S. Chandrasekaran vs State of Tamil Nadu

Venkataswami, J.—These two tax appeals are directed against the proceedings of the former Board of Revenue in B.P. RT. No. 3831 of

1979 dated November 28, 1979. The appellant is the same, the question of law is the same, and only the assessment years are different, namely,

1975-76 and 1976-77.

The facts leading to the filing of these two appeals may now be noted. The appellant is the proprietor of a concern by name New Mercury

Mosaic Tiles. He manufactures mosaic floor tiles and also undertakes the laying of mosaic flooring. For the assessment year 1975-76, no return of

turnover relating to the business was filed. The Assistant Commercial Tax Officer, Thanjavur-II, found that on the orders placed by the customers,

the appellant has undertaken the work of laying mosaic floors. He further found that as per the terms of the agreement between the assessee and

the customer, for supplying, laying and polishing of mosaic floor, the customer has to pay by way of advance 30 per cent of the value of the work,

on delivery of the mosaic tiles and chips 35 per cent of the value of the work, after laying of the tiles or chips 20 per cent of the value of the work,

and after completion of polishing, the balance amount. The further terms of the agreement were, that the customer has to bear transport charges for

all materials such as tiles, polishing machine and accessories from the business place of the assessee to the place of the customer. The customer has

to make available cement, sand and labour force required for laying the tiles. In addition to the above, he has to make available the following as

well : (1) Support labour for the work of laying of mosaic tiles; (2) required quantity of wax polish and turpentine for final finish; (3) electricity to

run the polishing machine; (4) if the work spot happens to be out of station, an allowance at a particular rate per day per head. From the above

terms and conditions of the contract, the Assistant Commercial Tax Officer found that the cost of the tiles approximately worked out to 65 per

cent of the total value of the work and the balance 35 per cent approximately represented the labour charges. On that footing, the Assistant

Commercial Tax Officer arrived at the total contract amount at Rs. 1,33,430 for the year 1975-76, and out of which he subjected to tax a sum of

Rs. 86,730 representing 65 per cent of the value of the mosaic tiles supplied. Likewise, for the assessment year 1976-77, he fixed the total amount

of the contracts at Rs. 1,27,636 out of which he brought into the net of taxation a sum of Rs. 82,638.

The contention of the assessee that the entire turnover represented works contract, and as such not liable for tax, was not accepted by the

assessing officer. Aggrieved by the assessment orders, the appellant preferred appeals to the Appellate Assistant Commissioner.

The first appellate authority accepted the submission made by the assessee and consequently found that the contract between the assessee and

the customer was an indivisible one. On that basis, he allowed the appeals and set aside the assessments.

The then Board of Revenue, on an examination of the orders of the Appellate Assistant Commissioner, was of the view that the appellate

authority went wrong in concluding that there was no sale of mosaic tiles. A notice was issued to the appellant to show cause why the orders of the

Appellate Assistant Commissioner should not be set aside and the orders of the assessing officer restored. The appellant sent his replies supporting

the orders of the Appellate Assistant Commissioner. According to the appellant, the supply portion of the contract cannot be separated from the

work portion, and hence the contract was one for laying of mosaic flooring and polishing, and the same cannot be bifurcated into two, one for the

supply and the other for the work.

The then Board of Revenue, after perusing the form of contract, took the following view :

........... The work of laying mosaic tiles, cannot be said to require any great skill. The customer approached the assessee only for the quality of the

tiles and competitive price. The laying of the tiles can be done by any one like the assessee. In fact the actual laying is only by the masons. The

work is just like supply of electric fans, and lamps, fixing being undertaken thereafter by the supplier himself. Just like in that case as it cannot be

said that there was no supply of fans or lamps and that the agreement between the parties was only for the fixing of fans and lamps, in the instant

case also it cannot be said that there was no supply of tiles and that the entire transaction related only to works contract.

On the above view, the Board of Revenue concluded that there was sale of mosaic tiles and, therefore, the Appellate Assistant Commissioner was

not right in holding that the contract between the assessee and the customer was one and indivisible. Consequently, after setting aside the orders of

the Appellate Assistant Commissioner, the Board of Revenue restored the orders of the assessing officer.

Aggrieved by the orders of the Board of Revenue, these appeals are filed.

