M/S. KONE ELEVATOR INDIA PVT. LTD. v. STATE OF TAMIL NADU AND ORS.

A respective counsel, since the substantive submission of the Counsel for the Petitioner centers around the contract between the Petitioner and its customers, which contains various terms and conditions, the same are to be noted in the forefront. With that in view, I wish to refer to the specimen documents relating B to the supply of the elevators by the Petitioner for its customers. • Annexure A1 consists of the order of acknowledgement of the ·model, details of the benefits of the elevator to be supplied, the preparatory work to be carried out by the customer, the .document containing price variation clause and elevator works c contracts, the general conditions of Contract, the acceptance document by both parties and the invoice raised along with the various bills for purchase of the model items. A detailed reference to each one of the documents has to be noted in order to examine the question as to whether the manufacture, 0 supply and installation of LIFT by the Petitioner should be treated either as a 'Sale' or 'contract for work'.

9Copy pinpoint9. The above documents are found in Volume 1 of I.A. No. 2 of 2013. The details of the above documents are available in Annexure A-1, which are at pages 6 to 27. The first document E is dated 23.12.2009, addressed to one of the customers of the Petitioner. The subject column reads as under:

"Order Acknowledgment for One (1) No. OTIS Electric Traction Passenger Elevator for your Building at "BAPU F NAGAR, JAIPUR, RAJASTHAN"."

10Copy pinpoint10. In the body of the said letter, the order placed by the customer was acknowledged by referring to the acceptance of the Petitioner's proposal for 'SUPPLY' and 'INSTALLATION' of one (1) No. OTIS Electric Traction Passenger Elevator for G their building. Along with the said letter, a copy of the proposal duly approved by the Petitioner's authorized officer was also enclosed. The contract number allocated to the customer was also mentioned. The first document enclosed along with the said letter dated 23.12.2009, is a document dated 21.10.2009, H cohtaining nine pages and in the last page the signatures of '

KONE ELEVATOR INDIA PVT. LTD. v. STATE OF T.N. & 991 ORS. [FAKKIR MOHAMED IBRAHIM KALIFULLA, J.]

the Petitioner and its customers were found affixed in proof of A' acceptance of the Petitioner's offer to supply and installation of its elevator. Though it is one single contract, it contains separate terms and conditions dealing with different aspects relating to the supply and erection of the elevator. B

11Copy pinpoint11. The first one is titled as Model Code, which contains the various details about the elevator to be supplied. Such details relate to the load and speed, the travel and rise of the LIFT, the stops arid openings of the LIFT, the power supply requirement for its operation, the control aspect of the LIFT, the nature of operation of the LIFT manual or automatic, the mechanical aspect of the LIFT, the size of the LIFT, the requirement of the hoist way for installing the LIFT, the various panels to be provided in the LIFT and handrails to be provided inside the LIFT, the nature of false ceiling, the nature of flooring, the width of opening in the LIFT, the method of operation of the doors of the LIFT, the design of the signals, other details such as the type of Buttons at different levels of the LIFT, the type of LIFT car operating panel with Touch Screen facility, Battery operated alarm bell & emergency light, fireman's switch at main lobby and one number colour LCD in the lobby. It also specifies the colour scheme of the LIFT and the shape of the LIFT.

12Copy pinpoint12. The next page of the document is under the caption 'AC. Variable Voltage Variable Frequency Control'. In the said document description of the machine, the brake system, the motor and other technological details have been set out. As far as the type of machine is concerned, various details about the operating mechanism, which is part of the elevator such as motor, electro-mechanical brake, chromium molybdenum steel worm, bronze gear etc., have been mentioned. The brake system has been described as direct current brake with spring applied and electrically released and desigr;ied to provide for smooth stop under variable loads. As far as. the motor is concerned, it is mentioned that the A.C. motor has been designed for elevator service, which will have high starting H

992 SUPREME COURT REPORTS [2014] 5 ·s.C.R.

A torque with low starting current. That apart, the advance technological system, which is called as 'Microprocessor Based Control' that will be provided in the LIFT has been stated in detail. The details about the digital control provisions, other user friendly features included in the Microprocessor ·Based B Control has also been furnished. It is finally mentioned in the said document that the system would continuously monitor. critical aspects of system health, self-health, diagnostic capabilities, which are built into the control system to speed up trouble-shooting, which can be monitored from seven segment c display provided in the logic board and that it will facilitate quick identification of fault for restoration of normal operation.

· 13. The next page of the document annexed is under the caption 'Benefits of ACV F (Variable Voltage Variable Frequency Drive)'. This document contains 10 specific details, namely,.(i) smooth and controlled acceleration/deceleration, (ii) better riding quality, (iii) assured leveling accuracy +/- 5 MM, (iv) improved flight time, (v) improved reliability & increased efficiency, (vi) reduced power consumption about 50% and improved power factor, (vii) reduced heat release, (viii) flexibility of programme and programming of features at site, (ix) enhances the value of building, and (x) simplified maintenance. A cursory glance of the details furnished under the above 10 heads by way of benefits of the offered LIFT discloses the claim of the Petitioner as to the advantage that will be available to the customer in the event of ordering for supply of the said type of elevator.

14Copy pinpoint14. The next page of the document is under the caption 'Maintenance'. Under the head of 'Maintenance' it is mentioned as to from when the free maintenance for 12 months period as per the quotation would commence, the nature of inspection and examination that would be carried out during the said period of 12 months of free maintenance and the extent to which replacement of parts could be made free of cost, as well as on chargeable basis. It also specifies the exclusion of any

KONE ELEVATOR INDIA PVT. LTD. v. STATE OF T.N. & 993 ORS. [FAKKIR MOHAMED IBRAHIM KALIFULLA, J.] special examination that may be carried out in between the monthly free examination dates, in which event, the exclusive responsibility would be of the Purchaser as owner when once possession is handed over apart from the force majeure clause.

15Copy pinpoint15. The next page of the document is under the heading B 'Preparatory Work'. This document contains as many as 21 Clauses and at the very outset it is stipulated as 'You Agree at your cost'. The nature of preparatory work set out in the said 21 Clauses relates to the RESPONSIBILITY OF THE PURCHASER to furnish within two weeks or sooner if required from the date of acceptance of the proposal all the required data for the performance of the contract, to design and furnish a properly framed and enclosed legal ELEVATOR HOIST WAY/STRUCTURE, to furnish an ELEVATOR PIT of proper and legal depth below the lowest landing, to furnish properly lighted and FIRE PROOF MACHINE ROOM of sufficient size to accommodate the Petitioner's equipment with other detailed specifications, to furnish and install necessary HOIST WAY DOOR FRAMES and allied provisions, to provide continuous SILL BEARING AREA for each hoist way entrance of such constructions, to do all painting except elevator material, to do all CUTTING OF WALLS, floors, partitions including grouting of all bolts, sills etc., to furnish REQUIRED POWER at the top floor landing terminating in suitable main switches for power and light circuits with allied provisions, to furnish LIGHT OUTLET POINTS at the middle of the hoist way and a light point in the pit, to be furnished during the erection of the elevators, ELECTRIC POWER SUPPLY of necessary characteristics to provide illumination and operation of tools and hoists etc., to guard and protect the hoist way, TO COMPLETE ALL THE WORKS IN SUCH SPECIFIED TIME so that no delay is caused in carrying out the installation by the Petitioner, to relieve the Petitioner of any responsibility in respect of expenses relating to power supply or expenses of any nature relating to the rest of the building and other contractor's work, to pay all fees that may be required in connection with erection of preparation of H

994 SUPREME COURT REPORTS [2014] 5 S.C.R.

A th~ structure in which the elevator equipment is to be erected including any general permit/certificate fees, usually billed by the Government Agency licence fee etc., to PROVIDE SCAFFOLDING for erector's requirement in the elevator hoist way, during the erection period AND FOR ITS REMOVAL B thereafter and in the event of the elevator hoist way being more than 40 meter height, such scaffolding should be in steel structure by OTIS, to provide suitable weatherproof lock-up storage accommodation of approximately 50 sq.mt. per elevator at the ground floor level near the hoist way, to provide c and maintain adequate safety and security measures, as also retain OTIS safety infrastructure to prevent any injury to third party or damage, theft or pilferage of material during erection period till the installed LIFT is handed over, to provide hoisting beam in the machine room ceiling and rolled steel sections with bearing plates for support of the machine if required, to provide 0 acceptable living accommodation with facilities such as light, running water, sanitary for the erection crew at or near the sit~ and to indemnify and SAVE THE PETITIONER HARMLESS AQAINST ALL LIABILITY GROWING OUT OF THE PURCHASER'S FAILURE TO CARRY OUT ANY OF THE E FOREGOING. Out of the above 21 items, the aspects for which Petitioner takes the responsibility are the provision of a ladder in a pit, provision of steel fascia by OTIS in respect of S. No.6 and the provision relating to scaffolding. It also states that the clause relating to provision for living accommodation is not applicable. The rest of the works to be carried out relating to provision of a HOIST, which is otherwise also called as 'Well' for erecting the LI FT has been entirely fastened on the Purchaser. It is also relevant to note that under the heading 'Preparatory Work', major responsibility has been entrusted with the Purchaser for providing the HOIST/WELL, which relates to both prior to the erection of the LIFT, as well as in the course of the erection of the LIFT.

