IMPORTANT POINT
Kone Elevators (2005) 3 SCC 389 does not lay down correct law; overruled.

Headnote:Per Dipak Misra, J. [For R.M. Lodha, C.J., A.K. Patnaik, Sudhansu Mukhopadhaya, JJ. And himself]
       (a) Financial laws – Taxing laws – “Contract for sale of goods” and “works contract” – In case of sale, entire sale consideration would be taxable – In case of works, consideration payable or paid for the labour and service element would have to be excluded. (Para 3)
       (b) Sales Tax Laws – Works contracts – Not liable to be taxed under State sales tax laws – However definition of ‘works contract’ could not be put in a straitjacket formula. (Para 27)
       AIR 1961 SC 1615; AIR 1967 SC 547; (1969) 1 SCC 567; (1970) 26 STC 268 (SC); (1972) 1 SCC 472; (1976) 3 SCC 500; (1977) 2 SCC 250; (1979) 1 SCC 487; (1978) 4 SCC 260; (1970) 2 SCC 287; (1984) 2 SCC 16 – Relied upon
       (1965) 2 SCR 782; (1968) 21 STC 245 (SC); (1843) 11 M & W. 243 – Referred
       (c) Constitution of India – Seventh Schedule, List II, Entry 48 – Charging sales tax on indivisible contract of sale of goods having component of labour and services – State legislature lacking competence – Way out – Incorporation of Clause (29A) in Article 366 of the Constitution.
       AIR 1958 SC 560 – Referred
       (d) Constitution of India – Article 366, Clause (29A) – Held valid – States empowered to segregate works contract into contract for sale of goods involved in the works contract and for supply of labour and service (Para 29)
       (1989) 2 SCC 645; (1993) 1 SCC 364 – Relied upon
       (e) Works Contract – Of three categories – (i) composite contract comprising sale of goods and work and labour – (ii) contract for work and labour not involving sale of goods – (iii) contract for supply of goods where some work is required to be done as incidental to the sale – Development agreement entered into prior to constriction is a ‘works contract’ – An indivisible works contract can, by legal fiction, be divided into two parts – One for sale of goods and the other for supply of labour and services – States can tax the supply of goods in the same way in which the sales tax is levied on price of the goods supplied in a building contract. (Para 32, 34, 36, 37)
       (2000) 6 SCC 579; (2014) 1 SCC 708; (2006) 3 SCC 1; (2001) 4 SCC 593; (2005) 5 SCC 162; (2007) 7 SCC 320 – Relied upon
       (f) Constitution of India – Article 366, Clause 29A – Works Contract – Concepts – It is an indivisible contract but, by legal fiction, divided into two parts, one for sale of goods, and the other for supply of labour and services –“Dominant nature test” or, “degree of intention test” or “overwhelming component test” not applicable – Term “works contract” not to be narrowly construed to cover a contract to provide for labour and service alone – Any additional obligation incorporated in the work contract would not change the nature of the contract. (Para 41, 42)
       (1965) 2 SCR 782; (1984) 2 SCC 16; (1975) 3 SCC 424; AIR 1967 SC 547; (1875) LR 10 CP 271; (1953) 1 All ER 15; (1977) 2 SCC 847; (1944) 1 All ER 618; (2003) 9 SCC 133; (2007) 3 SCC 533; (1989) 4 SCC 244; (2001) 7 SCC 525 – Referred
       (1989) 1 SCC 172; (1989) 4 SCC 244; (2001) 7 SCC 525; (2007) 3 SCC 533; (1998) 1 SCC 400 – Distinguished
       (g) Constitution of India – Article 366, clause (29A)(b) – Works contract – Dominant nature test” or “overwhelming component test” or “the degree of labour and service test” – Not applicable – In composite works contract incidental part as regards labour and service pales into total insignificance. (Para 63)
       (h) Constitution of India – Article 366, Clause (29A) – Lift – Supply and installation – Whether a work contract – Composite contract for supply and installation – Skill and labour employed for converting the main components into the end product – Not merely incidental – Not sale – It is a work contract. (Para 64)
       (1969) 24 STC 525 (Bom) – Cited with approval
       (2005) 3 SCC 389 – Overruled
       Per Fakkir Mohamed Ibrahim Kalifulla, J. (Dissenting)
       (i) Finance Act, 2008 – Section 65(105)(zzzza) – Taxable service – Works contract – Contract for the erection, commissioning or installation of LIFT and Escalator, fire escape staircases or elevators. (Para 30)
