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Deputy Commissioner (C.T.), Coimbatore Division Vs. Indian Refrigeration Industries Private Limited - Court Judgment

LegalCrystal Citation
SubjectSales Tax
CourtChennai High Court
Decided On
Case NumberTax Case No. 260 of 1966 (Revision No. 187)
Judge
Reported in(1971)IIMLJ68; [1971]27STC427(Mad)
AppellantDeputy Commissioner (C.T.), Coimbatore Division
RespondentIndian Refrigeration Industries Private Limited
Appellant AdvocateK. Venkataswami, First Assistant Government Pleader
Respondent AdvocateS. Swaminathan and ;K. Ramgopal, Advs.
DispositionPetition dismissed
Cases ReferredState of Rajasthan and Anr. v. Man Industrial Corporation Limited
Excerpt:
- - there also, factually it was found that the contract was a composite one and the stipulation was for the payment of a consolidated sum for the entire work done, which incidentally involved supply of material as well. it is interesting to note that even in that case there was not only designing and detailing besides fabrication and erection, but also there was an element of supply of materials or component parts such as columns, trusses, purlins, bracing, side claddings, supports etc......a similar contention of the assessee therein that the contracts involved were in the nature of works contract and no element of sale was involved therein. suffice it for us to refer in the voluminous literature on 'works contract', to a few recent decisions which would clinch the matter. in state of madras v. richardson and cruddas limited [1968] 21 s.t.c. 245 , the supreme court was concerned with a contract for the fabrication, supply and erection of steel structures for a sugar factory in the state of mysore. there also, factually it was found that the contract was a composite one and the stipulation was for the payment of a consolidated sum for the entire work done, which incidentally involved supply of material as well. in those circumstances, the supreme court was of the view.....
Judgment:

Ramaprasada Rao, J.

1. Messrs Indian Refrigeration Industries Private Ltd., are the assessees-raspondents in this tax case. For the year 1962-63, they were assessed on a taxable turnover of Rs. 3,49,943.13. The respondents claimed an exemption, inter alia, on a turnover of Rs. 2,74,083.38 on the ground that such turnover related to work and labour involved in the dealings between them and their customer and that therefore there was no element of sale involved in the transaction. The revenue negatived the exemption claimed. But, on second appeal, the Sales Tax Appellate Tribunal came to the conclusion that no element of sale was involved and the exemption claimed was sustainable. It is as against this that the State has preferred the present tax case.

2. The dealings in so far as the assessable turnover in question is concerned, can be summarised thus: The respondents were contractors of repute and were technically qualified as Engineers to fabricate and install a humidifying plant and other accessories with air-ducts, embedded into the building of their customer. In effect, they were qualified to install the plant alongside the construction of the building of their customer which was by then contemporaneously in progress. As a matter of fact, it is not in dispute that the concerned work had necessarily to go hand in hand with the building itself, with the assessee rendering technical assistance to the architects and other construction contractors during the course of the erection of the building. The Tribunal secured an affidavit from one of the officers of the assessee-company setting forth the nature and details of the work involved. The said affidavit states that the work concerned was mainly relatable to the installation of the humidifying plant and the necessary equipment connected thereto and for the construction of such of those units in the main building itself to enable them to link up their machinery and material with the structure of the building so that in the ultimate analysis the machinery to be supplied and the material annexed thereto got embedded in the main building. This was the nature and scope of the contract undertaken by the assessee. Each contract was a lump sum contract with a specific amount. The Tribunal made a local inspection and found that the installation was in the manner referred to by the manager of the assessee-company and all the component parts supplied by the assessee to its customer became part and parcel of the walls and floors of the main structure. It is on such a set of admitted facts that the Tribunal came to the conclusion that the property in the materials which were the subject-matter of the assessable turnover in question passed only after the erection work was over and not before. Ultimately the Tribunal was of the view that the contracts were indivisible composite contracts of work and labour for supply and installation of the humidifying plant and therefore the turnover was not assessable to tax.