• 16. The next page of the document is under the caption H 'IEEMA Price Variation Clause for Elevator Works Contracts'. I '

KONE ELEVATOR INDIA PVT. LTD. v. STATE OF T.N. & 995 ORS. [FAKKIR MOHAMED IBRAHIM KALIFULLA, J.]

It is described therein that the price quoted/confirmed is based on the cost of raw materials/components and labour costs as on the date of quotation and the same is deemed to be related to Wholesale Price Index Number for Metal Products and All India Average Consumer Price Index Number for Industrial Workers as specified in the said document and that in case of any variation in the index numbers, the price would be subject to adjustment up or down in accordance with the formula. Though, a formula is set out in the said document, based on enquiries with the counsel appearing for the Petitioner, it is revealed that the said formula is a formal one and is never c applied for the purpose of determining the cost. For the purpos~ of working out the formula, the details of various abbreviations noted in the formula are furnished. Inasmuch as it was informed to this Court that the formula as a matter of practice is not worked out, there is no need to go into the 0 details of those abbreviations mentioned in the formula. There are two notes, namely, Note 1 and Note 2 at the bottom of the said document, which states that the sole purpose of the above stipulation is to arrive at the amount of the entire contract under the various situations and the above stipulations do not indicate E any intentions to sell materials under this contract as movables. Note No.2 states that the indices MP and WO are regularly published by IEEMA in monthly basic price circulars based on information bulletins from the authorities mentioned and those indices would be used for determining price variation and only IEEMA circulars would be shown as evidence, if required. F Another very important clause stated in the said document is 'Payment Terms', which reads as under:

"Under this clause claim for manufactured materials shall be paid along with our material invoice and claim for G installation labour shall be paid along with our final invoice.

Firm prices: The prices quoted in this proposal will be firm upto 5/5/10. Thereafter for any delay in completion of installation and commissioning due to reasons attributable to H

996 SUPREME COURT REPORTS [2014] 5 S.C.R.

A your goodselves prices will be adjusted in accordance with the above clause."

17Copy pinpoint17. Therefore, it is quite apparent that there is no relevance to the subtitle, namely, 'Elevator Works Contract' mentioned in the said page of the document. The only relevant aspect which 8 is required to be noted is that in the event of price variation due to the delay attributable to the Purchaser, the lali>our cost and the material cost would be workec;l out based on the prevailing Consumer Price Index Number for Industrial Workers and Wholesale Price Index Number for Metal Products. In other C words, there is.no significant relevance for the subtitle and the various details mentioned in the satd page of the document.

18Copy pinpoint18. The next page of the document is a very relevant document, which is in two pages, which carries the title D 'Conditions of Contract'. As many as 27 conditions have been stipulated. In order to appreciate the stand of the Petitioner and to arrive at a conclusion whether the contract of supply of erection can be construed as 'Sale' or 'Works Contract', the conditions ti'ave to be necessarily examined in detail. The first condition mentions that the quotations are effective for 30 days from the date of proposal and thereafter, are subject to change without notice. The second condition pertains to the various circumstances under which the Petitioner would be entitled 'to vary the price as per 'IEEMA Price Variation Clause' inasmufh as the price quoted would be valid for 52 weeks from the daie of acceptance of the proposal. Condition No.3 also is an ancjllary stipulation relating to the application of Price Variation Clause as per 'IEEMA Price Variation Clause'. Condition No.4 again shifts the burden on the Purchaser to furnish the Petitioner G within two weeks from the date of the agreement, all required data for performance of the contract, that the PURCHASER TO AG~EE TO PREPARE THE HOIST WAY STRUCTURE and make it ready with proper electric power supply as per the required data to enable the Petitioner to have uninterrupted use for installation and adjustment of the elevator. It also mentions

KONE ELEVATOR INDIA PVT. LTD. v. STATE OF T.N. & 997 ORS. [FAKKIR MOHAMED IBRAHIM KALIFULLA, J.] that if the electric power supply is not provided, the installation of the equipment would still be completed and the Purchaser should be prepared to take over the elevator and make the payment as they fall due. Condition No.5 consists of the payment schedule and also a default clause. The payment · schedule is 90% on acceptance of the proposal and the balance 10% by way of final payment either on commissioning or in the event of delay by any cause beyond the control of the \ Petitioner, which is to be paid within 90 days from the date the materials are ready for dispatch. In the event of any fault on the , part of th~rchaser in makina the Preparatory Work c unavailable to enable the Petitioner to carry out the installation, such as defects in the hoist room or for any ·other lapse, the option is retained by the Petifierier to discontinue the work or withhold the release of completed elevator subject however, to charge of over payments to be charged at the rate of 1.5% per month of the agreed price. It also entitles the Petitioner to reschedule the erection time depending upon the delay caused at the instance of the Purchaser. Condition No.6 relates to the provision to be made by the Purchaser for the stay of the employees of the Petitioner who are assigned the task of erection of the LIFT. Condition No.7 relates to the work timings and in the event of the employees of the Petitioner were to work overtime based on mutual agreement with the Purchaser, such overtime charges should be borne by the Purchaser. Condition No.8 is a mutual FORCE MAJEURE clause as between both the parties. ~ndijion t-Jo.9 ~pecifies that the title to each elevator would pas~on t~.t~P.urchaser when payment for such elevators are fulh' pafd)p.{l;ie. Re°titloner and in the event of default being committed.-iiY.":1titi~Purbh~~r, ., ._. ~- ~ ·.-.'. ~. _,· ·/~ the right of the Petitioner to retrieve the'eleva.tQr-:in:)).:dtpf'.ir:i;p_art and also its right to recover from the PurchaS'er, the value of the elevator supplied, can be initiated by appropri~te l~gal proceedings. Condition No.1 O mainly uses the expression that the contract should be deemed to be an INDIVISIBLE WORKS CONTRACT though the cost of labour involved and the price of movables could be specifically ascertained. Condition No.11 is H1

998 SUPREME COURT REPORTS [2014) 5 S.C.R.

A prescription of the defect liability period, which would be 18 months from the date ofinitial supply of materials or 12 months from the date of completion of the erected elevator, whichever - is earlier. The default clause is that such agreed warranty period would apply for normal wear and tear only and if any repair or a damage would occur due to any unauthorized person's handling, such warranty would not be applicable. Condition No. 12 relates to any work to be carried out for the purpose of erection of an elevator due to statutory prescription and according to the Petitioner that would be the responsibility of c the Purchase·r and if for any reason the Petitioner is to carry out such works, extra cost would be charged on the Purchaser. Condition No.13 pertains to any changes, modifications, additions, deletion or extra work involved in which event the cost escalation would be mutually agreed b~tween the parties and finalized. As per Condition No.14, the Petitioner wants to call 0 the Contract as indivisible Works Contract and states that the materials such as packing cases, left over materials, tools tackles, instruments, etc., brought to site by the Petitioner would remain the property of the Petitioner and also its right to sub- contract any of the work ·which. it deems fit.. Under Condition E No.15, the Petitioner wants to make it clear that any descriptive matter, drawings or illustrations brochures furnished along with its proposal are not accurate but are approximate. Under Condition No.16, it is made clear that the specifications of the Petitioner will be the one. which can be relied upon even if such F specifications varied with th.e requirements made by the Purchaser prior. to the Contract. Condition No.17 is again a FORCE MAJEURE clause. Under Condition No.18, the Petitioner wants to reserve its right to effect the supply either from its factory at Karnataka or from any other place in India G or by importing the LIFT from a foreign country. Condition No.19 is the provision under which the Petitioner's right to claim compensation/damages in the event of breach of contract at the instance of the Purchaser. Condition No.20 provides for settlement of the disputes by way of conciliation at the bipartite H I

KONE ELEVATOR INDIA PVT. LTD. v. STATE OF T.N. & 999 ORS. [FAKKIR MOHAMED IBRAHIM KALIFULLA, J.)

level and on its failure to go in for Arbitration. Condition No.21 A refers to the manner in which the apportionment over the expenses of the contract relating to the amount or advances paid by the Purchaser, which would be determined by the Petitioner and that the same cannot be questioned by the Purchaser even before the legal forums. As per Condition B No.22, the proposals when accepted by the Purchaser, the same would supersede all other earlier proposals, representations etc. Condition No.23 clarifies that in order to authenticate any change in the conditions 'of the contract after the signing of the contract, the same can be done only by the · c authorized person from the Head Office of the Petitioner. Condition No.24 states that the contract could be deemed to be concluded at Mumbai/Delhi/Calcutta/Bangalore after allocation of the contract by the Petitioner. Clause 25 specifies the delivery time and erection time and that the completion of 0 the installation would be made within 16 weeks from the date of the receipt of the order, advance payment, layout approval and settlement of all technical details, whichever is later. It however, reserves the Petitioner's right to vary the delivery and the erection schedule depending upon any delay being caused E at the instance of the Purchaser in carrying out the Preparatory Works as per the contract. Condition No.26 is again a default clause for escalation of the cost of labour in the event of the Petitioner withdrawing the work force for no fault of its. The last Condition No.27 shifts the entire responsibility on the Purchaser for getting necessary certificates/permits/licenses from the F Statutory/Regulatory Authorities, including payment of all necessary fees for such certificates/licenses/permits etc. and that the Petitioner will not be in anyway liable for any delay occurring on that score. G

19Copy pinpoint19. The last page of the document, which is also dated 21.10.2009, disclose the signature affixed by the Authorized Official/Signatory of the Petitioner and the Purchaser wherein, the price of the elevator to be supplied in a sum of Rs.12,50,000/- is quoted. In the said page, applicable rate of H

1OQO SUPREME COURT REPORTS [2014] 5 S.C.R.