       (j) Constitution of India – Article 366(29A)(b) – LIFTS/ELEVATORS – Installation of – Whether a work contract – Manufacture of LIFT and erection of a LIFT – Different activities – Can be independently handled by different persons – Petitioner agreeing under the Contract only to supply its branded LIFT in the premises of the Purchaser – Preparatory works to be done by purchaser – Petitioner only to assemble and install the LIFT – Constitutes service – Element of works virtually very insignificant as compared to the element of sale – Costs of supply of materials and installation separately worked out – Contract is not indivisible one and is always separable – Manufacture, supply and erection of LIFT/ELEVATOR would only fall within the expression ‘Sale’ – Can never be called as ‘Works Contract – Article 366(29A)(b) not applicable. (Para 52, 54, 55, 56, 64, 68)
       (k) Orissa Sales Tax Act, 1947 – Section 2(jj) – Contract for supply and installation of LIFT – 90% of total consideration payable in advance – No corresponding legally enforceable obligation on Petitioner to carry out erection or installation in the premises of the Purchaser – No provision of damages against Petitioner for default in installation Contract not a works contract. (Para 74, 76)
       (l) Finance Act, 2007 – Section 65(29), 65(39a) and 65(105) (zzd) and (zzzza) – Relate to service tax – Have nothing to do with manufacture and supply – Not applicable to sales tax case. (Para 85)
       1921-1 KB 64; AIR 1968 SC 623 – Relied upon
       (m) Constitution of India – Article 366(29A)(b) – Activity of petitioner – Manufacture, supply and installation of LIFT/ELEVATOR – ‘Sale’, not ‘works contract’ – Article 366(29A)(b) not limited to contract for labour and service only – Some element of work is necessary – Dominant nature test not applicable – a (Para 95, 107, 108, 109, 112)
       (2005) 3 SCC 389 – Affirmed
       (2001) 4 SCC 593; AIR 1965 SC 1655; (1975) 3 SCC 425; (1972) 1 SCC 395; (1977) 2 SCC 847; (2000) 6 SCC 579; (1976) 3 SCC 592; AIR 1965 SC 1396 – Relied upon
       AIR 1958 SC 560; (2000) 6 SCC 579; (2005) 5 SCC 162; (2006) 3 SCC 1; (1970) 2 SCC 287; [1969] 24 STC 349; [1970] 26 STC 268 – Referred
       [1969] 24 STC 525; (1981) ELT 720; 2013 (12) SCALE 77; [1968] 21 STC 245; (1977) 2 SCC 250; (1989) 2 SCC 645 – Distinguished
       Facts of the case:
       By an order dated 13.2.2008 in Kone Elevator India Private Limited v. State of Tamil Nadu and others, (2010) 14 SCC 788, a three-Judge Bench, while dealing with the writ petition preferred by Kone Elevator India Pvt. Ltd. along with Special Leave Petitions, noted that the question raised for consideration in the said cases is whether manufacture, supply and installation of lifts is to be treated as “sale” or “works contract”, and a three-Judge Bench, in State of A.P. v. Kone Elevators (India) Ltd., (2005) 3 SCC 389, had not noticed the decisions rendered in State of Rajasthan v. Man Industrial Corporation Ltd., (1969) 1 SCC 567; State of Rajasthan v. Nenu Ram, (1970) 26 STC 268 (SC) and Vanguard Rolling Shutters and Steel Works v. Commissioner of Sales Tax, (1977) 2 SCC 250 and perceiving the manifest discord, thought it appropriate that the controversy should be resolved by the larger Bench. Thereafter, keeping in view the commonality of the controversy in Civil Appeal No. 6285 of 2010 and other Special Leave Petitions, they were tagged with the originally referred matters.
       The petitioner is engaged in the manufacture, supply and installation of lifts involving civil construction. For the Assessment Year 1995-96, the Sales Tax Appellate Tribunal, Andhra Pradesh opined that the nature of work is a “works contract.
       The High Court of Andhra Pradesh affirmed the view of the tribunal and dismissed the Tax Case (Revision) filed by the Revenue.
       The view of the High Court was overturned by the Supreme Court.
       After the pronouncement in the said case, the State Government called upon the petitioner to submit returns treating the transaction as sale. Similarly, in some other States, proceedings were initiated proposing to reopen the assessments that had already been closed treating the transaction as sale. The said situation compelled the petitioner to prefer the petition under Article 32 of the Constitution. As far as others are concerned, they have preferred the writ petitions or appeals by special leave either challenging the show cause notices or assessment orders passed by the assessing officers or affirmation thereof or against the interim orders passed by the High Court requiring the assessee to deposit certain sum against the demanded amount. That apart, in certain cases, appeals have been preferred assailing the original assessment orders or affirmation thereof on the basis of the judgment in Kone Elevators.
       Finding of the Court (per majority):
       Kone Elevators does not lay down correct law; overruled.