Mr. Inbarajan, learned counsel appearing for the appellant, reiterated the same grounds that were urged before the Board of Revenue and

contended that the contract under which the assessee undertook the laying of mosaic flooring is one and indivisible, and the contrary view taken by

the Board of Revenue is unsustainable. In support of his contention, he relied on the following decisions of the Supreme Court and also a decision

of the Andhra Pradesh High Court. They are, State of Madras v. Richardson & Cruddas Ltd. reported in [1968] 21 STC 245 (SC) State of

Rajasthan v. Man Industrial Corporation Ltd. reported in [1969] 24 STC 349 (SC) Vanguard Rolling Shutters and Steel Works Vs. The

Commissioner of Sales Tax, , Sentinel Rolling Shutters and Engineering Company (Pvt.) Ltd. Vs. The Commissioner of Sales Tax, , Ram Singh

and Sons Engineering Works Vs. Commissioner of Sales Tax, U.P., and Hindustan Aeronautics Ltd. Vs. State of Karnataka, He placed heavy

reliance on a judgment of the Andhra Pradesh High Court in United Mosaics Vs. The State of Andhra Pradesh, , which also related to laying of

mosaic tiles. Mr. Inbarajan distinguished the case in Hindustan Tiles and Cement Industries Vs. The State of Maharashtra, on facts.

The learned Additional Government Pleader (Taxes) in reply to the arguments advanced by the learned counsel for the appellant, submitted that

on the terms and conditions of the contract/agreement between the appellant and the customer, it is quite possible to spell out two contracts, one

for supply and the other for work. Therefore, the view taken by the Board of Revenue is quite in accordance with law and the same can be

supported by the principles laid down by the judgments of the Supreme Court and also other High Courts. The learned Additional Government

Pleader also placed reliance on the decision in United Mosaics Vs. The State of Andhra Pradesh, and also the decision in Hindustan Tiles and

Cement Industries v. State of Maharashtra [1975] 36 STC 326 (Bom).

In order to appreciate the rival submissions, it is necessary to first point out the terms and conditions under which the assessee undertook the

work of laying mosaic tiles. A sample agreement as found in the typed set of papers reads as follows :

NEW MERCURY MOSAIC TILES

Phone 1101 203, Medical College Road,

Mangalapuram

Thanjavur-613 007.

Ref : Date : ...........

Agreement

Agreement entered into this day the March 4, 1975, for supplying, laying and polishing of mosaic floor between Messrs. New Mercury Mosaic

Tiles, 203, Medical College Road, Mangalapuram, Thanjavur and Mr. K. A. Balasubramaniam in the premises T.S. No. of Ramanathapuram The

rate/rates as accepted between us is/are as under :

Colour Rate Unit

Grey Rs. 200 per 100 Sq. ft.

Green colour Rs. 300

Marble Rs. 400

12"" x Rs. 300

The terms of payment as agreed to between us are as follows :-

Advance with order - 30 per cent of value of work.

On delivery of required materials at work spot - 35 per cent of value of work.

After laying tiles and in sithu works - 20 per cent of value of work.

After completion - Balance amount.

The final measurements will be taken before wax polishing is done and all accounts will be settled finally before wax polishing.

The party ordering the work undertakes to provide the following at his cost :

(a) Transport charges for all materials such as tiles, polishing machine, etc., from the factory to work spot.

(b) Required cement, sand and water for laying of tiles and sithu labour.

(c) Support labour for laying of tiles at work spot.

(d) Required quantity of wax polish and turpentine for final finish.

(e) Electrical energy for machine polish.

(f) For all outstation works an allowance of Rs. 5 per day per head on all working days will be extra.

The work will be completed in about ... days time. The progress of the work purely and entirely depends upon the mode of payments. Any

additional work entrusted during the course of the agreement will be dealt with separately and charged according to the nature of work.

Signed this day ....

I agree to the above terms and conditions.

Sd/- .....

Signature of ordering party.

for NEW MERCURY MOSAIC TILES

Sd/- ........

Proprietor/Manager.

After the completion of the work, a final bill is prepared, and a sample bill as found in the typed set of papers is given below :

NEW MERCURY MOSAIC TILES

203, Medical College Road,

Mangalapuram,

Thanjavur-613 007.