A Excise Duty, Service Tax and other statutory tax liabilities to be incurred are all mentioned. Along with the above document, the payment of Rs.12, 12,500/- already made by the Purchaser, as . well as the final invoice raised for value of the full amount, namely, Rs.12,50,000/- is also enclosed. B

20Copy pinpoint20. Before adverting to the other statutory provisions, V¥hich are to be noted while dealing with the issue involved, as well as, the submissions made by either side, it will be appropriate to sum up the nature of the contract that is normally transacted by the Petitioner with its customers, based on the above Ar)nexure A-1. From what has been noted from the said Annexure, the following facts emerge:

(a) Every supply and erection of an elevator by the Petitioner is always preceded by a proposal furnishing the requirement of the customer. The model of the LIFT specifying its capacity load, technical aspects and other minute details relating to the LIFT to be supplied along with the works to be carried out at the instance of the Purchaser to enable the Petitioner to supply and erect the LIFT are also furnished.

(b) Based on the proposal of the Petitioner, once the order is placed by the Purchaser by way of acknowledging the said order, specific communication is issued furnishing a distinct contract number. In the said acknowledgment of order, the entire set of documents relating to the proposal and the signed contract is also enclosed with the price agreed between the parties.

(c) The documents found in the ultimate agreed contract, G I therefore, contain the details relating to the model and the mechanical details about the operation of the LIFT, which are furnished with detailed particulars.

(d) The various details contained in the proposal are all H I mainly related to the nature of the LIFT to be supplied and

KONE ELEVATOR INDIA PVT. LTD. v. STATE OF T.N. &1001 ORS. [FAKKIR MOHAMED IBRAHIM KALIFULLA, J.] as to how the technology involved in the LIFT would be advantageous to the customer when it is ultimately erected and put into operation.

(e) The details of the Preparatory Work is one of the relevant aspects of the contract, which disclose that at the site, where the LIFT is to be installed, the entire Preparatory Work is to be carried out by the customer such as, the setting up of the hoist way/structure, ·elevator pit, fire proof machine room, hoist way door frames, provision of sill bearing area, all cutting of the walls, provision of required power supply, furnishing of light outlet points, provision of elevators electric power supply, provision of required accommodation for the work force of the Petitioner and above all, the time within which the above works have to be carried out by the customer. As part of the Preparatory Work, the only area where the Petitioner D comes forward to take the responsibility are the provision of a ladder in a pit, the provision of a steel fascia and the provision relating to scaffolding.

(f) As far as the price variation clause is concerned, it only E states that in the event of any delay being caused not due to the fault of the Petitioner, the price variation of the labour cost and material cost would depend upon the All India Average Consumer Price Index Number for Industrial Workers and Wholesale Price Index Number for Metal F Products.

(g) The specific condition imposed in the prescription contained under the heading 'Preparatory Work' makes it clear that only after the customer satisfactorily completes all the basic works such as, erection of the hoisUstructure G and other allied necessary works, the Petitioner would commence its installation. In the event of any delay being caused at the instance of the customer, the

1002 SUPREME COURT REPORTS [2014) 5 S.C.R.

A commencement of the installation would get postponed at the risk of the customer.

(h) Though, in the conditions of contract the expression used in condition number 10 is 'indivisible works contract' the reading of as many as 27 conditions disclose that it B only highlights the overall responsibility of the customer to undertake the main work of providing a solid hoisVstructure to enable the Petitioner to bring its LIFT and fix it in the said earmarked place with all the other provisions readily made available by the Purchaser, including the electric c points.

(i) As per condition No.5 of the conditions of contract, 90% of the value is to be paid on acceptance of the proposal. Balance 10% payment is payable either on commissioning or . D in the event of any delay being caused and not attributable to the Petitioner, within 90 days of the materials relating to the LIFT to be supplied being made and kept ready for dispatch. Therefore, the said condition is required to be examined in detail to ascertain as to whether the payment schedule really determines the nature of the contract.

21Copy pinpoint21. Having noted the above salient features of the contract relating to the supply and erection of the LIFT by the Petitioner, to which I will discuss in detail in the latter part of this judgment, I wish to refer to the statutory provisions which are required to be noted at this stage. Mr. Salve, learned Senior Counsel in his submissions drew our attention to various statutory provisions relating to LIFTS, which provide for charging of duty und19r the provisions of the Central Excise Legislation as well as the provisions brought out by various States for charging tax G . on supply and installation of LIFTS construing the same as 'Works Contract' and the subsequent changes brought about after the decision of this Court in Kone Elevators (India) Pvt. Ltd. (supra), besides the Constitutional provision, namely, Article 366(29A)(b) of the Constitution. H

KONE ELEVATOR INDIA PVT. LTD. v. STATE OF T.N. & 1003 ORS. [FAKKIR MOHAMED IBRAHIM KALIFULLA, J.)

22Copy pinpoint22. Under Article 366(29A), tax on the sale or purchase A of the goods is defined and the concerned sub-clause (b) of sub-Article (29A), reads as under:

"A tax on the transfer of property in goods (whether as goods or in some other form) involved in the execution of 8 a works contract;"

23Copy pinpoint23. This clause was inserted under the Constitution 46th Amendment Act of 1982. A reading of the said sub-clause (b), which is a part of various other definitions under Article 366, would enable the tax levying authorities to levy tax on the transfer of property in goods involved in the execution of a 'Works Contract'. In order to apply the said sub-clause (b), in the foremost, what is to be ascertained is whether there is a 'Works Contract' and while executing such a 'Works Contract' any transfer of property in goods are involved, whether as goods or in some other form on which a tax can be validly levied by the concerned authorities.

24Copy pinpoint24. Having noted the constitutional mandate provided therein, it will be beneficial to refer to the other statutory prescriptions brought to our notice. Mr. Salve, learned Senior Counsel brought to our notice the definition of 'Works Contract' under Section 2Uj) of the Orissa Sales Tax Act, 1947. The said provision reads as under:

"works contract includes any agreement for carrying out for cash or deferred payment or other valuable consideration , the building, construction, manufacture, processing, fabrication, erection, installation, fitting out, improvement, modification, repair or commissioning of any movable or immovable property." G

25Copy pinpoint25. It was also brought to our notice certain provisions in the Bombay Lifts Act, 1939. The relevant provisions are Sections 3(c),(d),(e)&(f), which defines 'Lift, Lift Car, Lift Installation and Lift way'. Section 4 stipulates that every owner H

1004 SUPREME COURT REPORTS [2014] 5 S.C.R.

A of a place intending to install a LIFT after the commencement of the said Act, should make an application to the concerned authprity of the State Government for permission to erect such a LIFT and while seeking for such a permission, the obligation is o~ the applicant to furnish the various details about the LIFT B to be erected. Section 5 deals with the licence to be obtained to use a LIFT, which states that every owner of a place who is I permitted to install a LIFT under Section 4 should within one month after completion of the erection of such LIFT, inform the Authorized Officer of the State Government who has been c empowered to issue a licence for the working of the LIFT. Such intimation about the erection of the LIFT and the nature of licence to be issued in the prescribed format has been specified. The required fee to be paid is also mentioned in the said section. Section 7 specifies that no LIFT should be ope'rated without a licence. The corresponding rules, namely, 0 Rules 3, 5, 6, 9 and 9(a), as well as Form A has also been referred. In furtherance of Sections, 4, 5, 6 and 7 of the Bombay Lifts Act, 1939 and the Bombay Lifts Rules, 1958, namely, Ruli:s 3, 4, 5, 6, 9 and 9(a), what is specified is the detailed procedure to be followed by approaching the concerned authorities initially for the erection of the LIFT by getting a permission and securing a licence after successful installation of the LIFT and the periodical inspection to be carried out in order to ensure that the LIFT erected does not cause any damage to men and materials due to any defect in the material used while installing the LIFT, as well.as in its future operation on regular basis, as well as in the course of its maintenance. Rule 9A(5) prescribes the fee for issuing a licence to LIFT contractors for permission, while issuing the licence for prescribed number of LIFTS. Apart from the above rules, Form G A is the prescribed form by which an application for permission to Install a LIFT or for making any addition or alteration to the LIFTS is to be made. The details to be furnished in the said form includes the name of the owner, the name of the person who would be installing the LIFT, the place where the LIFT would H

KONE ELEVATOR INDIA PVT. LTD. v. STATE OF T.N. & 1005 ORS. [FAKKIR MOHAMED IBRAHIM KALIFULLA, J.]

be installed and some basic details about the LIFT which is to A be installed. Under Form A-1, the ~IFT installation contractor has to make a declaration as to the successful installation of the LIFT undertaken by it.

