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644

SENTINEL ROLLING SHUTTERS &

ENGINEERJNG CO. (P) LTD.

~.

COMMISSIONER OF SALES TAX, MAHARASHTRA.

September 12, 1978

[P. N. BHAGWATI AND V. D. TULZAPURKAR, JJ.J

Contract of Work and Labour and Contract of Sale t€sts for guidance.

The appellant assessee entered into a contract dated 28th June, 1972 for

fabrication, supply erection and installation of Sentinel's Pull and Push type

aud Reduction Gear type rolling shutters in sheds Nos. 3 and 4 of the

Sidheshwar Sahakari Sakar Karkhana belonging to Mis. C. M. Shah & Co.

(P) Ltd. as per the terms and conditions of the contract. The special terms

and conditions· provided that the actual transportation charges would be in

addition

to the price stipulated in the contract and the delivery would be

6/8 weeks,

ex·works from the date of receipt of the final confinnation of the

order. The terms

of payme,nt also formed part of the special terms and

conditions and they provided

25% advance, 65% against delivery and re­

maining

10% after completion of erection and handing over of shutters to

the satisfaction

of the company. The assessee carried out its part of the

contract

by erecting and installing the rolling shutters.

Since the assessee

entertained doubt

as to whether the contract was a contract for sale or a con­

tract for work and labour, the assessee made an application dated

16-9-72

to the

Conimissioner of Sales Tax for determining this question. The Deputy

Commissioiler of Sales Tax took the view that the contract was a contract

for sale

of rolling shutters and

thei work of erection and installation was

merely incidental to the sale and the assessee was therefore liable to pay

sales tax on

95% of the amount

receivable; by it under the contract. In

appeal the Sales Tax Tribunal held the contract to be a composite contract

consisting of two parts, one for sale of the rolling shutters and the other for

execution of the work of erection and installation. The High Court on

a

reference agreed with the tribunal and

answered! it in favour of the Reve­

nue.

Allowing the appeal by special leave the Court

HELD : ( 1) The contract was a contract for work and la.hour and not

a contract

of sale. The contract is one single

and indivisible contract and

the erection and installation

of the

·.rolling shutter is as much a fundamental

part

of the contract as the fabrication and supply. [655 D-E]

Vanguard Rolling

Shutters & Steel Works v. Commissioner of Safes Tax,

U.P. 39 STC 3?2 applied.

Various component parts do not constitute· a rolling shutter until they

are

fixed and erected on the

premises. It is only when the component parts

are

fixed on the premises and fitted into one another that they constitute a

rolling shutter

as a commercial article and till then they are merely component

parts and cannot be said to constitute a rolling shutter. The erectioD and

installation

of the rolling shutter cannot, therefore, be said to be incidental

to· its manufacture and supply. It is a fundamental and integral part of the

contract because without it the rolling shutter does not come into being.

The manufacturer would undoubtedly be the owner

of the component parts

when he fabricates them, but at

no stage does he become the owner of the

)

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•

SENTINEL SHUTTERS co. v. c.s.T. 645

rolling shutter as a unit so as to transfer the property in it to the customer. A

The rolling shutter comes into existence as a Unit when the component parts

ar.e . fixed in position on the premises and it, becomes the property of the

customer as soon as it comes into being. There is no, transfer of property

in the rolling shutter by the manufacturer to the customer as a chattel. It

is essentia1Iy a transaction for fabricating cOmf:<>nent parts and fixing them

on the premises so as to constitute a rolling shutter. The contract

is thus

clearly and indisputably a contract for work and labour and not a contract B

for sale. [653 H,

654 A]

(2) Whether a particular contract is one for sale of goods or for work

and labour depends upon the main object of the parties gathered from the

terms

of the contract, the circumstances of the transaction and the custom

of the trade. (649

D-E]