To

Sri K. A. Balasubramaniam,

Ramanathapuram.

Abstract

Phone : 1101 Date : 10-7-75

L.S. Contract Final Bill

------------------------------------------------------------------------

Sl. Description Description of Area Rate Per Amount

No. of items work Sq. ft. Rs. Sq. ft. Rs.

------------------------------------------------------------------------

I Silver grey As per measurement 2,500 200 100 5,000

II Green colour "" 1,000 300 "" 3,000

III Marble "" 500 400 "" 2,000

IV 12"" x 4"" "" 500 300 "" 1,500

------

11,500

------

(Rupees eleven thousand five hundred only)

------------------------------------------------------------------------

Received Rs. 11,500 (Rupees eleven thousand five hundred only) and we settled the mosaic account.

for NEW MERCURY MOSAIC TILES

Sd/- ...................

It may be noted that either in the order of the assessing officer or in the proceedings of the Board of Revenue, there is nothing to suggest that

the assessee/appellant followed any other type of agreement/contract in the matter of laying mosaic flooring. It can, therefore, safely be taken that

the sample contract and sample bill extracted above represented all the transactions which are taken into account for the purpose of fixing the

turnover.

With this background, let us now go into the cases cited at the Bar. Except the judgments of the Bombay and Andhra Pradesh High Courts,

reported in [1975] 36 STC 326 (Hindustan Tiles and Cement Industries v. State of Maharashtra) and [1983] 53 STC 124 (United Mosaics v.

State of Andhra Pradesh) respectively, which relate to laying of mosaic flooring, all other cases relate to different transactions, but coming under

the heading ""works contract"". In the various judgments of the Supreme Court, the principles relating to ""works contract"" are given. The general

principle as set down in Halsbury''s Laws of England, approved by the Supreme Court, reads as follows :

Halsbury''s Laws of England, Third Edition, Volume 34, article 3 at page 6 :

''A contract of sale of goods must be distinguished from a contract for work and labour. A contract 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 end 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 determining, 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''.

In State of Madras v. Richardson & Cruddas [1968] 21 STC 245 while affirming a decision of this Court, the Supreme Court held on the

facts of that case as follows :

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 specially designed fabricated unit to be assembled and installed

by specially trained technicians in the premises of the customer, it was not a contact for sale of a unit or different parts of the unit as specific goods,

but a works contract.

In State of Rajasthan v. Man Industrial Corporation Ltd. [1969] 24 STC 349 the Supreme Court, on the facts of that case, has held as follows

:

In the present case, the specifications of the windows were set out in the contract. The primary undertaking of the respondent was not merely to

supply the windows but to ''fix'' the windows. This service is not rendered under a separate contract, nor is the service shown to be rendered

customarily or normally as incidental to the sale by the person who supplies window-leaves. The ''fixing'' of windows in the manner stipulated

required special technical skill. If the windows were not properly ''fixed'' the contract would not be complete, and the respondent could not claim

the amount agreed to be paid to it. We agree with the High Court that it was only upon the ''fixing'' of the window-leaves, and when the window-

leaves had become a part of the building construction that the property in the goods passed under the terms of the contract.

In Vanguard Rolling Shutters and Steel Works Vs. The Commissioner of Sales Tax, , the facts which are relevant to appreciate the point were

as follows :

....... Thus, the process involved in the fabrication of a rolling shutter and its actual fixing to the premises at the site is a continuous one and is

completed only when erection is completed in every way. The price charged by the contractor from the owner of the promises is one lump sum

without at all specifying as to what part is meant for the materials used or fabricated and what part for the services or labour put in by the

contractor. 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 works contract. It is well-settled that a works

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 works contract 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-recognised 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 works 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 contract 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 works 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 works 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 works contract. This is exactly what has

happened in the present case.

Reversing the judgment of the Allahabad High Court, the Supreme Court held that the contract was a ""works contract"" and the transaction was

not, therefore, exigible to sales tax.

