JUDGMENT R.L. Gulati, J.
1. This is a reference under Section 11(3) of the U. P. Sales Tax Act at the instance of the Commissioner of Sales Tax, U. P., Lucknow.
2. The assessee is a manufacturer and dealer in iron shutters and carries on business in the name of M/s. Vanguard Rolling Shutters and Steels Works. It manufactures iron shutters according to the specifications given by the parties and then fixes them at their premises. The price charged includes the price of shutters as also the cost of labour involved in fixing them at the premises. In the assessment year in dispute, namely, 1965-66, the assessee received a sum of Rs. 1,08,633.08 in the execution of such contracts. It was claimed before the Sales Tax Officer that the turnover in dispute was not liable to tax as it represented the proceeds of a contract of work and labour and not a contract of sale of goods. This contention was not accepted by the Sales Tax Officer nor by the Appellate Assistant Commissioner but found favour with the revising authority. The Commissioner, being aggrieved, asked' for a reference to this court and the revising authority has submitted the statement of the case and the following question of law for our opinion;
Whether, under the circumstances of the case and under the terms of the contract, the supply of shutters and iron gates worth Rs. 1,08,633.08 was sale or amounted to works contract?
3. In State of Rajasthan v. Man Industrial Corporation Ltd. [1969] 24 S.T.C. 349 (S.C.) the Supreme Court has held that whether a particular contract is one for sale of goods or is a contract for service depends upon the main object of the parties gathered from the terms of the contract, the circumstances of the transaction and custom of the trade and no universal rule applicable to all transactions can be laid down.
4. The test to distinguish between a works contract and a contract of sale has been laid down in Halsbury's Laws of England, 3rd Edition, Vol. 34, Article 3, page 6, in the following words :
A contract of sale of goods must be distinguished from a contract for work and labour. A contract of sale is a contract whose main object is the transfer of property in, and the delivery of the possession of, a chattel as a chattel to the buyer. Where the main object of work undertaken by the payee of the price is not the transfer of a chattel qua chattel, the contract is one for work and labour. The test is whether or not the work and labour bestowed end in anything that can properly become the subject of sale ; neither the ownership of the materials, nor the value of the skill and labour as compared with the value of the material is conclusive, although such matters may be taken into consideration in determining, in the circumstances of a particular case, whether the contract is in substance one for work and labour or one for the sale of a chattel.
5. In Commissioner of Sales Tax v. Haji Abdul Majid and Sons (1963) 14 S.T.C. 435 a Division Bench of this Court had to deal with the question as to whether a bus body constructed by a person out of his own material and fixed on the chassis supplied by the customer amounted to a contract of sale of bus body or a contract of work and labour. It was held that the contract was a contract of sale of bus body and not a contract of work and labour. The following observations have a direct bearing on the question before us :
If an article is sold it makes no difference whether the assessee prepared it in accordance with the specifications given by the customer or had prepared it in anticipation of the order and exposed it for sale. When an assessee enters into a contract for sale of an article to be manufactured by him it is a contract of sale and not a contract of work even though he has to spend his labour and skill in producing it. The reason is that the essential contract between the parties is that he should transfer property in the article, after preparing it, to the customer. Transfer of property is the predominant element and the use of labour and skill is only an incidental and subordinate element.
6. It was also observed that if under a contract an article is to be prepared from the assessee's materials and is to be fitted to something belonging to the purchaser, it is immaterial whether the assessee takes the article to the purchaser's premises and fixes it there. It was also observed that no hard and fast rule can be laid down as to in what circumstances a transaction amounts to a sale of goods or a contract of work and labour. It will depend upon the facts and circumstances of each case. This case has since been approved by the Supreme Court in T. V. Sundram lyengar and Sons v. State of Madras1.
7. In T. V. Sundram lyengar & Sons v. State of Madras [1975] 35 S.T.C. 24 (S.C.) the Supreme Court referred to its earlier decision in State of Madras v. Gannon Dunkerley & Co. (Madras) Ltd. [1958] 9 S.T.C. 353 (S,C.) and observed that in that case the Supreme Court was concerned with a building contract which is one and indivisible. It was held that in the case of such a contract the property in materials used does not pass to the other party to the contract as movable property. It would so pass if that was the agreement between the parties. If there was no such agreement and the contract was only to construct a building, in that case, the materials used therein would become the property of the other party only on the theory of accretion, the theory of accretion being that whatever is embedded or affixed to immovable property becomes the property of the owner of the immovable property as and when it is embedded or fixed. If the contract is to construct a building, then the various materials, like bricks, cement, doors, etc., become the property of the owner of the land, the moment they are affixed to it.