(3) A contract v.·here not only work is to be done but the execution of

such \Vork requires goods to be used may take one of three forms. The

contract may be for work to

be done for remuneration and for supply of

materials used in the execution of the work for a price

: it may be a contract

for work in v.·hich the use of materials is accessory or incidental to the exe·

cution of the work; or it may be a contract for supply of goods where some

work

is required to be done as incidental to the sale. Where a contract is

of the first type, it is a composite contract consisting essentially of two contracts,

one for the sale of goods and the other for work and labour. The

iiecund

type of contract is clearly a contract for work and labour not in vol vjng

sale of goods, \Yhile the third type is a, contract for sale where the goods

are sold

as chattels

and soff1C v.1ork is undoubtedly done, but it is done only

as incidental to the sale. The primary test

is whether the contract is one

whose main

<>bject is transfer of property in a chattel as a chattel to the buyer,

though

son1e work may be required to be done under the

contract as ancillary

or incidental to the sale

or it is carrying out of work by bestowal of labour

and service

and materials a.re used in execution of suCh work. [649 F-H, 650

F-GJ

( 4 }, To resolve the difficulties experienced in application of the primary

test courts have evolved some subsidiary tests. One such test may be formulated

as fol1ows : ''The primary difference between a contract for work or service

and a contract for sale

of ,goods is that in former there is in the person

performing

¥/Ork or rendering serYice no property in the thing produced as

a whole

...... Jn the case of a contract for sale, the thing produced as a

whole has individual existence as the sole property

of the party who produced

it, at some tinie before delivery, and the property therein passes only under

the contract relating thereto to the other party for price". [651 ~]

Comnzissioner oi Madhya Pradesh v. Purushottan1 Premji 26 S.T,C.

38; ~)·late of Rajasthan v. Man Industrial Corporation, 24 S.T.C. 349;

State of Rajasthan v. Nenu Rani, 26 STC 268; referred to .

(5) The provisic-n "eX-'\'Orks delivery" in the contract does not make the

rontract a contract for sale. A rolling shutter as a complete unit is not fabri­

cated by the manufacturer in his factory but he manufactures only the com­

ponent parts and it is only \vhen the component parts are fitted into position

and fixe~ on the premises that a rolling shutter comes into being as a com­

mercial article, and, therefore, when the contract provides that the delivery

of the goods shall be ex-works, what is obviously meant is that tho com•

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646 SUPREME COURT REPORTS [1979] 1 s.c.&

ponent parts shall be delivered to the company at the works of the assessee·

and once they are delivered, they shall not be liable to be rejected by the

company. But that does not n1ean that as soon as the component parts are

delivered to the company, the contract is fully executed. The component

parts do not constitute a rolling shutter and it is the obligation of the assessee

under the contract to fix the co1nponent parts in position on the premises and

erect and instal a rolling shutter. The execution of the cont.ract is not completed

until the assessee carried Out this obligation imposed upon it U11der the contract

and a rolling shutter is cr<!IOted and installed at the premises. [654 C-F}

,(6) The hue nature of the contract cannot depend on the mode of payment

of the amount provided in the contract. The parties may provide by mutual:

agreement that the amount stipulated in the contract may be paid at different

stages of the execution of the contract, but that cannot make the contract one

for sale of-goods if it is otherwise ·a contract for work and labour. Tho pay­

n1ent of the amount due under the contract may be spread over the entire

period of the execution of

the contract with a view either to put the manu­

facturer

or contractor in possession of

funds for the execution of the con­

tract

or to secure him against any risk of non-payment by the customer. That

cannot have any

bearing on the determination of the question whether tht

contract is .one for sale or for work and labour [654 H, 655 A-CJ

D State of A-fadras v. Richardson &: Cruddes Ltd., 21 STC '!45. referred'

E

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II

to.

CIVIL APPELLATE JURISDICTION : Civil Appeal No. 1001 of

1977.

Appeal. by Special Leave from the Judgment and Order dated

24-2-77

of the Bombay High Court in

Sales Tax Reference No. 28

of 1975.

Hemendra K. Shah, M. H. Gami, P. H. Parekh, C. R Singh and

M. Mudgal for the Appellant.

S. T. Desai and M. N. Shroff for the Respondent.

The Judgment of the Court

was delivered by

BHAGWATI, J. This appeal by special leave raises the vexed

question whether a

particular contract is a contract of sale or a con­

tract of work and labour. This has always been a difficult question,

because most

of the cases which come before the' courts are border

line cases and the decisions

given by courts are by no means

uniform.

But so far as the present case is concerned, it does not present any

serious difficulty and is comparatively free firnJmJ =nplexity or doubt

for there

is a decision of this Court which is directly applicable

and

is determinative of the controversy between the parties.