In Sentinel Rolling Shutters & Engineering Company Pvt. Ltd. v. Commissioner of Sales Tax [1978] 42 STC 409 the Supreme Court

observed as follows :

Now the question whether a particular contract is a contract for sale or for work and labour is always a difficult question and it is not surprising to

find the taxing authorities divided on it. The difficulty, however, lies not in the formulation of the tests for determining when a contract can be said to

be a contract for sale or a contract for work and labour, but in the application of the tests to the facts of the case before the court. The distinction

between a contract for sale and a contract for work and labour has been pointed out by this Court in a number of decisions and some tests have

also been indicated by this Court, but it is necessary to point out that these tests are not exhaustive and do not lay down any rigid or inflexible rule

applicable alike to all transactions. They do not give any magic formula by the application of which we can say in every case whether a contract is

a contract for sale or a contract for work and labour. They merely focus on one or the other aspect of the transaction and afford some guidance in

determining the question, but basically and primarily, whether a particular contract is one for sale of goods or for work and labour depends upon

the main object of the parties gathered from the terms of the contract, the circumstances of the transaction and the custom of the trade.

It may be pointed out that a contract where not only work is to be done but the execution of such work requires goods to be used may take one of

three forms. The contract may be for work to be done for remuneration and for supply of materials used in the execution of the work for a price; it

may be a contract for work in which the use of materials is accessory or incidental to the execution of the work; or it may be a contract for supply

of goods where some work is required to be done as incidental to the sale. Where a contract is of the first type, it is a composite contract

consisting essentially of two contracts, one for the sale of goods and the other for work and labour. The second type of contract is clearly a

contract for work and labour not involving sale of goods, while the third type is a contract for sale where the goods are sold as chattels and some

work is undoubtedly done, but it is done only as incidental to the sale. No difficulty arises where a contract is of the first type, because it is divisible

and the contract for sale can be separated from the contract for work and labour and the amount payable under the composite contract can be

apportioned between the two. The real difficulty arises where the contract is of the second or third type, because in such a case, it is always a

difficult and intriguing problem to decide in which category the contract falls. The dividing line between the two types of contracts is somewhat hazy

and ''thin partitions do their bounds divide''. But even so the distinction is there and it is very much real and the court has to perform at times the

ingenious exercise of distinguishing one from the other.

*** *** ***

The Revenue leaned heavily on the provision in the contract that the delivery of the goods shall be ex works and once the delivery of the goods is

effected, no claim for rejection shall be entertained and relying on this provision, the Revenue contended that under the contract the rolling shutters

were to be delivered by the assessee to the company ex works, that is, at the works of the assessee, and the property in the rolling shutters passed

to the company as soon as they were delivered and hence it was a contract for sale. We do not think this contention of the Revenue has any force

and it must be rejected. It is clear from the above discussion that a rolling shutter as a complete unit is not fabricated by the manufacturer in his

factory but he manufactures only the component parts and it is only when the component parts are fitted into position and fixed on the premises

that a rolling shutter comes into being as a commercial article and, therefore, when the contract provides that the delivery of the goods shall be ex

works, what is obviously meant is that the component parts shall be delivered to the company at the works of the assessee and once they are

delivered, they shall not be liable to be rejected by the company. But that does not mean that as soon as the component parts are delivered to the

company, the contract is fully executed. The component parts do not constitute a rolling shutter and it is the obligation of the assessee under the

contract to fix the component parts in position on the premises and erect and instal a rolling shutter. The execution of the contract is not completed

until the assessee carries out this obligation imposed upon it under the contract and a rolling shutter is erected and installed at the premises. It is true

that clause 12 of the printed terms and conditions provides that 50 per cent of the amount under the contract shall be paid as advance and the

balance against delivery of the goods ex works, but this clause is clearly overridden by the special terms specifically written out in the contract that

25 per cent of the amount shall be paid by way of advance, 65 per cent against delivery and the remaining 10 per cent after completion of erection

and handing over of the rolling shutters to the satisfaction of the company. This provision undoubtedly stipulates that 90 per cent of the amount due

under the contract would be paid before erection and installation of the rolling shutters has commenced, but that would not make it a contract for

sale of rolling shutters. The true nature of the contract cannot depend on the mode of payment of the amount provided in the contract. The parties

may provide by mutual agreement that the amount stipulated in the contract may be paid at different stages of the execution of the contract, but that

cannot make the contract one for sale of goods if it is otherwise a contract for work and labour. It may be noted that the contract in State of

Madras v. Richardson & Cruddas Ltd. [1968] 21 STC 245 (SC) contained a provision that the full amount due under the contract shall be paid in

advance even before the execution of the work has started and yet the Madras High Court held, and that view was affirmed by this Court, that the

contract was a works contract. The payment of the amount due under the contract may be spread over the entire period of the execution of the

contract with a view either to put the manufacturer or contractor in possession of funds for the execution of the contract or to secure him against

any risk of non-payment by the customer. That cannot have any bearing on the determination of the question whether the contract is one for sale or

for work and labour.

