bargain between the parties as one for providing and fixing doors and windows in the quarters, mentioned the

specification of the work done, and also the composite cost of the materials, work done and labour charges. The turnover in question is admitted

as relating to the said transaction between the assessee and the company. The Tribunal, after noting the essential facts as cited by us, came to the

conclusion in the beginning that that was a works contract. We may state that the assessing authority was of the view that the disputed turnover

was relateable to sale of materials and even so the Appellate Assistant Commissioner. was of the view that the essence of the contract was only for

the sale of goods and not for carrying out any work alone.

We have already noticed that the Tribunal in the initial stages was of the view that the transaction between the assessees and the company was a

works contract. However, they felt bound, though they were not inclined to do so, by a decision of this Court in App. 38 of 1945 (Mad) which

was rendered in 1947. The Tribunal says that the above decision of this Court cannot be a basis for the assessment in this case. The evidence let in

before the Tribunal is to the effect that the work involved in the instant case was over after the filling of the gaps and after the doors and windows

were placed in the places with the cement and brick etc. Following this evidence, the Tribunal observes--

This statement conclusively shows that even during the assessment year no fixing . was done by the appellants.

How the Tribunal has arrived at this conclusion, is not clear. But, basing their decision on the ratio of this Court in App. No. 38 of 1945 (Mad) the

Tribunal came to the conclusion that the contract entered into between the petitioners and their customers is one for the supply of the wooden

article at site and not a works contract involving any elaborate work in connection with the fixing of the frames. There were other aspects also

noted by the Tribunal; but they were not predominantly in respect of the contract between the petitioners and the company. As against the decision

of the Tribunal, the present tax revision case has been filed.

Mr. Srinivasan, learned counsel for She petitioners urges that the contract in question has to be viewed as a whole and should not be dissected

to suit the purpose of the Revenue and, if this is understood, the contract is for work and labour, though the contract also involves the supply of

materials by the petitioners to the company. The learned counsel has taken us through the contract and stated that the decision, hesitantly relied

upon by the Tribunal, is no longer good law in view of the subsequent pronouncements made by this Court and the Supreme Court in similar

circumstances and whilst considering other allied matters.

It is now well settled that, when a contract is for fabricating goods of a specification and also for the purpose of affixing the same in Immovable

property and the contractor simultaneously obliges himself to supply the material for such fabrication and provides the labour required for the

execution of the totality of the work and further agrees to receive a consolidated sum as consideration therefor, the contract is one and indivisible.

In the instant case, from the nature of things. It cannot be predicated that the assessee Intended to sell the material used in the bargain. The term

''sale'' has a juristic concept inhered in it. The three essential elements constituting a sale, as is understood both in fiscal enactments and common

law, are (1) that there should be an agreement express or implied between the parties to transfer title in goods; (2) that such a transfer should be

for valuable consideration, and (3) that as a result of the bargain the title in the goods should pass.

When In a composite contract as the one in the instant case, title in the material does not pass no sooner they are fabricated but only after they

are fixed to Immovable property, then one of the essential ingredients of sale is absent. Again, in the light of the facts noticed by us, the contract in

question is an undissectable contract. The oneness of the contract is maintained throughout and severability of the same in any form was never

intended or possible. The assessees had to fabricate the materials in accordance with the specifications. They had to fix them at the places where

they were directed to affix. They had no option whatsoever to fabricate and affix the materials at their choice and volition. This contiguous process

and also the test deployed for effectuating the bargain between the parties indicate that the contract is an indivisible one and it is essentially a

contract for work and labour and not a contract for sale of the materials. Again, the invoice relied on by the assessees provides ample justification

for our above conclusion. The cost of both the materials and also labour involved therein has been charged on a consolidated basis and such

composite inclusion of the consideration for the work is indicative of the fact that the contract is one and the consideration is for the totality of the

undertaking,

The literature on the subject has flowed ever since 1947. But it is unnecessary for us to note the catena of decisions on the subject excepting to

refer to a few of them. In Man Industrial Corporation Ltd v. The State, (1966) 17 STC 152 : AIR 1965 Hal 234 the Court was interpreting a

contract, whereunder the assessee. undertook to fabricate steel doors, windows, sashes and works of allied nature and fix them according to the

directions of the Government of India which was the contractee in that case. The question was whether the assessee was liable to pay sales tax on

the amount received by the company under the contract We may incidentally state that the amount paid under the contract was a consolidated

price. The learned Judges, after noticing the various authorities on the subject, came to the conclusion that, as there was no transfer of Immovable

property from one person to another for consideration and as the contract in question was incapable of being broken up and dealt with in

component parts, the contract was an indivisible contract of work and not of sale, and that the assessee was, therefore, not liable to sales-tax. This

was approved by the Supreme Court in State of Rajasthan Vs. Man Industrial Corporation Ltd., . In that case, Shah, J. speaking for the court

observed--

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 contract as window-

leaves. Only on the fixing of the windows as stipulated, the contract would be fully executed and the property in the windows passed on the.

completion of the work and not before.

In that view the Supreme Court held that the contract was for execution of the work not involving sale of goods. In the instant case also, it cannot

be said that the assessees entered into two contracts, one for sale and another for service. The two aspects are inextricably mixed up in the

undertaking of the assessees and one cannot be torn out from the other. Such a nexus between the two is obviously a condition precedent to find

out whether a contract is one of sale or for execution of work. In Nenuram Vs. State of Rajasthan and Others, , the contract was for fabrication

and affixture of wooden doors and windows. There also the court held that the contract was an indivisible works contract and the amount received

by the petitioner under the contract could not be assessed to sales tax.

The Tribunal, in fact, found in this case that the transaction in question was a works contract. They also agreed that the decision of this court in

App. No. 38 of 1945 (Mad) would not apply to the facts of this case. What ultimately prompted them to negative the relief to the assessees, we

are not able to comprehend. As already stated, the contract in. question being indivisible and composite should be characterised as a contract for

work and labour and not a contract for sale of materials. The disputed turnover included in the assessable turnover of the assessees has, therefore,

to, be excluded. The tax case is allowed with costs. Counsel''s fee Rs. 100.