The assessee who

is the appellant before us is a private limited

company carrying on business

as engineers, contractors,

manufac­

turers and fabricators and in the course of its business, it entered into,

a contract dated 28th June, 1972 with M/~ C. M. Shah & ·eo. (P)

Ltd. (hereinafter referred to as the Company) for fabrication, supply,

i

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SENTINEL SHUTTERS co. v. C.S.T. (Bhagwati, !.) 647

erection and installation of Sentinel's Pull and Push type and reduc­

tion Gear type rolling Shutters in sheds Nos. 3 and 4 of the Sidheswar

Sahakari Sakar Karkhana belonging to the Company. The detailed

specifications of the Rolling Shutters were given in the contract and

the price was stipulated to be Rs. 7

/-per sq. ft. and rft. for Pull and

Push Type Rolling Shutters and Rs.

9 /-per sq. ft. and rft. for the

Reduction Gear Type Rolling Shutters, the price in both cases

befog

inclusive of "erection at site". The contract was expressed to be sub­

ject to the terms and conditions set out in a printed form and there

were also certain special terms and conditions which were specifically

written out in the contract. Since considerable reliance was placed on

behalf of the Revenue on some of the printed terms and conditions

of the contract, we shall set them out

m extenso :

"2. Once the delivery of the goods is effected, rejection claims

cannot be entertained.

4. All erection work shall be carried out at Customer's own

risk and

no claim for incidental structural breakages,

damages to the property of the customers

or others shall

be entertained.

All masonry works require before and or

after erection shall be carried out by customer's own

cost.

10. All payment shall be on overall measurements only. Cus­

tomer desiring to check the correctness of tbe overall

measurements shall notify their intention

in

advance and

shall get the m~asurements checked before installation. No

dispute on this ground shall be entertained once the erec-

tion is completed.

12. Terms of Business : 50% advance with the order and the

balance against delivery of the goods ex-work prior

to

erection, or against through

Banks."

The special terms and conditions provided that the actual transporta-

B

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tion charges

would be in addition to the price stipulated in the con-G

tract and the delivery would be

6/8 weeks ex-works from the <late ot

receipt of the final confirmation of the order. The terms

of payment

also formed part

of the special terms and conditio.ns and they

pro­

vided "25 % advance, 65 % against delivery and remaining 10%

after completion of erection and handing over of shutters to the satis-

faction" of the Company. The assessee carried out its part of the H

contract and manufactured the two types of Rolling Shutters accord-

ing

to the specifications provided in the contract and erected and

A

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648

SUPREME COURT REPORTS [1979] 1 s.c.R.

I

installed ihem in sheds Nos. 3 and 4 of the Sidheswar Sahakari Sakar

Karkhana. It does not appear from the record as to when the bill

relating

to the contract was submitted by the assessee to the

Com­

pany, but it was dated 19th August 1972 aud presumably it was sent

by the assessee after the fabrication of the two types of Rolling

Shutters

was completed, but before they were erected and installed at

the premises of the Company.

Since the assessee entertained doubt

as to whether the contract was a contract for sale or a contract for

work and labour, the assessee made an application dated 16th Sep­

tember 1972 to the Commissioner of Sales Tax for determining this

que~tion, for on the answer to it depended the taxability of the amount

to be received by the assessee against fulfilment

of the contract. The

Deputy Commissioner of

Sales Tax, who heard the application, took

the

view that the contract was a contract for sale

of the two types of

Rolling Shutters and the work of erection and installation was merely

incidental

to

the sale and the assessee was, therefore, liable to pay

sales tax on 95 % of the amount receivable by it under the contract,

since that represented the sale price cf the Rolling Shutters, the re­

maining 5 % being attributable to the work and labour involved in

erection and installation. The assessee, being aggrieved by the order

passed

by the Deputy Commissioner of

Sales Tax, preferred an appeal

to the Sales Tax Tribunal, but the Sales Tax Tribunal also took the

same

view and held that the transaction of supply of the two types

of Rolling

Shutters embodied in the contract amounted to a sale but

so far as -the price was concerned, the Sales Tax Tribunal observed

that since 90% of the amount under the contract was payable at the

stage of delivery, that should be taken to be

the sale price and the

balance of

10% should be held to be "the charges for the work". The

contract

was thus held by the

Sales Tax Tribunal to be a composite

contract consisting of two parts, one for sale of the

two types of

Roll­

ing Shutters and the other for execution of the work of erection and

installation. This led to an application for a reference by the assessee

and on the application, the following question

of Jaw was referred for

the opinion

of the High Court :

"Whether having regard to the facts and circumstances

of the case the Tribunal was justified in law in coming to

the conclusion that the contract in question essentially con­

sisted of two contracts, one for supply of materials for money

consideration and the other for service and labour done."