Here the last portion of the special term in regard to payment of the amount due under the contract also makes it clear that it is only when the

component parts are fitted into position in the premises that a rolling shutter would be complete and this rolling shutter has to be to the satisfaction

of the company and it is then to be handed over by the assessee to the company and then, and then alone, would the remaining 10 per cent be

payable by the company to the assessee. It is, therefore, clear that the the contract is one single and indivisible contract and the erection and

installation of the rolling shutter is as much a fundamental part of the contract as the fabrication and supply. We must, in the circumstances, hold,

driven by the compulsion of this logic, that the contract 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 Vanguard Rolling Shutters & Steel Works v. Commissioner of Sales Tax, U.P.

[1977] 39 STC 372 to which one of us (Bhagwati, J.) was a party.

Now let us took into the decision of the Bombay High Court in Hindustan Tiles and Cement Industries v. State of Maharashtra [1975] 36

STC 326 dealing with a case relating to laying of mosaic flooring. In that case, on facts and after analysing the terms and conditions of the contract,

the High Court took the view that there was a divisible contract. One of the terms of the contract which weighed with the learned Judges in that

case reads as follows :

(a) We undertake fixing contracts only for the sake of convenience of our customers and so reserve a right unto ourselves to terminate the

contract for the fixing of the tiles and to limit our liability for the supply of tiles only. In such cases costs of the supply of the tiles shall be ascertained

by deducting the usual charges for fixing and polishing labour from the contract rate.

In fact, the learned Judges, while discussing the case, observed as follows :

............. A more important term of the contract for showing what the real intention of the parties was is the condition contained in sub-clause (a)

of the said clause 9 in which it is expressly stated that the applicants under-took fixing contracts only for the convenience of their customer and for

the said reason reserved to themselves the right to terminate the contract for the fixing of tiles and to limit their liability to the supply of tiles by them

only and that in the case of their terminating the said contract for the fixing of tiles and limiting their liability only for the supply of tiles, the cost for

the supply of tiles would be ascertained by deducting the usual charges for fixing and polishing labour from the contractors. This sub-clause clearly

shows that the contract was from its very nature severable and that an option was given to the applicants to sever it if they so desired and to carry

out only the sale part of it, receive the price for the tiles sold and delivered by them and incur no liability for non-performance by them for work

and labour part of the said contract.

The assessing officer as well as the Board of Revenue, purporting to follow the ratio laid down in the said judgment of the Bombay High Court,

levied sales tax on 65 per cent of the total turnover.

In United Mosaics v. State of Andhra Pradesh [1983] 53 STC 124 the Andhra Pradesh High Court had occasion to consider a similar

question. The learned Judges, after perusing the bill issued by the assessee, held as follows :

A perusal of the bill clearly shows that the assessee was charging the consumer for the work done at the site per 100 sq. ft. or per running foot, as

the case may be, irrespective of whether the work was done by using the tiles manufactured at the assessee''s factory or whether the work was

carried out in situ. From this bill it is not possible to cull out two contracts, namely, one for the sale of tiles and the other for the work of laying and

polishing. The consumer was not concerned with the number of tiles which the assessee used for covering the required area. The consumer was

only concerned with the work done at the site and he paid according to measurements. The mere fact that the consumer was obliged to supply the

water and electricity cannot detract from the above nature of work. No one carrying on the business of supplying, laying and polishing of mosaic

tiles is expected to carry water with him nor to provide his own electricity required for polishing purposes. Moreover, the bill indeed expressly

states that the charges are inclusive of laying and polishing. In such a case, in our opinion, the Tribunal erred in holding that it was only a sale of tiles

and that laying and polishing was only incidental to such sale. There was no material before the Tribunal to arrive at such a finding. The Tribunal

appears to have based its finding upon the conditions of sale printed at the foot of the bill, namely, that goods once sold shall not be taken back

and that packing and forwarding charges as well as sales tax shall be extra. In our opinion, the bill has to be read as a whole instead of dilating

upon one or two clauses. If so read, it is clear that it is not a case of a sale but of a works contract, namely, supplying, laying and polishing of

mosaic tiles, and that it is one and indivisible contract. Merely because the bill contains clauses that goods once sold shall not be taken back or that

packing charges, etc., shall be extra, it cannot be said that the said bill represents two contracts, namely, one of sale and other a labour contract.

