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1963 Supreme(Mad) 195
High Court of Judicature at Madras
THE HONOURABLE MR. JUSTICE JAGADISAN & THE HONOURABLE MR. JUSTICE SRINIVASAN
State of Madras - Appellant
Versus
Voltas Limited, Madras : No. 2 - Respondent
Case No : T.C.M.P. Nos. 65 of 1961 and 88 of 1962
Decided On : 12 July 1963
A contract for work and labour though integrated with supply of materials cannot be truly described as an entity in two parts one consisting of sale of goods and the other representing remuneration for services done to be done.
Headnote:
SALES TAX - Turnover - Whether turnover of Rs. 98, 518 of the assessees is exempt from taxation under the Madras General Sales Tax Act, 1939.
Fact of the Case:
The assessees are dealers in medicines, chemicals, typewriters, tractors and other articles and they are also engaged in the business of equipment buildings with air-conditioning plants. They undertakes to do the work on a lump sum basis for which details showing the cost of plant and accessory materials, labour charges and other miscellaneous expenses are given.
Finding of the Court:
The Tribunal held that the contracts involved labour and skill and that each of the contracts was a composite bargain to furnish the customers of the assessees with an air-conditioning equipment, together with all materials and parts which were to be found and supplied by the assessees themselves. There was no element of sale of goods, according to the Tribunal in these contracts as they were in fact and in substance agreements to execute works for a stated consideration.
Issues: Whether the turnover represents in part sale of goods and whether that part can be subjected to tax under the Act.
Ratio Decidendi: The acid test is as laid down by the Supreme Court in Carl Still G.m.b.H. Another v. State of Bihar "Whether on its true construction, the contract in question ia a combination of two distinct agreements, one to sell materials and the other to supply labour and services or whether it is only one agreement entire and indivisible for execution of the works."
Final Decision: The revision petition must therefore fail.
JAGADISAN, J.
The State of Madras is the revision petitioner. It questions the correctness of the order of the Sales Tax Appellate Tribunal, Madras, holding that the turnover of Rs. 98, 518 of the assessees (respondents) is exempt from taxation under the Madras General Sales Tax Act, 1939. The assessment year is 1955-56. The ground of exemption upheld by the Tribunal is that it relates to "works contracts" falling outside the ambit of the Act as laid down by the Supreme Court in Gannon Dunkerley's case and by this Court in Sundaram Motors case The Appellate Assistant Commissioner confirmed the finding of the Deputy Commercial Tax Officer that it related to works contracts and was as such assessable to the extent of 70 per cent. of the turnover. The Tribunal held that the contracts involved labour and skill and that each of the contracts was a composite bargain to furnish the customers of the assessees with an air-conditioning equipment, together with all materials and parts which were to be found and supplied by the assessees themselves. There was no element of sale of goods, according to the Tribunal in these contracts as they were in fact and in substance agreements to execute works for a stated consideration. The question of law that is raised is whether the turnover represents in part sale of goods and whether that part can be subjected to tax under the Act.
The assessees are dealers in medicines, chemicals, typewriters, tractors and other articles and they are also engaged in the business of equipment buildings with air-conditioning plants. They undertakes to do the work on a lump sum basis for which details showing the cost of plant and accessory materials, labour charges and other miscellaneous expenses are given. The break-up of the turnover of Rs. 98, 518 is as detailed below :---------- T.O. Contract for the amount Name of the party Nature of contract periods
Rs. A.P. 4, 130 5, 218-15-0 1. Indian Airlines False ceiling, Corporation. wiring and pipe laying.
5, 138 7, 580-14-0
2. United Life Conversion of Assurance Co. air-conditioning equipment to A.C.
20, 650 30, 468-0-0 3. T. Kuppuswamy Supply and Naidu. installation of cold storage plant.
41, 300 59, 000-0-0 4. Carborundum Supply and erection Universal Limited. of air-conditioning equipment.
17, 640 26, 026-14-0 5. B. & C. Co., Ltd. ... Supply and erection of humidifying plants.
9, 660 13, 800-0-6 6. Narayan & Co. Ltd. .. Supply and
installation of air-conditioning plant.
------ 98, 518 ------
(This is extracted from the typed papers furnished by the State.)
The assessees filed a break-up statement before the Tribunal showing the value of materials, the value of labour, the value of contractor's work and the value of engineering fees involved in the execution of these contracts. These figures, to which detailed reference is not necessary, were culled out from the account books maintained by the assessees. The finding of the Tribunal in regard to this break-up statement of the assessees was however as follows :
"But this break-up statement was intended only for the appellants' own information. It never formed part of the invoice supplied to the appellants' customers nor did it form part of the bargain between them and appellants. The bargain between them was only a composite contract for service with materials supplied by the appellants." *
This finding of the Tribunal sets out its interpretation of the relevant contracts and its view of the course of dealings between the assessees and their customers in regard to the erection of the air-conditioning plants. It is urged by the learned Advocate-General appearing for the State that the view taken by the Tribunal is erroneous as every contract involved sale of goods and that such elements of sale should not be submerged by reason only of the fact that the assessees undertook as part of the very contract of sale, execution of the work necessary to instal the materials in the proper from and in the proper place. It is poi