H The High Court made a detailed and exhaustive review of the decided

cases and held, agreeing with the

Sales Tax Tribunal, that the

con­

tract between the assessee and the COllltJany "was a divisible con-

•

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SENTINEL SHUTTERS co. v. C.S.T. (Bhagwati, J.) 649

tract which essentially consisted of two contracts, one for the supply

of shutters of the aforesaid

two types for money and the other for

service and

labour", and accordingly answered the question in favour

of the Revenue

and against the assessee. The

assessee thereupon

brought the present appeal with special leave obtained from this

Court.

Now the question whether a particular contract is a contract for

sale or

for work and labour is always a difficult

questfon and ff is not

surprising to find the taxing authorities divided on it. The difficulty,

however, lies not in the formulation of the tests for determining when

a contract can be said to be a contract for ~ale or a contracf for work

and layout, but

in the application

of the tests to the facts of the case

before the Court. The distinction between a contract for sale and a

contract for work and labour has been pointed out

by this Court in a

number

of decisions and some tests have also been indicated by

this

Court, but it is necessary to point out that these tests are not ex­

haustive and do not lay down any rigid or inflexible rule applicable

alike to

all transactions. They do not give any magic formula by

the application

of which we can say in every case whether a contract

is a contract for sale or a contract for work and labour. They merely

focus on

one or the other aspect of the transaction and afford some

guidance in determining the question, but basically and primanly,

whether a particular contract

is one for sale of goods or for work

and

labour depends upon the main object of the parties gathered from

the terms

of the contract, the circumstances of the transaciion and

th

custom of the trade.

It may be pointed out that a contract where not only work is to

be done but the execution of

such work requires goods to be used

may take one of three forms. The contract

may be for work to be

done for remuneration and for supply of materials used

in the exe­

cution of the work for a price : it may be a contract for work in which

the

use of materials is necessary or incidental to the execution of the

work; or it may be a contract for supply

of goods where some work

is required

to be done as incidental to the

Siile. Where a contract is

of the first type, it is a composite contract consisting essentially-of

two contracts, one for the sale

of goods and the

other for work and

labour. The second type of contract

is clearly a contract for work

and labour not involving sale

of goods, while the third

type is a con­

tract for sale where the goods are sold as chattels and soine work is

undoubtedly' done, but it

is done only as incidental to the sale. No

difficulty arises where a contract

is of the first type because it is

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650 SUPREME COURT R!!PORTS [1979] 1 s.c.R.

divisible and the contract for sale can be separated from the con­

tract for work and labour and the amount payable under the compo­

site contract can be apportioned between the two. The real difficulty

arises where the contract is of the second or third type, because in

such a case it is always a difficult and intriguing problem to decide

in which category the contract falls. The dividing line between the·

two types of contracts is some what hazy and "thin partitions do their

bounds divide". But even so the distinction is there and it is very

much real and the Court has to perform

at times the

ingeniom exer­

cise of distinguishing one from the other.

The distinction between a contract for sale and a contract for work

I

C and labour has been pointed out in Halsbury's Laws of England ~

D

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H

Third Edition, Volume 34, Article 3 at page 6 in the following

words:

"A contract of sale is a contract whose main object is

the transfer of the property in, and the delivery of the

possession

of, a

ch_!lttel 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 pro­

perly become the .1mbject of sale : neither the ownership of

the materials, nor the value of the skill and labour as com­

pared with the value of the. materials

is conclusive, although

such matters may be taken into consideration in determin­

ing, in the circumstances

of a particular case, whether the

contract is in substance one fo~ work and labour or ©Ile for

the sale of a chattel."