Mr. Dasaratharama Reddi explains that the petitioner uses only one form of bill, whether it is mere sale of tiles or whether it is works contract or

whether it is a bill for in situ work. Be that as it may, from the bill placed before us, it is clear that the assessee has undertaken a works contract

and the transaction undertaken by him can be said to be complete only when the work is completed at the site.

The decision of the Bombay High Court in Hindustan Tiles and Cement Industries v. State of Maharashtra [1975] 36 STC 326 relied upon by the

learned Government Pleader has no application to the facts of the present case. That was a case where the contract itself contained the terms of

payment, namely, 25 per cent with the order, 60 per cent against delivery, 10 per cent against setting and 5 per cent during polishing. In this case,

the Tribunal found, on a consideration of various terms of the contract and the facts and circumstances placed before it, that the transaction was a

divisible one and that 85 per cent of the amount payable thereunder represents the cost of tiles while the balance of 15 per cent represents the

labour charges. The High Court held that the Tribunal was justified in coming to that conclusion on the material placed before it. Now in so far as

the bill in this case is concerned, it does not permit or warrant any such break-up. Hence, it is not possible to apply the principle of the said

decision to the facts of the present case. Indeed, neither the assessing authorities nor the Tribunal have attempted such a break-up of the total

amount into cost of tiles and cost of laying and polishing. On the other hand, they have sought to treat the entire transaction as a sale. For the

above reasons, the tax revision cases are allowed holding that the transactions entered into by the petitioner-assessee for the assessment years

1971-72 and 1972-73 represent works contracts and are not exigible to sales tax .......

We have already pointed out that the assessing officer, after perusing the terms and conditions of the contract, found that the cost of the tiles

approximately worked out to 65 per cent of the total value of the work, and on that basis, brought into the net of taxation that portion of the

turnover. This principle was accepted by the Board of Revenue. It is seen from the order of the assessing officer that except a guess work, he had

no other material before him to arrive at that conclusion. This is what the assessing officer observed in his order :

Inasmuch as 30 per cent of the cost of work was payable as advance at the time of entering into agreement and 35 per cent of the cost on

delivery of the required materials at workspot, the sale part of the said contract was worked out when the goods were delivered to the dealer''s

customers and at the time of delivery 35 per cent of the cost of work was to be paid in addition to the 30 per cent paid as advance. Thus it would

be consistent and logical to take aggregate percentage of 65 per cent as the price of tiles sold by the dealer to his customers.

After observing as above, the assessing officer applied the judgment of the Bombay High Court and decided the issue against the assessee. The

Board of Revenue, while approving the order of the assessing officer, further observed that ""the work of laying mosaic tiles cannot be said to

require any great skill ....... The work is just like supply of electric fans, and lamps, fixing being undertaken thereafter by the supplier himself"". (Fully

extracted supra in paragraph 6).

In the light of the facts, decisions and the findings of the authorities, we will have to find out whether the view taken by the assessing officer and

the Board of Revenue is correct or the view taken by the Appellate Assistant Commissioner is correct. No doubt, as pointed out by the Supreme

Court, it is difficult to lay down any rule of universal application to find out whether a particular contract is a ""works contract"" or a divisible

contract. Nevertheless, again, as pointed out by the Supreme Court, ""the dividing line between the two types of contract is somewhat hazy and thin

partitions do their bounds divide and such distinction is very much real and the court has to perform at times the ingenious exercise of distinguishing

one from the other"". The assessing officer as well as the Board of Revenue leaned heavily on the fact that the contract provides for a payment of

65 per cent of the total amount on delivery of tiles and that according to them, represents the value of tiles. We have already noticed that except

for a guesswork, no tangible material was available before the assessing officer to arrive at that conclusion. The comparison of the laying of mosaic

tiles with fixing up of electric fans, as done by the Board of Revenue, does not appear to be appropriate. The Supreme Court, in Sentinel Rolling

