Test to decide whether there has been any sale of goods in works contract.

The appellants are licensed plumber and Sanitary Engineers. The Deputy Commercial Tax Officer, Nagercoil, brought in turnover of Rs. 63,591-30 as exigible to tax. On appeal the Appellate Assistant Commissioner, deleted from the above a turnover of Rs. 41,257-99 on the ground that there was no passing of property in the goods supplied by the appellants until the work involved was completed in accordance with the specification of the other party. The Board of Revenue, in revision disagreed with the reasoning of the Appellate Assistant Commissioner and brought to tax the turnover deleted by him and rested its conclusion on the decision in Udani Engineering Co. v. State of Madras1 .

Aggrieved by the order of the Board of Revenue, the assesses have filed this appeal. Mr. S. Swaminathan contends that by reason of the subsequent pronouncements of the Supreme Court and in particular the decision of this Court in General Electric Co. of India Private Ltd. v. Government of Madras2, the Board has not applied the principles whereby tax is exigible in works contracts and that the deletion of the turnover by the Appellate Assistant Commissioner is in order. In order to appreciate the course of dealings of the appellants, certain sample bills made available before the hierarchy of tribunals below have been referred to once again before us. One such bill is made under the caption “ Bill for providing sanitary arrangements.” Almost each item connotes that the amount indicated as against it, covers both the price of the articles supplied and the charges for fitting the same It appears to be a consolidated bill. It cannot prima facie be equated to a sale note of materials, as the Board appears to have done. It has been pointed out by the Supreme Court in Aruan Electrics v. Commissioner of Sales Tax3, that the invoice alone ought not to be the sole guide to interpret the arrangement between the parties. The Supreme Court has said:

"The question whether in respect of a transaction sales tax is exigible may be determined only on the terms of the contract and not from the invoice issued by the person entitled to receive money under the contract."

Therefore, the Board of Revenue has committed an error in deciding the material issue resting its conclusion on the details quoted in the bills without considering what possibly could be the terms of arrangement between the parties when the work was in progress.

The Court in a recent judgment in Mckenzies Ltd. v. Board of Revenue4, summaraised the legal position as follows as regards the liability or otherwise to tax transactions involving work and labour:

“Whether a given transaction is a works contract or a sale of goods is a mixed question of law and fact, and will have to be answered invariably in relation to the terms of a particular contract. The test will be the intention of the parties as gathered from the entirety of the contract, whether on a fair reading of the contract the parties agreed to sell and purchase a finished or a completed article of commodity or meant to treat the transaction as one for labour to be bestowed on an article or commodity serving as the base. It may also be useful and necessary to keep in mind whether the transaction relates to a movable or an immovable. In the case of the latter the question will be whether the entire construction or product in the nature of immovable property is meant to be sold or where a construction or works are to be carried out on immovable property, the property in materials, by what is done on or to immovable property pass by affixture in the process of the works, In other words, if the contract is a composite one, it is to be found out whether it can be split up and a part of it can be regarded as an agreement to sell specific goods incorporated to immovable property. The same test may also to some extent apply to works relating to a movable.”

Again the Supreme Court has reiterated the above principle, in a slightly different for