The primary test is whether the contract is one whose main object is

transfer of property in a chattel as a chattel to the buyer, though

some work may be required to be done under the contract as ancil­

lary or incidental to the sale

or it is carrying out of work by bestowal

of labour and service and materials are used in execution of such

work. A clear case of the former category would be a contract for

supply of a.irconditioner where the contract may provide that the

supplier will fix up the airconditioner in the premises. Ordinarily

a

separate charge is provided in such contract for the work of fixing

up but in a given case it may be included in the total price. Such a

contract would plainly be a contract for sale because the work of fix­

ing up the airconditioner would be incidental to the sale. Then take

a contract for constructing a building where considerable quantity

of

materials are required to be used in the execution of the work. This

--"(

I

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SENTINEL SHU,TTERS co. v. C.S.T. (Bhagwati, J.) 65 1

would clearly be a contract for work and labour and fall within the

latter category. But, as

we pointed out earlier, there may be, and indeed as the decided cases show, there are a large number of cases

which are on the border

line. and it is here that difficulty is often

experienced in the application

of this primary test. To resolve this

difficulty, the courts have

evolved some subsidiary tesls.

One such

test is that formulated by this Court in Commissioner of Madhya

Pradesh

v. l'urshottam

Premji('), where it has been said :

"The primary difference between a contract for work

or service and a contract for sale

of goods is that in the

former there

is in the person performing work or rendering

service no property in the thing produced

as a whole ..... .

In the case of a contract for

sal~, the thing produced as a

whole has individual existence

as the sole property of the

party who produced

it, at some time before delivery, and

the property therein passes

only under the contract relat­

ing thereto to

the other party for

price.''

This was the test applied by this Court in the State of Rajasthan v.

Man Industrial Corporation(') for holding that a contract for provid­

ing and

fixing four different types of windows of certain sizes accord­

ing to

"specifi.cations, designs, dr~wings and instructions" set out in

the contract was a contract for work and labour and not a contract

for sale. This Court, speaking through Shah,

J., analysed the nature

of the

CO'lltract and pointed out : "The contract undertaken by the

respondent

was to prepare the window-leaves according to the speci­

fications and

to fix them to the building. There were not two con­

tracts-one o.f sale and another of service. "Fixing" the windows to

the building

was also not incidental or subsidiary to the sale, hut was

an essential term

of the contract. The window-leaves did not pass

to

the Union of India under the terms of the contract as window-leaves.

Only on the fixing of the windows as stipulated, the contract could

be fully executed and the property in the windows passed on the

completion

of the work and not

before." The contract was not for

transfer of property

in the window leaves as window leaves. It was

a contract for providing and fixing windows and windows could come

into existence

only when the window-leaves were fixed to the

building

by bestowing labour and skill. It was, therefore, held to be a works

contract. The same reasoning

was applied by this Court in

State of

Rajasthan v. Nenu Ram(

3

)

for holding that a contract for supply and

(I) 26 S.T.C. 38.

(2) [1969]24 S.T.C 349 (S.C.)

(3) 26 S.T.C. 268.

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652 SUPREME COURT REPORTS [1979] 1 s.c.R.

A fixing of wooden doors and windows with sashes and frames and

wooden chawkhats in the Police Lines building was a contract for

work and labour. Let us, therefore, apply this test in order to deter­

mine what

is the natnre of the contract in the present case : is it a

contract for sale or a contract for work and labour ?

B

c

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E

F

G

H

Now, it is clear that the contract is for fabrication, supply,

erec­

tion and installation of two types of Rolling Shutters and not only are

the Rolling Shutters to be manufactured according to the specifica­

tions, designs, drawings and instructions provided

in the contract, but

they are also to be erected and installed at the premises of the

Com­

pany. Tbe price stipulated in the contract is inclusive of erection and

installation charges and the cont(act does not recognise any dichotomy

between fabrication and supply of the Rolling Shutters and their erec­

tion and installation so far as the price is concerned. The erection

and installation of the Rolling Shutters

is as much an essential part

of the contract as the fabrication and supply and it

is only on the

erection and installation of the Rolling

Shutters that the contract

would be fully executed.