26Copy pinpoint26. Reference to the above provisions contained in the B Bombay Lifts Act and Rules show that before erection of LIFT in the premises, necessary permission has to be obtained from the concerned authority appointed by the State Government. By making a specific application for permission for the erection of a LIFT and secure a licence when a LIFT is erected, thereafter also periodical intimation is to be sent to the concerned authority about the proper maintenance of the LIFT, which has been erected in the premises of the owner. The underlining requirement of the statute is apparently to ensure that such a LIFT installed in a premises, which would be regularly used by the persons visiting the said premises should not endanger their lives either due to any defects in the installation or its operation or in its maintenance after its installation. Therefore, reference to the above provisions in my view is not decisive for finding out as to whether the manufacture, supply and installation of a LIFT would fall within the expression 'Works Contract' or not.

27Copy pinpoint27. Mr. Salve, learned Senior Counsel in his submissions also made reference to the definition 'Commissioning and Installation Agency' and 'Taxable Service' under Section 65(29) F and (105)(zzd) of the Finance Act, 1994 as was brought out w.e.f. 14.05.2003 and subsequently w.e.f. 10.09.2004 and 16.06.2005. In fact, the learned Senior Counsel also referred to the ~efinition of 'Erection, Commissioning and Installation' as was inserted as sub-section (39a) to Section 65 by the G Finance Act (No.2) of 2004 w.e.f. 10.09.2004. The definition of the above provisions were made w.e.f. 16.06.2005. Lastly, learned Senior Counsel brought to our notice the definition of 'Taxable Service' under sub-clause (zzzzaf\o sub-section (105) of Section 65, which was inserted by the Finance Act, 2008 H

1066 SUPREME COURT REPORTS [2014) 5 S.C.R.

A w.e,f. 16.05.2008. The said provision reads as under:

"105 - Taxable Service means any service provided,-

"(zzzza) to any person, by any other person in relation to the execution of a works contract, excluding works contract B in respect of roads, airports, railways, transport terminals, 1

bridges, tunnels and dams.

Explanation-For the purposes of this sub-clause, "works contract" means a contract wherein- c 1

(i) Transfer of property in goods involved in the execution of such contract is leviable to tax as sale of goods, and

. (ii) Such contract is for the purposes of carrying out.- I

D (a) erection, commissioning or installation of plant, machinery, equipment or structures, whether pre- fabricated or otherwise, installation of electrical and electronic devices, plumbing, drain laying or other installations for transport of fluids, heating, E ventilation or air-conditioning including related pipe work, duct work and sheet metal work, thermal insulation, sound insulation, fire proofing or water proofing, lift and escalator, fire escape staircases or elevators; or F (b) construction of a new building or a civil structure or a part thereof, or of a pipeline or coriduit, primarily for the purposes of commerce or industry; or

G (c) construction of a new residential complex or a part thereof; or

(d) completion and finishing services, repair, alteratiol) renovation or restoration of, or similar services, in relation to (b) and (c) or H

KONE ELEVATOR INDIA PVT. LTD. v. STATE OF T.N. & 1007 ORS. [FAKKIR MOHAMED IBRAHIM KALIFULLA, J.] (e) turnkey projects including engir1eering, A procurement and construction or commissioning (EPC) projects:"

28Copy pinpoint28. Before referring to the details of the abov!3 provisions brought to our notice, it is relevant. to mention at this juncture 8 the specific prayers of the Petitioner in the leading case W.P.(C) No.232 of 2005 and W.P.(C) No. 548 of 2008. In W.P.(C) No.232 of 2005, the Petitioner seeks to challenge the impugned notices dated 30.03.2005 by whicti the First Respondent wa11ted to re-open the assessment for the Assessment Years 1999~2000 (C.S.T. No. 631067/1999-2000) under the Central C Sales Tax Act and again for the years 1999-2000 (TNGST No. 1340636/99-2000), and 2000-2001 (TNGST No. 1340636/ 2000-01) under the Tamil Nadu General Sales Tax Act, 1959. Similarly,. in W.P No.548 of 2008, the challenge is to the revised pre-assessment notices dated 23.06.2006 for the assessment period 2002-2003 and 03.04.2008 for the Assessment Year 2001-2002, issued by the Third Respondent and the Second Respondent respectively. Keeping the said challenges in mind, the provisions will have to be examined. As has been stated in the opening part of this Judgment, the answer to the question referred to us will have to be made, keeping in mind the statutory provisions relating to charging of tax vis-a-vis the impact of Article 366 (29A)(b) of the Constitution.

29Copy pinpoint29. Sub-section (29) of Section 65 of the Finance Act, F 1994 defines what is 'Commissioning and Installation Agency' providing services in relation to commissioning and installation. Sub-clause (zzd) to sub-section (105) of Section 65 defines the 'taxable service' to mean any service provided to a customer by a commissioning and installation agency in relation to G commissioning or installation. These definitions relating to taxable service of commissioning and installation agency as was prevailing w.e.f. 14.05.2003, were general and there was no specified category or class of service referred to therein. With effect from 10.09.2004, there was an addition made in sub- H

100~ SUPREME COURT REPORTS [2014] 5 S.C.R.

A section (29) of Section 65 by which while defining a 'commissioning and installation agency', the expression 'erection' came to be added. A further sub-section, namely, sub- sectibn 39(a) was also introduced by Finance Act (No.2) of 2004 w.e.f. 10.09.2004, which further defined the expression B 'ereqtion, commissioning or installation' to mean any service provided by a commissioning and installation agency in relation to erection, commissioning of installation of plant, machinery or equipment. Consequently: in sub-section 105(zzd) the E1xpression 'erection' was added along with the other c epepr'3ssions 'commissioning or installation', which was again to operate w.e.f. 10.09.2004. The above definition relating to 'commissioning and installation agency' under sub-section (29) of Section 65 continued even w.e.f. 16.06.2005. However, in sub-section 39(a) of Section 65 while defining 'erection, com,missioning or installation', an elaborate definition came to 0 be introduced as per which the expression 'erection, commissioning or installation' would mean any service provided by a commissioning or installation agency in relation to installation of among other classes of service included under sub-clause (ii)(e) LIFT and ESCALATOR, fire escape E staircases or travelators or such other similar services, which came into operation w.e.f. 16.06.2005. However, the definition of lfaxable Service under sub-section 105(zzd) remained unaltered.

F , 30. Chapter V under the caption 'Service Tax' of the 'Finance Act', 1994 underwent a further change wherein a sub- clause (zzzza) to sub-section 105 came to be added, which while defining a 'taxable service' to any person by any other person in relation to the execution of 'Works Contact' excluding G 'Wc;>rks Contract' in respect of roads, airports, railways, transport terminals, bridges, tunnels and dams, specifically brought out an explanation for the purpose of the said sub- clause, in and by which, the expression 'Works Contract' came to be defined for the first time. As per the said definition, it me~nt that a transfer of property in goods involved in the

KONE ELEVATOR INDIA PVT. LJ°D. v. STATE OF T.N. & 1009 ORS. [FAKKIR MOHAMED IBRAHIM KALIFULLA, J.] execution of such contract would be leviable to tax as sale of goods and to ascertain whether the said contract is a 'Works Contract', it went on to State that such contract should be for the purpose of carrying out inter aJia for the erection, commissioning or installation of LIFT and Escalator, fire escape staircases or elevators. It is very relevant to note that this definition of 'Works Contract' by way of an explanation to sub-clause (zzzza) to sub-section (105) of Section 65 came to be introduced for the first time w.e.f. 16.05.2008.

31Copy pinpoint31. Therefore, while examining the question referred to this C Bench in the order of reference dated 12.05.2005, in an attempt to answer the said reference,· it will have to be necessarily noted at the very outset that as and from 16.05.2008, the erection, commissioning or installation of LIFT and Escalator would fall within the expression 'Works Contract' having regard to the specific definition so brought out under the D Finance Act, 1994 w.e.f. 16.05.2008 for the purpose of Service Tax. However, the question still remains whether the same would hold good for levy of Sales Tax on the anvil of Article 366(29A)(b) of the Constitution read along with the provisions of the Sales Tax Act and that to. for the period prior to the said E date, namely, 16.05.2008. As noted by us, in the Writ Petitions, the challenge is to the revised pre-assessment notices under the Central Sales Tax Act or under the respective State General Sales Tax Act for the assessment periods related to the years 1999-2000, 2000-2001, 2001-2002 and 2002-2003. Therefore, F the question for consideration is what is the legal position with reference to the nature of contract of the Petitioner vis-a-vis its Purchaser with reference to manufacture, supply and installation of LIFTS. Based on the terms of the specific contracts, a specimen copy is placed before us vis-a-vis the G relevant statutory provisions which are in existence during the relevant years.