8. It is thus clear that in order to determine whether in a given case the contract is a contract of sale or a contract of work and labour, one has to find out the main intent of the parties to the contract and such intent is gathered from the terms of the contract and other surrounding circumstances. It is, therefore, essential to examine the contract in the instant case. A copy of the contract has been filed along with the supplementary statement of the case and it runs as under :
Please erect at our premises....Nos...of the following dimensions against the contract price of Rs.... The goods under execution of contract may :
9. On the terms of the contract it is clear that the intention of the parties was that the assessee should manufacture iron shutters according to the specifications supplied by the purchaser and deliver them to the purchaser or his representative against payment of full price in cash or negotiate documents through a bank. Although the assessee had also undertaken to fix the iron shutters at the premises of the purchaser, yet this part of the contract was only incidental to the supply of shutters. The shutters had to be carried to the site by the purchaser at his own cost and the assessee was absolved of all responsibility when the shutters left its factory premises. In other words, the sale of shutters was complete as soon as the delivery thereof was taken by the purchaser in the factory premises of the assessee. It is significant to note that the masonry work for the purpose of fixing the shutters is to be done by the purchaser himself according to the directions given by the assessee. These terms and conditions leave no room for doubt that the fixing part is only incidental to the main contract of supply of iron shutters. The assessee is entitled to receive the full price of the shutters at the time of their delivery to the purchaser and not after they are fixed at the site of the purchaser. The fixation of the iron shutters to the premises is clearly not the main object of the contract even though the price charged by the assessee includes the fixation charges also. The property in the shutters passes to the purchaser when he takes delivery of the shutters in the factory premises of the assessee and not when they are fixed in his premises.
10. In a recent decision in the case of T. V. Sundram lyengar & Sons v. State of Madras [1975] 35 S.T.C. 24 (S.C.) the Supreme Court has reviewed the earlier case-law on the point and has held that the construction of bus bodies on the chassis supplied by a customer is a contract of sale and not a contract of work and labour because the property in the materials used in the construction of the bus body does not pass to the purchaser until the entire body is complete and delivery thereof is given to the purchaser. The Supreme Court has distinguished the cases of construction of railway coaches where the property in the material used in the construction vests in the railways and the contractor may be responsible merely for the safe custody of the material. In Commissioner of Sales Tax, U. P. v. Ram Singh and Sons Engineering Works [1975] 36 S.T.C. 10 a Division Bench of this Court has recently examined a similar question in detail. There the assessee carried on the business of manufacture and sale of sugarcane machines, parts and cranes, etc. An order was placed with the assessee for the supply of cranes. The cranes were to be manufactured at the assessee's premises and were to be fixed in the factory premises of certain sugar mills where a trial was to be given and the price was to be paid only if the cranes were found to be in working order. After looking into the terms of the contract it was held by the Bench that the clear intent of the parties was to enter into a contract of sale of cranes and the fixing of the cranes at the premises of the sugar factories was only incidental to the main contract and as the price was a composite price including the labour charges for fixing the cranes at the factory site the entire amount received by the assessee represented the sale proceeds of a contract of sale of goods.
11. The learned counsel for the assessee has cited a large number of other cases. It is not necessary to notice them all in detail, because, in each case the question whether the contract involved was a contract of sale of goods or work and labour was decided on the terms of the contract and the surrounding circumstances. In the case of State of Madras v. Richardson & Cruddas Limited [1968] 21 S.T.C. 245 (S.C.) the assessee, a firm of engineers and contractors entered into a contract with a co-operative society which was setting up a sugar factory to fabricate supply and erect at the site all steel works, etc., on a comprehensive rate of Rs. 1,160 per tonne. The Supreme Court held that on the facts it was a works contract arid not a contract for sale inasmuch as the property in the material used for the erection of steel works and doors, etc., passed actually when the erection was complete and not at any earlier stage. In other words, there was no contract of sale of material as such.
12. The case of State of Rajasthan v. Nenuram [1970] 26 S.T.C. 268 (S.C.) is also a case of fixing of wooden windows and doors in a building. The Supreme Court, relying upon its earlier decision in the case of State of Rajasthan v. Man Industrial Corporation [1969] 24 S.T.C. 349 (S.C.) held that the contract was a contract of work and labour and not a contract of sale.
13 .The case of Commissioner of Commercial Taxes, Mysore, Bangalore v. Hindustan Aeronautics Ltd. [1972] 29 S.T.C. 438 (S.C.) is a case of building of railway coaches in the railway yard from the materials supplied by the railway authorities. This case has been noticed and distinguished by the Supreme Court in T. V. Sundram lyengar & Sons v. State of Madras [1975] 35 S.T.C. 24 (S.C.).
14. For the reasons stated above, we answer the question by saying that the sum of Rs. 1,08,633.08 represented the turnover of sale of goods liable to tax. The Commissioner is entitled to costs which we assess at Rs. 100.