3. The learned Assistant Government Pleader arguing for the State, who are the appellants in the case, contends that the nature of the work undertaken by the assessee cannot be said to be, as described by the Tribunal. He would state that predominantly an element of sale is involved in the contracts in question and such element is divisible from the totality of the dealings between the assessee and its customer and this separate turnover sought to be brought into the net of taxation of the revenue has to be assessed as attempted and the order of the Tribunal has to be set aside. Learned counsel for the respondents argues to the contrary and he has brought to our notice decisions of the Supreme Court and of our High Court which had occasion to notice similar contracts and which upheld a similar contention of the assessee therein that the contracts involved were in the nature of works contract and no element of sale was involved therein. Suffice it for us to refer in the voluminous literature on 'works contract', to a few recent decisions which would clinch the matter. In State of Madras v. Richardson and Cruddas Limited [1968] 21 S.T.C. 245 , the Supreme Court was concerned with a contract for the fabrication, supply and erection of steel structures for a sugar factory in the State of Mysore. There also, factually it was found that the contract was a composite one and the stipulation was for the payment of a consolidated sum for the entire work done, which incidentally involved supply of material as well. In those circumstances, the Supreme Court was of the view that the contract in question was a works contract and not one for sale. It is interesting to note that even in that case there was not only designing and detailing besides fabrication and erection, but also there was an element of supply of materials or component parts such as columns, trusses, purlins, bracing, side claddings, supports etc. Nevertheless an all-inclusive price as in the instant case was charged by the respondents in that case for the totality of the work of fabrication. The court came to the conclusion that the contracts were to be deemed and characterised as works contracts.

4. In General Electric Company v. Government of Madras [1968] 21 S.T.C. 283 decided by this court to which one of us was a party, our High Court reiterated the broad principle thus:

In cases, where the contract consists of the fabrication and erection of steel structures or buildings on the site of the customer, the main test is to find out whether the customer ever bargained for the sale and purchase of the component parts used in the work of fabrication and erection or construction. If, under the contract, structural materials are to be affixed to the land and only thereafter the property therein would pass to the customer notwithstanding that they were approved by him, and even paid for, the contract would be a works contract.

5. This court has also stated that if there are overwhelming indications in the contract that it is a composite and indivisible one and what has been agreed to and intended between the parties was not to supply materials in the course of the contract but as and when such materials are imbedded in the contractual work involved they become the property of the other party then there would be no question of the sale of such materials by the contractor to the other.

6. The latest case on the subject appears to be that of the Supreme Court in State of Rajasthan and Anr. v. Man Industrial Corporation Limited [1969] 24 S.T.C. 349 . The facts are that the assessee submitted its tender for fabricating and fixing certain windows in accordance with specifications, designs, drawing and instructions, in the building of its customer. A time-limit was fixed for the completion of the work. The rate quoted was an all-inclusive price. The assessee carried out the work and received a sum of Rs. 23,480 under the contract. On the question whether this sum could be included in the taxable turnover for the purpose of sales tax, the Supreme Court observed on the facts:

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 could be fully executed and the property in the windows passed on the completion of the work and not before.

7. Under those circumstances, the contract was held to be one for execution of work not involving sale of goods.

8. The case under consideration is one to which the principle laid down in the cases cited above applies with greater force. The installation of the humidifying plant and the components which are to be supplied therefor under a composite contract with a customer necessarily involves the embedding of such a plant and its components in the structure. It cannot be said that the plant and the parts could be viewed de hors the totality of the contract which could be said to have been executed, only after the completion and after the machinery and plant were embedded in the structure as a whole. Only on such fixing up of the plant as required and with the assistance of the skill and labour of the assessee that the property in the plant and its component parts could be said to pass to the customer. At no point of time before such embedding could it be said that the assessee intended to sell to his customer the plant or the parts.

9. In this view, the Tribunal was right in having excluded the disputed turnover of Rs. 2,74,083.38 from the assessable turnover. The tax case, therefore fails and is dismissed. There will be no order as to costs.


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