32Copy pinpoint32. Other statutory provisions which are relevant to be noted while construing the definitions prior to 16.05.2008 are H

1b10 SUPREME COURT REPORTS [2014) 5 S.C.R.

A sub-clause (29), (39a) and (105)(zzd) of Section 65. Service Tax was levied at the rate of 12% for the value of the 'taxable services' referred to under sub-clause (zzd) of sub-section (105) of Section 65. After 16.05.2008, under the amendments introduced by Finance Bill No.2 of 2009, the charge of service tax underwent a change and the rate was brought down to 5% of the value of taxable services referred to in sub-clauses (zzd) and (zzzza) of sub-section (105) of Section 65.

! 33. Having noted the above statutory provisions, we are now again mandated to examine the question as to whether the manufacture, supply and installation of LIFTS by the Petitioner would fall within the expression 'Works Contract' or 'Sale'. For examining the said question, a recapitulation of the various details has to be noted based on the specimen contract that came into existence as between the Petitioner and the D Purchaser. I A detailed . reference has been made to the salient' features of the said contract and I have also highlighted the terms contained therein. There was a detailed description of the product to be supplied by the Petitioner, namely, the LIFT to its Purchaser. The description about the product content with very many minute details relating to the model, the capacity it would carry, namely, the number of passengers, the weight, the sophisticated equipments such as feather touch buttons, highly precisioned stop facility at each floor of its operation, the smooth sailing of the LIFT in between different floors, the other safety gadgets provided in the LIFT and so on. Thereby, what was highlighted in one part of the contract was the advantage that a customer would get when the Petitioner's LIFT is purchased and erected in its premises. In the other parts of the contract, the obligation of the Purchaser was to provide certain facilities such as hoist way, power supply, procurement '"of permits, licences, etc. under certain other enactments, the payment schedule with the time schedule along with the default clauses are stipulated. There are also provisions in the contract rel~ting to the time within which the LIFT will be commissioned, namely, within 52 weeks and if for any reason any delay is·

KONE ELEVATOR INDIA PVT. LTD. v. STATE OF T.N. & 1011 ORS. [FAKKIR MOHAMED IBRAHIM KALIFULLA, J.]

caused beyond the control of the Petitioner, even then there would be a requirement of making the full payment by the Purchaser to the Petitioner. This is on the Petitioner informing its readiness with the materials of the LIFT to be commissioned available at the premises of the Petitioner with no obligation for its commissioning. Also a period of 90 days is stipulated for effectuating the final payment. •

34Copy pinpoint34. The arguments on behalf of the Petitioners was mainly addressed by Mr. Salve, learned Senior Counsel. In his submissions, learned Senior Counsel contended that after the C, decision of this Court in Kone Elevators (India) Pvt. Ltd. (supra), the various States who were earlier conte~ding that supply and erection of a LIFT was a 'Works Contract', took a diametrically opposite view and started contending that the said contract will amount to 'Sale' and not 'Works Contract'. The learned Senior Counsel drew our attention to some of the D counter affidavits filed on behalf of the State of U.P., Andhra Pradesh and Karnataka in Writ Petition No.232 of 2005, wherein such a stand has been taken by the respective State I

Governments. The learned Senior Counsel by referring to the definition of 'Works Contract' under Section 20j) of the Orissa E Sales Tax Act, 1947, which has been extracted in the earlier part of this Judgment, submitted that the manufacture., supply and erection/installation of a LIFT squarely falls within the said definition of 'Works Contract' and, therefore, the stand of the Petitioner is well-fol.inded. In support of his submissiops, the F learned Senior Counsel also relied upon the Division Bench decision of the Bombay High Court in OTIS Elevators Co. (India) Ltd. vs. The State of Maharashtra reported in [1969] 24 STC 525. G

35Copy pinpoint35. The learned Senior Counsel then referred to the Standard Contract Form of the Petitioner, as well as the Field Installation Manual and contended that the various works to be carried out. in the course of installation of a LIFT can only be held to be a 'Works Contract'. By doing so, he drew our H

1012 SUPREME COURT REPORTS [2014] 5 S.C.R.

A attention I to the Field Installation Manual, which is meant for its field staff at the time of erection of the LIFT to follow the various instructions and the manner in which the LIFT is to be assembled at the premises of the Purchaser. By making reference to the said manual, which contains very many details B as to the various parts of the LIFT and how these parts are to I be .assembled and also the safety measures to be followed, su~mitted that such an elaborate process involved in the . assembling of the LIFT is nothing but a contract for work and not for sale. He therefore, contended that the decision in Kone c EIEfvators (India) Pvt. Ltd. (supra) has to be varied.

36Copy pinpoint36. The learned Senior Counsel in his submissions further contended that in the light of the prescription contained in sub- Article 29A(b) of Article 366 of the Constitution and having regard to the nature of operation/function in the supply and D installation of a LIFT, the said activity cannot be called as a mere I 'Sale' but can only be called as a 'Works Contract'.

37Copy pinpoint37. The learned Senior Counsel also relied upon the decision- in State of Madras vs. Richardson Cruddas Ltd. E reported in (1968] 21 STC 245 in support of his submissions. By referring to the provisions contained in the Bombay Lifts Act, 1939 in particular Sections 3, 4, 5 and 7 and Rules 3, 5, 6, 9 and 9A along with Form A 1, the learned Senior Counsel contended that the said provisions in the Acts and the Rules, F also goes to show that the installation of a LIFT, having regard to the nature of the activity and the functions involved can only be held to be a 'Works Contract' and not a 'Sale'. According. to the learned Senior Counsel, the contract being an indivisible cbntract for supply and erection of the LIFT to the customer and G t~e erection part of it is so intertwined with the supply of the UFT, the contract-can only be construed as 'Works Contract' and not a 'Sale'.

38Copy pinpoint38. The learned Senior Counsel also relied upon a decision of the Government of India in In re: OTIS Elevator H Co. (India) Ltd. (1981) ELT 720 in support of his submissions.

KONE ELEVATOR INDIA PVT. LTD. v. STATE OF T.N. & 1013 ORS. [FAKKIR MOHAMED IBRAHIM KALIFULLA, J.]

That was a decision of the Government of India in an appeal filed by OTIS Elevator Company under the provisions of the Central Excise Act, wherein it was contended that erection and installation of elevators and escalators were indivisible 'Works Contract' and do not constitute contracts for mere sale of goods. ·While dealing with the said submission, the above decision came to be rendered by the Government stating that elevators and escalators erected and installed by the company became a part of immovable property and hence are not goods. It was, however, held that the component parts of the elevators and escalators manufactured and cleared from their respective c factory would be chargeable to duty at the appropriate rates.

39Copy pinpoint39. By relying on the above decision, the learned Senior Counsel also brought to our notice an order under Section 37B of the Central Board of Excise and Customs dated 15.01.2002, wherein the assessibility of plant and machinery assembled at site was explained and as regards the LIFTS and Escalators in sub-paragraph (iv) of paragraph 5, it was described that though LIFTS and Escalators are specifically mentioned in sub- heading 8428.10, those which are installed in buildings and permanently fitted into the civil structure cannot be considered to be excisable goods. The learned Senior Counsel therefore,~ by referring to the above orders of the Government of India and the Board of Central Excise, contended that the same reasoning would hold good while considering the case of the Petitioner. F

40Copy pinpoint40. As regards the question whether manufacture, supply and installation of LIFTS would fall within the expression 'Sale' or 'Works Contract', the learned Senior Counsel heavily relied upon the recent three Judge Bench decision of this Court in G Larsen & Toubro Ltd. (supra). The judgment was rendered by one of us, Hon'ble Mr. Justice R.M. Lodha, wherein in paragraph 101, this Court while answering a reference made by a two Judge Bench, held that a contract may involve both work and labour and also an element of sale and in such H

1014 SUPREME COURT REPORTS [2014] 5 S.C.R.

A combosite contract, the distinction between a contract for sale of goods and contract for work (or services) virtually gets diminished. It was further held that the 'Dominant Nature Test' has no application and the earlier decisions which held that the substance of the contract must be seen, have lost their B significance where transactions are of the nature contemplated in Article 366(29A). It went on to hold that even if the dominant intention of the contract is not to transfer the property in goods and rather it is rendering of service or the ultimate transaction is transfer of immovable property, then also it is open to the C States to levy Sales Tax on the materials used in such contract, if such contract otherwise has elements of 'Works Contract'. Ultimately, it was held that the enforceability test is also not determinative. The learned Senior Counsel drew our attention to paragraphs 17, 19, 21, 47, 60 to 65 and 76, as well as paragraph 101 where the legal position was summarised while 0 answering the question referred to it.