It is necessary, in order to understand the

true nature of the contract, to know what

is a Rolling Shutter and

how it

is erected and installed in the premises. It is clear from the

statement Ex. C to the petition for special leave, which statement

was

submitted before

·the Sales Tax Tribunal and the correctness of _which

was at no time di_sputed before us, that a Rolling Shutter consists

of five components parts, namely, two brackets welded with 'U' type

clamps, one pipe shafting with high tension springs Shutter screen

made ou of 20G I I SG thickness of metal as required by the customer,

side guides or guide channels welded with iron clamps to the bottom

with provision of locking arrangements with welded handles and top

cover. These component parts are fabricated by the manufacturer

and taken to the site and

fixed on the premises and then comes into

existence a Rolling

Sbntter as an identifiable commercial article. The

method of

fixing the component parts in position in the premises so

as to bring irito existence the commercial article known

as a Rolling

Shutter

is fully described in the statement Ext. C. First of all,

certain

masonry work is required to be done by the customer and that has

to be carried out by the customer at his

own cost. Then the brackets

are fixed

on either side on the top portion of the opening

by grouting

holes on the masonry walls and inserting the bolts. Thereafter the

holes are filled with cement and the pipe shafting. with high tension

springs

is inserted into the

'U' clamps of the brackets. Then the-iron

curtain of the Rolling Shutter

is hoisted over the high

tension. springs

and tightened by means of nut bolts and guide channels are then

fixed

I

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•

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SENTINEL SHUTTERS CO. V. C.S.T. (Bhagwati, J.) 653

by grouting masonry walls where side guide clamps are to be fixed.

After fixing the clamps to the grouted portion of the wall, the same is

plastered and then the iron curtain of the shutter is lowered through

the guide channels to opera~e the shutter manually up aud down. The

Rolling Shutter

is then 'born' and it becomes a permanent fixture to

the premises. The Indian Standards Specification Book for Metal

Rol­

ling Shutter and Rolling Grills also gives a similar procedure for fix­

ing the component parts of the Rolling Shutter on the premises.

It clearly shows that a rolling shutter consists of curtain, lock

plates, guide channels, bracket plates, rollers,

hood covers,

gears,

worms, fixing bolts, safety devices, anchoring rods, central

hasp and staple. Each guide channel has to

be provided with a

minimum

of three fixing cleats or supports for attachment to the walls

or column by means

of bolts or screws. The guide channels are fur­

ther attached to the jambs, plumb either in the overlapping

fashion,

projecting fashion or embedded in grooves, depending on the method

of fixing. All these operations take place at the site after despatch

of the component parts of the rolling shutter. Hood cover is fixed

in a neat manner and supported at the top at suitable intervals. This

also has

to be done

~t the site. Item I I. I of the specification shows

that the rolling shutter curtain and bottom lock plate are interlocked

together and rolled in one

piece, but the other parts like guide

chan­

nels, bracket plates, rollers, etc., are despatched separately. Item

12.1 shows that all the rolling shutters are erected by the manufacturer

or

his author'sed representative in a sound manner, so as to afford

trouble-free and easy operation, long

life and neat appearance". It

will, thus, be seen that the component parts do not constitute a roll­

ing shutter until they are

fixed and erected on the premises. It is

only when the components are fixed on the premises and fitted

Into

one another that they constitute a rolling shutter as a commercial

article and

till then they are merely component parts and cannot be

said to ronstitute a rolling shutter. The erection and installation

of

the rolling shutter cannot, therefore, be said to be incidental to its

manufacture and supply. It

is a fundamental and integral part of

the

contract because without it the rolling shutter does not come into

being. The manufacturer would undoubtedly be the owner of the

component parts

when he fabricates them, but at no stage does he

become the owner of the rolling shutter as a unit so as to transfer the

property

in it to the customer. The rolling shutter comes into exis­

tence

as a unit when the component parts are fixed in position on

the premises and it

becomes the property of the customer as

soon

as it comes into being. There is no transfer of property in the roll­

ing shutter by the manufacturer to the customer as a chattel.

It is

B

c

D

E

F

G

H

A

B

D

E

F

G

654 SUPREME COURT REPORTS [ 1979] 1 s.c.R.

essentially a transaction for fabricating component parts and fixing

them on the premises so as

to constitute a rolling shutter. The

cone

tract is thus clearly and indisputably a contract for work and labour

and not a contract for sale.