JUDGMENT

Dipak Misra, J. [For R.M. Lodha, C.J.I, A.K. Patnaik, Sudhansu Mukhopadhaya, JJ. And himself]

Leave granted in all the special leave petitions.

2. By an order dated 13.2.2008 in Kone Elevator India Private Limited v. State of Tamil Nadu and others[(2010) 14 SCC 788], a three-Judge Bench of this Court, while dealing with the writ petition preferred by Kone Elevator India Pvt. Ltd. along with Special Leave Petitions, noted that the question raised for consideration in the said cases is whether manufacture, supply and installation of lifts is to be treated as “sale” or “works contract”, and a three-Judge Bench, in State of A.P. v. Kone Elevators (India) Ltd.[ (2005) 3 SCC 389], had not noticed the decisions rendered by this Court in State of Rajasthan v. Man Industrial Corporation Ltd.[ (1969) 1 SCC 567], State of Rajasthan and others v. Nenu Ram[(1970) 26 STC 268 (SC)] and Vanguard Rolling Shutters and Steel Works v. Commissioner of Sales Tax[(1977) 2 SCC 250] and perceiving the manifest discord, thought it appropriate that the controversy should be resolved by the larger Bench. Thereafter, keeping in view the commonality of the controversy in Civil Appeal No. 6285 of 2010 and other Special Leave Petitions, they were tagged with the originally referred matters. Thus, the matters are before us.

3. The seminal controversy which has emerged in this batch of matters is whether a contract for manufacture, supply and installation of lifts in a building is a “contract for sale of goods” or a “works contract”. Needless to say, in case of the former, the entire sale consideration would be taxable under the sales tax or value added tax enactments of the State legislatures, whereas in the latter case, the consideration payable or paid for the labour and service element would have to be excluded from the total consideration received and sales tax or value added tax would be charged on the balance amount.

4. Keeping in mind the said spinal issue, we think it apposite to briefly refer to the facts as adumbrated in the writ petition preferred by Kone Elevator India Pvt. Ltd. The petitioner is engaged in the manufacture, supply and installation of lifts involving civil construction. For the Assessment Year 1995-96, the Sales Tax Appellate Tribunal, Andhra Pradesh, considering the case of the petitioner, opined that the nature of work is a “works contract”, for the erection and commissioning of lift cannot be treated as “sale”. On a revision being filed, the High Court of Andhra Pradesh affirmed the view of the tribunal and dismissed the Tax Case (Revision) filed by the Revenue. Grieved by the decision of the High Court, the State of Andhra Pradesh preferred special leave petition wherein leave was granted and the matter was registered as Civil Appeal No. 6585 of 1999 and by judgment dated 17.2.2005 in Kone Elevators (supra), the view of the High Court was overturned. After the pronouncement in the said case, the State Government called upon the petitioner to submit returns treating the transaction as sale. Similarly, in some other States, proceedings were initiated proposing to reopen the assessments that had already been closed treating the transaction as sale. The said situation compelled the petitioner to prefer the petition under Article 32 of the Constitution. As far as others are concerned, they have preferred the writ petitions or appeals by special leave either challenging the show cause notices or assessment orders passed by the assessing officers or affirmation thereof or against the interim orders passed by the High Court requiring the assessee to deposit certain sum against the demanded amount. That apart, in certain cases, appeals have been preferred assailing the original assessment orders or affirmation thereof on the basis of the judgment in Kone Elevators (supra).

5. Mr. Harish Salve, learned senior counsel for the petitioners, has contended that prior to the decision of this Court in Bharat Sanchar Nigam Ltd. and a

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2014 Supreme(SC) 394

IMPORTANT POINTKone Elevators (2005) 3 SCC 389 does not lay down correct law; overruled.

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IMPORTANT POINT
Kone Elevators (2005) 3 SCC 389 does not lay down correct law; overruled.