41Copy pinpoint41. The learned Senior Counsel by drawing our attention to the definition contained in the Finance Act of 1994, in particular sub-sections (29), 39(a) of Section 65 and sub-clause E (zzd) to sub-section (105) of Section 65, contended that ·such definitions in the Finance Act under Chapter V for imposition of Service Tax, would show that the installation of a LIFT is nothing but a 'Contract for Works' and not 'Sale'. The learned Senior Counsel drew our attention to sub-clause (zzzza) to sub- F · section (105) of Section 65 wherein, in the explanation to the said sub-clause, the erection of a LIFT has been defined to mean a 'Works Contract'. The learned Senior Counsel would, therefore, contend that there cannot be two different meanings relating to 'Works Contract', one for the purpose of Service Tax G and the other for the purpose of Sales Tax. The submission of the 1$arned Senior Counsel was adopted by all other counsel who ~ppeared for the Petitioners in the other cases.

42Copy pinpoint42. Mr. Dwivedi, learned Senior Counsel appearing for the State of Orissa, in his submissions contended that the contract H

KONE ELEVATOR INDIAPVT. LTD. v. STATE OF T.N. & 1015 ORS. [FAKKIR MOHAMED IBRAHIM KALIFULLA, J.]

as between the Petitioner and its Purchaser, going by its terms, is always one for sale of its branded LIFTS, which having regard to the nature of the product has to be necessarily erected at the site, that 90% of payment is to be made on the signing of the contract, that the LIFTS would be handed over to the Purchaser on its erection and that the contract provides for the payment of balance 10% on fulfillment of certain other conditions. The learned Senior Counsel would, therefore, contend that in the present case, there can pe no doubt at all as to the nature of contract as between the parties, which is one for sale and, therefore, there is no necessity to further c examine whether it is a 'Sale' or 'contract for works'. The learned Senior Counsel by drawing our attention to the judgment in Larsen and Toubro Ltd. (supra) contended that the converse position argued by the learned Senior Counsel Mr. Rohinton Nariman in the said judgment as recorded therein, 0 would explicitly show as to how a clear distinction can be drawn as between a 'Works Contract' and a 'contracts for Sale'. The learned Senior Counsel further pointed out that in the case on hand, the contract being one for sale of the LIFTS, the same cannot fall within the expression 'Works Contract'. In support of his submissions the learned Senior Counsel relied upon the E decisions in Mis Patnaik and Company (supra), Mis T. V. Sundram Iyengar & Sons vs. The State of Madras - (1975) 3 SCC 425, Union of India vs. The Central India Machinery Manufacturing Company Ltd. and others - (1977) 2 SCC 847 and also referred to the decision in Hindustan Aeronautics Ltd. F (supra), to state as to what are the basic tests to be applied in order to find out whether a contract as between the parties will fall within the expression 'Works Contract' or one of 'Sale'. The learned Senior Counsel, however, fairly brought to our notice the provisions contained in the Orissa Value Added Tax Act, G 2004, in particular Rule 6 and the Appendix, to show that by virtue of the said Act in the State of Orissa, as far as value added tax is concerned, erection of a LIFT, Elevator and Escalator would fall under the category of 'Works Contract' and that in the Appendix, a provision of 15% is made for deduction H

SUPREME COURT REPORTS [2014] 5 S.C.R.

A towards labour charges, while arriving at the taxable turnover.

43Copy pinpoint43. Mr. R. Venkataramani, learned Senior Counsel, appearing for the State of Tamil Nadu and Andhra Pradesh, drew pur attention to the definition of 'Sale' and 'Works Contract' under the Andhra Pradesh General Sales Tax Act, 8 1957 as defined in Section 2(n) & (t) and submitted that going by the definition of 'Sale' every transfer of the property in goods in pursuance of a contract or otherwise by one person in the course of his trade or business, for cash, or for deferred payment or for any other valuable consideration, the same would I be a sale and by referring to the definition of 'Works Contract' under Section 2(t), he pointed out that the definition itself makes it clear that any agreement for cash or for any other valuable consideration for carrying out the building construction, manufacture, fabrication etc., including erection/installation or commissioning of any movable or immovable property alone would fall within the said definition. By referring to the above statutory provisions, the learned Senior Counsel contended that there is a world of difference as betw¢en a contract by which one party agrees to supply a product /as compared to a party agreeing to carry out a work such as ponstruction of building, erection, installation or commissioning of movable or immovable property. In other words, ~ccording to the learned, Senior Counsel going by the terms of ~he contract between the/ Petitioner and the prospective Purchasers~what is agreed t~ F between the parties is the supply of LIFTS and the act o installation is not the contract for which the parties were a idem. Therefore, if the contract distinctly discloses that it is on~ for supply of a LIFT ~nd the same is effected by erecting it in~ the pre. mises of the Purchaser, it cannot be eld that the act o 1 h.,

G erection alone shot.11d be taken into account and on that basis hold that the contra;ct was one for 'Works' and not for 'Sale'. '·

44Copy pinpoint44. The learned Senior Counsel by referring to paragraph 101 of the judgment in Larsen & Toubro Ltd. (supra) contended that by installation, the LIFT in its full form is brought out and

KONE ELEVATOR INDIA PVT. LTD. v. STATE OF T.N. & 1017 ORS. [FAKKIR MOHAMED IBRAHIM KALIFULLA, J.]

handed over to the Purchaser. In other words, according to the learned Senior Counsel by installation, the LIFT is put in a fit condition for use and submitted that the principles laid down in the case of Mis. Patnaik and Company (supra), T. V. Sundaram Iyengar & Sons (supra), have all laid down the correct principles and, therefore, the decision in Kone Elevators 8 (India) Pvt. Ltd. (supra) was rightly decided. While referring to the decisions in Vanguard Rolling Shutters and Steel Works (supra) and Man Industrial Corporation Ltd. (supra), the learned counsel submitted that none of the said decisions can be said to warrant any consideration. In support of his submission learned Senior Counsel relied upon the decision in Dell Inc. vs. Superior Court No.A 118657 and relied upon the following passage in the said judgment:

"Drawing the line between taxable sales of tangible property and nontaxable sales of services or intangibles is sometimes difficult, especially where property that was largely created by personal services is transferred. (Hellerstein, State Taxation (3d ed.2007) 12.08[1], p.1 ). Where services and tangible property are inseparably bundled together, determination of the taxability of the translation turns upon whether the purchaser's "true object" . was to obtain the finished product or the service."

45Copy pinpoint45. The learned Senior Counsel, therefore, contended that when the true object of the transaction in the case on hand was to obtain a finished product whatever services involved should be held to be incidental and also should be treated as part of a sale of the tangible property and thus subject to 'sales' or 'use tax'.

46Copy pinpoint46. Dr. Singhvi, learned Additional Advocate General G appearing for the State of Rajasthan prefaced his submission by contending that the first question to be examined is whether the transaction is a 'Sale' or 'Works Ccinfract'. According to the

1018 SUPREME COURT REPORTS (2014] 5 S.C.R.

A learned Counsel, the test that was prevailing pre 46th Amendment, continued to hold good and that the sale of a LIFT is definitely not a 'Works Contract'. The learned Counsel relied upon the decision reported in Bharat Sanchar Nigam Ltd. and Another vs. Union of India and others, (2006) 3 SCC 1, in particular paragraph 43 and pointed out that the transactions 8 which are 'mutant ·sales' alone are limited to the clauses of Article 366 (29-A) and that all other transactions would have to qualify sales within the meaning of Sale of Goods Act, 1930 for the purpose of levy of sales tax. The learned Counsel while C referring to the judgment in Larsen & Toubro Ltd. (supra) by making specific reference to paragraph 90, contended that although the decision in Hindustan Shipyard Ltd. (supra) has\ been distinguished, paragraph 6 of the said decision is still the correct proposition of law to be applied in all cases to find out the nature of a contract. 0

47Copy pinpoint47. Mr. Preetesh Kumar, learned Standing Counsel for the St<;ite of Gujarat by referring to paragraphs 71 to 76 of the judgment in Larsen & Toubro Ltd. (supra) and in particular the ratio laid down in paragraph 76, contended that even by E applying the test stated therein, the contract of the Petitioner for supply of the LIFT could not be brought within the concept of 'Works Contract'. The learned Counsel contended that in the light of the agreement by which the Petitioner came forward to supply the LIFT and erect the same in the premises of the F Petitioner, it could only be held to be a 'contract for sale' and not 'Works Contract', thereby attracting Article 366 (29-A) (b) of the Constitution. 1

48Copy pinpoint48. Mr. Darius Khambata, learned Advocate General for Maharashtra and Mr. K.N. Bhatt, learned Senior Counsel for G Karnataka actually conceded to the effect that the quest,ion . posed for consideration has been fully answered in the decision in Larsen & Toubro Ltd. (supra).