The Revenue leaned heavily on the provision in the contract that

the delivery

of the goods shall be ex-works and once the deiivery of

the goods is effected, no claim for rejection shall

be entertained and

relying on this provision, the

Rev~nue contended that under the con­

tract the rolling shutters were to be delivered by the assessee to the

company ex-works, that is, at the works of the assessee and the pro­

perty in the rolling shutters passed to the company as soon as they

were delivered and hence it was a contract for sale. We do not think

this contention of the Revenue has any force and it must be rejected.

It is clear from the above discussion that a rolling shutfer as a com­

plete unit

is not fabricated by the manufacturer in his factory but he

manufactures only the component parts and it is only when the com­

ponent parts are fitted into position and fixed on the premises that a

rolling shutter comes into being as a commercial article and, there­

fore, when the contract provides that the delivery of the goods

r.hall

be ex-works, what is obviously meant is that the component parts

shall be delivered to the carnpany at the works of the assessee and

once they are delivered, they shall not be liable to be rejected by Ifie

company. But that does not mean that as soon as the component

parts are delivered to the company, the contract

is fully executed. The

component parts do not constitute a rolling shutter and it

is the obli­

gation of the assessee under the contract to

fix the component parts

in position

on the premises and erect and instal a rolling shutter. The

execution of the contract

is not completed until the assessee carries

ont this obligation imposed upon

it under the contract and a rolling

shutter

is erected and installed at the premises. It is true that

clause

(12) of the printed terms and conditions provides that 50% of the

amount under the contract shall be paid as advance and the balance

against delivery of the goods ex-works but this clause

is clearly over­

ridden by the special term specifically written out in the contract that

25% of the amount shall be paid by way of advance, 65% against

delivery and the remaining

10% after completion of erection and

handing over

of the rolling shutters to the satisfaction of the com­

pany.

Thi,; provision undoubtedly stipulates that 90% of the amount

due under the contract would be paid before erection and installation

of the rolling shutters has commenced, but that would not make it a

contract for sale of rolling shutters. The true nature of the contract

cannot depend on the mode of payment of the amount provided in

the contract. The parties may provide by mutual agreement that the

•

I

(

r-•

•

SENTINEL SHUTTERS CO. v. C.S.T. (Bhagwati, J.) 655

amount stipulated· in the contract may be. paid at differept stages of

the execution of the contract, but that cannot make the contract one

for sale of goods if it is otherwise a contract for work and labour. It

may be noted that the contract in State of !t;{adras v. Richardson &

Cruddas Ltd.(') contained a provision that the full amount due under

the contract shall be paid in advance

even before the execution of the

work

has started and yet the Madras High Court held, and that view

was affirmed by this Court, that the contract was a works contract

The payment

of the amount due under the contract may be spread

over the entire period

of the execution of the contract with a view

either to put the manufacturer or contractor in possession of funds for

the execution of the contract or to secure

him against any risk of non­

payment by the customer. That cannot have any bearing on the

determination of the question whether the contract

is one for sale or

for work and labour.

Here the last portion

of the special term in regard to payment of

the amount due under the contract also makes it clear that it

is only.

when the component parts are fitted into position in the premises

that

a rolling shutter would be complete and this rolling shutter has to

be to the satisfaction

of the company and it is then to be handed

over

by the assessee to the company and then, and then alone, would the .

remaining 10% be payable by the company to the assessee. It is,

therefore, clear that the contract is one single and indivisible contract

and the erection and installation of the rolling shutter is

as much a

fundamental part of the contract

as the fabrication and supply. We

must, in the circumstances, hold, driven by the compulsion of

fuis

logic, that the contract was a contract for work and labour and not a

contract for

sale. This view which we are taking is completely sup-. ported by the decision of this Court in Vanguard Ro/Ung Shutters &

r Steel Works v. Commissioner of Sales Tax, U.P.(

2

)

to which one of

us (Bhagwati, J.) was a party.

We accordingly allow the

appeal, set aside the judgment of the

. High Court and hold that the contract in the present case was a con­

tract

for work and labour and not a contract for sale and conformably

with

this view, we answer the question referred by the

Sales Tax Tri­

bunal

in favour of the assessee and against the Revenue. The

State

will pay the costs of the assessee throughout.

S.R.

(1) 21 S.T.C. 245.

'21 19 S.T.C. 372.

8--549 SCI/78

Appeal allowed.

A

B

c

D

E

F

G