Shutters & Engineering Company Pvt. Ltd. v. Commissioner of Sales Tax [1978] 42 STC 409 has observed that ""true nature of the contract

cannot depend on the mode of payment of the amount provided in the contract"". If that be so, the ground on which the assessing officer based his

conclusion to treat the contract in question as a separable or divisible one cannot be supported. A close scrutiny of the contract and the final bill

establishes that the contract is one for laying of mosaic tiles and not for mere supply of tiles. As rightly pointed out by the learned counsel for the

appellant/assessee, the decision of the Bombay High Court in Hindustan Tiles and Cement Industries v. State of Maharashtra [1975] 36 STC 326

is clearly distinguishable in the sense that clause 9(a) in the agreement makes all the difference which weighed with the Bombay High Court as seen

from the judgment which has also been extracted above. Likewise, the reliance placed by the learned Additional Government Pleader on an

observation in the judgment of the Andhra Pradesh High Court reported in [1983] 53 STC 124 (United Mosaics v. State of Andhra Pradesh), in

our view, is not helpful. The observation relied on by the learned Additional Government Pleader in the said judgment of the Andhra Pradesh High

Court reads as follows : (Though already extracted, for the sake of convenience, it is extracted again)

The decision of the Bombay High Court in Hindustan Tiles and Cement Industries v. State of Maharashtra [1975] 36 STC 326, relied upon by

the learned Government Pleader has no application to the facts of the present case. That was a case where the contract itself contained the terms

of payment, namely, 25 per cent with the order, 60 per cent against delivery, 10 per cent against setting and 5 per cent during polishing. In this

case, the Tribunal found, on a consideration of various terms of the contract and the facts and circumstances placed before it, that the transaction

was a divisible one and that 85 per cent of the amount payable thereunder represents the cost of tiles while the balance of 15 per cent represents

the labour charges. The High Court held that the Tribunal was justified in coming to that conclusion on the material placed before it. Now in so far

as the bill in this case is concerned, it does not permit or warrant any such break-up. Hence, it is not possible to apply the principle of the said

decision to the facts of the present case. Indeed, neither the assessing authorities nor the Tribunal have attempted such a break-up of the total

amount into cost of tiles and cost of laying and polishing. On the other hand, they have sought to treat the entire transaction as a sale. For the

above reasons, the tax revision cases are allowed holding that the transactions entered into by the petitioner-assessee for the assessment years

1971-72 and 1972-73 represent works contracts and are not exigible to sales tax ..........

This observation of the Andhra Pradesh High Court in view of the observation of the Supreme Court in Sentinel Rolling Shatters & Engineering

Company Pvt. Ltd. v. Commissioner of Sales Tax [1978] 42 STC 409 cannot be considered as a guiding factor to decide the nature of the

contract. Furthermore, from the final bill given by the assessee in the present case read with the contract, makes it clear that the contract was one

and indivisible. Bearing in mind the principle set down in Halsbury''s Laws of England (extracted above), approved by the Supreme Court in

several decisions, we are of the view that the contract in question in substance is one for work and not one for the sale of a chattel. It may be

mentioned that in the event of any damage caused to the tiles in the course of transport from the factory to the workspot, who will bear the loss,

has not been borne in mind in the course of discussion by the authorities. From the contract, it is obvious that the assessee who has undertaken the

work of laying mosaic tiles will have to bear the loss. The contract was for laying of mosaic tiles at a particular rate for a particular area. The fact

that the customer has agreed to supply water, electricity, support labour, etc., as rightly pointed out by the Andhra Pradesh High Court in United

Mosaics v. State of Andhra Pradesh [1983] 53 STC 124 cannot detract from the nature of the work, if otherwise it is an indivisible ""works

contract"". The principles laid down by the Supreme Court in various cases, as noticed above, support the case of the assessee/appellant.

For all these reasons, we are of the view that the contract in question is ""works contract"" and the view taken by the Board of Revenue that it is

a divisible one, cannot be sustained, and accordingly we set aside the order of the Board of Revenue, and restore the orders of the Appellate

Assistant Commissioner. The tax appeals are accordingly allowed. However, there will be no order as to costs.

Appeals allowed.