49Copy pinpoint49. Mr. Malhotra, learned Additional Solicitor General for H

KONE ELEVATOR INDIA PVT. LTD. v. STATE OF T.N. & 1019 ORS. [FAKKIR MOHAMED IBRAHIM KALIFULLA, J.] Union of India contended that the Union of India has nothing to A do with the issue as to whether it is a 'Sale' or 'Works Contract', inasmuch as erection of LIFT has been brought under the definition of 'Works Contract' for the purpose of levying service tax. 8

50Copy pinpoint50. Mr. Salve, learned Senior Counsel in his submissions referred to the decisions in Mis Vanguard Rolling Shutters and Steel Works (supra), Commissioner of Sales Tax, M.P. vs. Purshottam Premji reported in (1970) 2 SCC 287 and Commissioner of Central Excise, Ahmadabad vs. Solid and C Correct Engineering Works and others reported in (2010) 5 SCC 122. The learned Senior Counsel attempted to distinguish the decision in Mis Vanguard Rolling Shutters and Steel Works (supra). In so far as the decision in Solid and Correct Engineering Works and others (supra), the learned Counsel after making reference to paragraph 16, 23 and 25, submitted D that erection or installation of a LIFT could not, therefore, be held to be a structure which was embedded to the earth on a permanent basis in order to call it an immovable property.

51Copy pinpoint51. Having heard the learned Counsel for the Petitioners E and the Respondents and having considered the material papers placed before us and the various decisions relied upon by the Petitioners as well as the Respondents, at the foremost, what has to be first ascertained is whether the contract between the Petitioner and its Purchaser would fall within the definition of 'Works Contract' in order to attract clause (b) to Sub-Article (29-A) of Article 366 of the Constitution. In fact, if an answer to the said question can be held in the affirmative, then that would axiomatically lead to an answer in favour of the Petitioner. Though, several decisions, wherein various tests have been highlighted, were cited before us and also reference to various provisions of different statutes, as well as the Finance Act provisions were brought to our notice, in my view, before adverting to those tests and the provisions, in the first instance, H

1 o~o SUPREME COURT REPORTS [2014) 5 S.C.R.

A it will have to be found out as to what exactly was the nature of contract, as between the Petitioner and its Purchasers.

52Copy pinpoint52. At the outset, even before examining the terms of the contract, it will have to be stated that the only business of the Petitioner is manufacture and supply of LIFTS/ELEVATORS. 8 In fact, neither Mr. Salve nor any other Counsel appearing for the Petitioners submitted before us that the business of the Petitioner included any other activity along with the manufacture and supply of LIFTS/ELEVATORS. Certainly, it is not the case of the Petitioner that mere installation/erection of LIFT/ C ELEVATOR simpliciter is their business activity. It cannot also be contended that the job of installation/erection of a LIFT/ ELEVATOR can be done only by LIFT/ELEVATOR manufacturers. In other words, manufacture of LIFT and erection of a LIFT can be independently handled by different persons. D Therefore, the best course to proceed is on the admitted position that the business of the Petitioner is manufacture and supply of LIFTS/ELEVATORS as well as its installation. Once, the said factual position relating to the business of the . Petitioners is steered clear of, the next question relates to the E basis of the Contract that emerged between the Petitioners and 1

the Purchasers in regard to the supply of the LIFTS/ i ELEVATORS and thereby ascertaining what were the agreed terms as between the parties. It must be stated that in order to find out the answer to the question referred, namely, whether F mantJfacture, supply and erection/installation of LIFTS would fall within the concept of 'Sale' or 'Works Contract', analyzing the various tests in the forefront and thereafter apply them to the contract concerned, may not be an appropriate approach in the peculiar facts of this case. G

53Copy pinpoint53. Therefore, ii1 my view, the proper course would be to first analyze what exactly is the contract between the Petitioner and the Purchaser and under the terms of the 'Contract' what is the element of works/service involved in order to hold that it

KONE ELEVATOR INDIAPVT. LTD. v. STATE OF T.N. & 1021 ORS. [FAKKIR MOHAMED IBRAHIM KALIFULLA, J.] is a 'Works Contract'. Therefore, at the risk of repetition, it will A have .to be stated that the initial exercise to be carried out is as to what are the terms of the contract.

54Copy pinpoint54. I have set out in detail the said terms based on the specimen contract filed before us in the form of Annexure A-1 B along with its enclosures. These terms have been set out in detail in paragraphs 8 to 19 and 32. I have also found that the Purchaser placed an order with the Petitioner for supply of LIFTS/ELEVATORS mentioning the specifications. In fact, the document dated 23.12.2009, along with which all the other connected annexures have been enclosed states that it is by C way of acknowledgement of the order of the proposed features of the ~IFT to be supplied. It is true that in the enclosures annexed along with the said document, in few places, the expression 'Works Contract' has been used. It is needless to state that simply because someone calls an activity as a 'Works D Contract' that by itself will not ipso facto make the activity a 'Works Contract' unless the activity as explained in the document affirms and confirms to the effect that the said activity is nothing but a 'Works Contract'. In my opinion, when a detailed reference to the terms agreed upon between the E Petitioner and the Purchaser is made, it will not be proper to merely go by such expression used sporadically to hold that the contract is a 'Works Contract'. On the other hand, I find that what the Petitioner has agreed under the Contract, is only to supply its branded LIFT in the premises of the Purchaser. I can firmly F and validly state that a careful analysis of the terms contained in the contract will lead only to that conclusion and not any other conclusion.

55Copy pinpoint55. As stated earlier and as has been set out in detail in paragraphs 8 to 19, the Petitioner while agreeing to supply an G Elevator of a specific model, highlighted the details of the LIFTS, such as, its technical details, advantages of its product and other sophisticated equipments put into the product. In fact, if at all any work element is involved in the activity of supply of H

1022 SUPREME COURT REPORTS [2014] 5 S.C.R.

A the LIFTS/ELEVATORS, I find that the major part of the work has been directed to be carried out by the Purchaser, in its premises, in order to enable the Petitioner to erect its LIFT/ ELEVATOR in the said premises. In a very insignificant manner, the Petitioner undertakes to attend to certain aspects while erecting the LIFTS in the premises of its Purchaser, such as connecting the power supply to the LIFT after fixing it in the identified place where the Purchaser has prepared the Hoist/ Well in its premises and such other aspects as mentioned in the contract. The Petitioner cannot be heard to say that it brings different parts of the LIFT and that its activity of assembling the same in the premises of the Purchaser should be construed as one of service. In view of the nature of product that the Petitioner agreed to supply to its Purchaser, it has to necessarily assemble different parts in the premises of the Purchaser and thereby, fulfill its contract of supply of the LIFT/ 0 ELEVATOR in a working condition.

56Copy pinpoint56. When examining the claim of the Petitioner that what was agreed by the Petitioner in the contract with its Purchaser is nothing but a 'Works Contract', such a claim should be explicit and must be discernable from the contract itself. When in the Contract the element of 'Works Contract' is totally absent and what was agreed between the parties was only supply of its elevator for a fixed price, mere mentioning of the expression 'Works Contract' or by making refere,nce to the basis for fixing the cost of labour involved in the manufacture or by simply using che expression 'Works Contract' without any scope of performing any work at the command of the Purchaser, in my opinion, the Petitioner's claim to hold its activity as a ··works Contract' cannot be accepted on mere asking. In other words, the contract must disclose in no uncertain terms that it was one for carrying out 'the work' and the supply of the materials were part of such agreement to carry out any such specified work. Here, it is the other way around, the contract is only for supply of LIFTS/ELEVATOR and whatever element of works which the H Petitioner claims to carry out in effecting the supply is virtually

KONE ELEVATOR INDIA PVT. LTD. v. STATE OF T.N. & 1023 ORS. [FAKKIR MOHAMED IBRAHIM KALIFULLA, J.] very insignificant as compared to the element of sale, which is A paramount as found in the terms of the contract. The whole of the preparatory work for the erection of the LIFT is that of the Purchaser and the Petitioner merely goes to the Purchaser's premises and fixes the various parts of the LIFT in the slots created for it. B

57Copy pinpoint57. While making a deeper scrutiny of the terms of the · contract as a whole, as noted earlier, in Annexure A-1, which is the acknowledgement of the Order dated 23.12.2009, the very subject column States: c "Order Acknowledgment for One (1) No. OTIS Electric Traction Passenger Elevator for your Building at "BAPU NAGAR, JAIPUR, RAJASTHAN"."

58Copy pinpoint58. The contehts of the letter also states that the Petitioner o was glad to receive the valued order placed with it by the Purchaser and stated that it is prepared to supply and install One (1) No. OTIS Electric Traction Passenger Elevator. Thus, while acknowledging the order placed by the Purchaser, the proposed specifications submitted earlier based on the E Purchaser's requirement have been enclosed. A specific Contract number is also provided. Rest of the documents consist of the details of the model, the nature of the machine that would be operating the LIFTS, the brake system, the type of parts that are used in the Machine and the peculiar features of those mechanical aspects. Thereafter, the benefits of the LIFTS are set out, namely, the smooth and controlled acceleration/deceleration, better riding quality, assured leveling accuracy of+/- 5 MM, improved flight time, improved reliability and increased efficiency, reduced power consumption, reduced heat release, flexibility of programme and programming of features at site, enhancing the value of the building where the LIFT is erected and simplified maintenance. The other terms relate to maintenance, wherein the Petitioner's offer of providing 12 months free maintenance, the time from which such maintenance would commence and the conditions upon H

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A which such maintenance offered would operate and also making it clear that during the period of maintenance the Purchaser will be the owner and also the circumstances in which the Petitioner would be liable for any damage that occurs to the LIFT. A consideration of this part of the contract also does not refer to or contain any element of work or service to be provided as agreed between the parties.

