The main legal point established in the judgment is the application of the dominant nature test and legal principles from case laws to determine the nature of a transaction as a sale or a works contract for the purpose of sales tax under the Bombay Sales Tax Act.

A.K. MENON, J.

1. This reference under Section 61 of the Bombay Sales Tax Act, 1959 has been made by the Maharashtra Sales Tax Tribunal, Mumbai on the application of M/s. Bharat Heavy Electricals Ltd.

2. The reference was admitted on the following question :

“Whether, on the facts and circumstances of the case and on a true and correct interpretation of the terms and conditions agreed between the parties as embodied in the work order dated 20-10-1978, the Tribunal was justified in law in holding that the impugned supplies of materials made by the Applicant's Mumbai unit to RCF of Mumbai, were sales of those materials liable to tax under the Bombay Sales Tax Act, 1959?”

The facts in brief leading to the reference are as set out below.

3. The applicant is a Government of India undertaking having branches throughout India. The applicant was duly registered under the Bombay Sales Tax Act 1959 as well as and Central Sales Tax Act, 1956. During the period in question M/s. Rashtriya Chemicals & Fertilizers Ltd. (“RCF”) had engaged the applicant apparently for designing, engineering, supplying, erection, installation and Commissioning of the Trombay-V Expansion Project at RCF site for a total price of about Rs.22 crores under a contract dated 20th October 1978.

4. It is reported that during the period in question from 1st April, 1979 to 31st March, 1980 the contract was performed. The Assistant Commissioner of Sales Tax Assessment treated the transaction as a transaction of sale. The applicant produced the relevant documents and correspondence before the Deputy Commissioner of Sales Tax claiming that the contract was a divisible contract for supply of labour and could not be treated as a contract for sale. It was contended that the property in the case was not simply transferred and delivered, but the same was erected and installed.

5. The Deputy Commissioner, however, held the transaction to be one of sale and not of the nature of a works contract. The Sales Tax Officer levied penalty under Section 36(3) of the Bombay Sales Tax Act, 1959 (the said Act) apparently without giving an opportunity of being heard. It was found although the goods were located in Maharashtra, the sales were finalised from various other states. The Mumbai office of the applicant was required to reflect the transaction in the returns and pay the applicable taxes. The taxes were deposited by the applicant as and when instructions were received from other places. The penalty levied was challenged.

6. Being aggrieved by the demand made pursuant to assessment orders dated 16thMarch, 1984 and 20thMay, 1984 appeals were filed. The appeals came to be partly allowed upon certain part payments being made. However, not being satisfied with the partial relief granted, Second Appeals came to be filed before the Tribunal. The Second Appeals were decided on or about 6th February, 1993. The main issue raised in these Second Appeals was whether the transactions between the applicant and the RCF pursuant to the work order dated 20th October, 1978 was a works contract transaction or a sales transaction. If they were work contract transactions, then they would not be liable to tax under the said Act otherwise tax was payable. The Tribunal found that the transaction was a Sales transaction and there was clear cut breakup therein of the total contract price of Rs. 22 crores being cost of the material, compressors supplied and other costs of transportation. Rectification Applications filed were rejected. Accordingly, the transaction was to be treated as sales liable to sales tax under the said Act. The levy of tax having been confirmed, the applicant filed Reference Application nos. 9 and 10 of 1993 seeking to raise certain questions of law under Section 61 of the said Act. Today the primary question we are concerned with is whether the transaction amounted to a Sale or not.