A contract for the supply and installation of electrical equipment is an indivisible works contract and not a sale of goods, even if the contract includes the supply of detachable goods, such as fans and bulbs.

Headnote:
SALES TAX - Works Contract - Electrical Installations - Whether indivisible works contract or sale of goods - Interpretation of contracts - Relevant factors.
Fact of the Case:

The assessee, an electrical engineering and contracting company, claimed that certain contracts for electrical installations were works contracts and not liable to sales tax. The contracts involved the supply and installation of electrical equipment, including fans, fluorescent bulbs, and wiring. The assessee contended that the contracts were indivisible and that the supply of goods was incidental to the execution of the works.
Finding of the Court:

The Tribunal held that the contracts were divisible and that the supply of detachable goods, such as fans and bulbs, was taxable. However, the Tribunal found that the wiring contracts were works contracts and not liable to tax.
Issues: Whether the contracts were indivisible works contracts or sales of goods.
Ratio Decidendi: The court held that the contracts were indivisible works contracts and that the supply of goods was incidental to the execution of the works. The court considered the following factors in reaching its decision: * The contracts were for the supply and installation of electrical equipment, which was a specialized service. * The assessee had a staff of technical and other personnel to carry out the work. * The assessee prepared detailed plans and layouts for the installations. * The assessee coordinated the work with other contractors, such as civil engineers and machinery suppliers. * The assessee provided a warranty for the installations.
Final Decision: The court allowed the appeals and remanded the cases to the Tribunal for reconsideration in light of the court's decision.

Judgment :-

SETHURAMAN, J.

These two tax Revision cases arise out of sales-tax assessments for the asst. yrs. 1958-59 and 1961-62. The assessee is a company carrying on business as electrical engineers and contractors. In the assessment for 1958-59 it was claimed that a sum of Rs. 11, 96, 914.72 represented lump sum works contract executed by them for their customers. The assessee entered into agreements for execution of contracts for electrical installations in business and other premises. It appears that initially when the customer approached the assessee for execution of any such contract, it ascertained the customer's requirement by making visits to the work site and studying plan lay-out technical consultants' views, availability of power, future expansion., discussion with architects, civil Engineers, plant Engineers and other allied services. A blue print and lay out was then prepared and got approved by the electric supply authorities. The company has its own staff for watch and ward at the site and also for the execution of the work in the shape of technical and other personnel. The materials were gathered and stored in the respective premises and the erection was commenced in co-ordination with the Civil Engineers, machinery suppliers etc. It is stated that the assessee seldom undertook contracts, which did not involve the erection and commissioning of a sub-station complex. In rare instances, miscellaneous jobs were undertaken; but the receipts therefrom were negligible.

2. With reference to the asst. yr. 1958-59 the assessee had entered into contracts with several persons. The following will give an idea of the evidence available in relation to these contracts.

Amount for which contracts are available.Rs. 8, 13, 598.04

Amount for which customer's affidavit are available.

Rs. 3, 17, 277.79

Amount for which neither contracts nor affidavits are available.

Rs. 1, 14, 314.65

Total

Rs. 11, 45, 190.48

Out of Rs. 8, 13, 598 referred to above, a substantial part consisted of a contract for electrical installations in Dunlop company for a sum of Rs. 6, 91, 837.6

5. There are similar contracts for lesser magnitude with other companies like English Electric Co.

3. At this stage we may refer to the type of work undertaken by the assessee for carrying out electrical installations work at the Dunlop (Madras) Plant. It proposed to carry out this work and prepared a lay-out in accordance with the current engineering practice. While offering to install all the equipments, the assessee offered also to have the installation certified by the Chief Electrical Inspector to the Government of Madras and hand over the installation in working order to Dunlop's. On 15th July, 1957, it sent detailed proposals for carrying out the work including supply and erection of transformer and sub-station equipment, motors and control gear, main and feeder cables, distribution gear, lighting and earthling. With reference to the imported equipment, the necessary arrangements for import had to be made by Dunlop's. As regards the erection of equipment for which quotation had been made ex-godown in rupees, erection rates included transport and delivery of equipment at the factory site, erection, testing and handing over. The Company gage a schedule detailing the delivery periods of all the equipment offered with reference to this work. There was correspondence with Dunlop's in which reference was made to the terms of payment. In a letter dt. 27th September, 1957 the assessee wanted 70 per cent of the supply on the erection value to be paid on a monthly account basis when goods were delivered at site; 20 per cent against monthly bills for work completed and certified by the Engineers and the balance of 10 per cent after completion of the work. A programme chart was given on 14th June, 1958. There were discussions as regards the use of naked lights. The Dunlop Company specified that this was a matter for its site Engineer's discretion. In the letter of the 17th December,

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1975 Supreme(Mad) 635

A contract for the supply and installation of electrical equipment is an indivisible works contract and not a sale of goods, even if the contract includes the supply of detachable goods, such as fans and bulbs.

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