59Copy pinpoint59. The other set of terms are called as 'Preparatory Work'. Under the said head, it is mainly stated as to the nature of preparatory work that the Purchaser will have to organize in its premises, such as, the time within which such preparatory work is to be carried out, which would require the Purchaser to design and furnish what is called as Elevator hoist way/ structure to provide in its building to enable th~ Petitioner to supply its LIFT and locate it. It contains as many as 21 different aspects of preparatory work wherein, what all the Petitioner has come forward to provide is a ladder for having access to the pit. The other one which the Petitioners agreed to provide is a steel fascia for each sill. The third one is the cutting of walls, floors or partitions together with any repairs to be made necessary including .. grouting of all bolts, sills, members indicator and button boxes, etc. and a steel scaffolding to be made Jn the course of erection, which the Petitioner undertakes to provide.

60Copy pinpoint60. As far as the provision of a ladder in the pit is concerned, it can again be taken only as a material part of the LIFT .and it does 11ot involve any work to be performed. Similarly, provi'sion of a steel fascia at every sill level is again another part of the LIFT and here again there is no element of work or G service to be rendered. The provision relating to cutting of walls, floors or partitions together with any repairs to be made necessary including groufing of all boltS, sills, members indicator and button boxes etc., are but certain incidental minor jobs to be attended to in the course of the supply and erection of the LIFT. When under the contract, the Purchaser has been H

KONE ELEVATOR INDIA PVT. LTD. v. STATE OF T.N. & 1025 ORS. [FAKKIR MOHAMED IBRAHIM KALIFULLA, J.)

directed to prepare the hoist way, which is a solid structure in the building and in the course of the erection of the LIFT if some holes are to be drilled for fixing a frame or a nut and bolt as compared to the enormity of the preparatory work that has been entrusted with the Purchaser for the purpose of erecting the LIFT, it must be stated that the said work of cutting the walls to fix the frames and grouting the bolts could not be held to be a service or work for which the contract was entered into. It is like doing some incidental work for fixing a Fan or an Air Conditioner. Providing a steel scaffolding again is not a matter which can be held to be a contract for works. On the other hand, c for the purpose of grouting bolts and fixing the frames in a hoist way, which is stated to be having 30/40 metres height/depth, it has to be mandatorily arranged by someone but here again it will have to be stated that the same cannot be a decisive one for ascertaining the nature of contract, as between the parties. D Therefore, on the whole, the terms under the head 'Preparatory Work' does not in anyway persuade us to hold that what was agreed between the parties in this contract was a 'Works Contract'.

61Copy pinpoint61. The next set of conditions contained in the Contract is under the head 'IEEMA Price Variation Clause for Elevator Works Contracts'. As stated earlier, this is the document in which the expression 'Works Contract' has been used. When examining the details contained under the said head what all it says is that the price quoted/confirmed is based on the cost of raw materials/components and labour cost as on the date of quotation and the same is deemed to be related to Wholesale Price Index Number for Metal Products and All India Average Consumer Price Index Number for Industrial Workers. The said part of the contract is nothing but an indication that the price agreed between the parties or the supply of the LIFT may vary under certain contingencies and such variation will depend upon the price indices relating to Metal Products and the Consumer Price Index. I see no co-relation at all for the said stipulation contained vis-a-vis the caption 'Elevator Works Contract'. H

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A Merely because the price is likely to vary based on the variation in the indices of the price of Metals and Consumer Price, I fail to understand as to how that has any relevance or a reference to those indices would determine the nature of the contract as a 'Works Contract'. Therefore, the caption 'Elevators,..Works B ·Contract', while referring to the Price Variation Clause is a total misnomer and based on the said caption simpliciter, the whole • contract cannot be called as a 'Works Contract'. Under the very same head it is stipulated by way of payment terms that claim for manufactured materials should be paid along with the c material invoice and claim for installation should be paid along with their final invoice, which according to the Petitioner would relate to the labour costs. It however, states that the price quoted in the proposal would be formed upto a particular date and thereafter, if there is any delay in completion of installation and commissioning due to reasons attributable to the 0 Purchaser, the price would be varied in accordance with the above costs indices. The price variation is supposedly agreed between the parties to prevail upto a specified date. Therefore, in the event of the contract being completed within the specified date, there is no question of any price variation arising in order to work out such variation based on the 'Wholesale Price Index' or 'Consumer Price Index'. Even assuming a contingency arises due to the fault of the Purchaser, at best it may result in some variation in the price and I fail to understand as to how based on the working out of such variation in the price, it can be held that the whole contract is a 'Works Contract'.

62Copy pinpoint62. I do not find any sound logic or basis in the Petitioner referring to the Price Variation Clause under the caption I 'Works Contract'. Therefore, it can be validly stated that by calling the Price Variation Clause as an 'Elevator Works Contract', the contract cannot be construed as a 'Works Contract'. On the other hand, going by the stipulations contained therein viz., that the claim for manufactured materials should be paid along with material invoice and the installation charges to be pai~ based on final invoice makes it clear that the contract

KONE ELEVATOR INDIA PVT. LTD. v. STATE OF T.N. & 1027 ORS. [FAKKIR MOHAMED IBRAHIM KALIFULLA, J.] is divisible in its nature and to call it an indivisible one, is contrary to its own terms.

63Copy pinpoint63. With this, the 'Conditions of the Contract' can be referred to, which contains as many as 27 conditions. Tnese conditions have been elaborately discussed in paragraph 18 8 of this judgment, to which I once again bestow my serious consideration, in order to appreciate whether, these conditions at least throw any light to state that the contract can be brought within the expression 'Works Contract'.

64Copy pinpoint64. When examining these conditions, in the first instance, C the most relevant and clinching condition is the one relating to the payment to be effected by the Purchaser, which is to the effect that on signing the contract, 90% of the contract amount should be paid and the balance 10% either on the commissioning of the LIFT or within 30 days of the Petitioner's D offer to commission the LIFT and if for any delay caused beyond the control of the Petitioner, within 90 days from the date the materials are ready for dispatch at the premises of the Petitioner. The agreed period for execution of the supply of the LIFT, as per the contract, is 52 weeks i.e., one full year. · E Whereas by reason of any delay beyond the control of the Petitioner, within 90 days from the date of the commencement of the contract, the Petitioner will have the right to demand for the entire payment without doing anything towards the erection part of it. Alternatively, while the Purchaser would be liable to pay the entirety of the contracted amount for the supply of the LIFT, the Petitioner after receiving the full payment would still have sufficient time to effectuate the supply in the event of the supply not being effectuated within the due date, then, on that ground the inability to commission the LIFT within 30 days or within 90 days after the materials are ready for dispatch will not for any reason be attributable to the Petitioner. In fact, Condition No.8 at the end states that if for any reason the Petitioner is not able to supply any equipment within 52 weeks, then at its option, it can cancel the contract without there being any liability H

A for payment of damages or compensation. Therefore, those terms relating to payment in Condition No.5 and the right retained by the Petitioner to cancel the contract for any reason whatsoever under Condition No.8 disclose that for mere signing of the contract for supply of the LIFT, the Petitioner would get s the whole value of it without any corresponding obligation to effect the supply or to suffer any damages. The said outcome based on the payment conditions when read along with the other stipulations, disclose that the claim for manufactured materials should be paid along with the material invoice and c the claim for installation should be paid along with their final invoice. It further makes it abundantly clear that the right of the Petitioner to realize the full value of the materials of the LIFT to be supplied does not entirely depend upon the installation part of it. In other words, supply of materials of the UFT and installation costs are separately worked out in order to ensure I that irrespective of the installation, the Petitioner will be able to realize the value of the material cost. This.conclusion which is based on the above terms, also strengthens the reasoning that the contract. is not an indivisible one and is always separable i.e., one for supply of materials and the miniscule part of the work involved. The division of 90% payment in the first instance and the balance 10% under certain other situations, fully supports the above conclusion.

65Copy pinpoint65. A reference to the various other conditions in the contract also do not suggest that the consideration under the Contract to be borne by the Purchaser, has got anything to do with the installation part of the LIFT. On the other hand, the tenns have downright been agreed upon between the parties only to mandate the Purchaser to pay 90% of the contracted amount on mere signing of the contract and to pay the balance 10% within 30 days of the Petitioner's offer to commission. the LIFT and even if the said event of commissioning of the LIFT fails to occur due to any reason not attributable to the Petitioner or beyond its control, within 90 days of the materials made ready for dispatph at the premises of the Petitioner. In that situation

KONE ELEVATOR INDIA PVT. LTD. v. STATE OF T.N. & 1029. ORS. [FAKKIR MOHAMED IBRAHIM KALIFULLA, J.] also what all the Petitioner will have to ensure is that such components of the LIFTS are ready for dispatch. At the risk of repetition, it can be stated that if on the date of the signing of the contract 90% payment is made and within the contract period i.e 52 weeks, the Petitioner is able to show that the whole of the components of the LIFTS are ready for dispatch at its premises, the Purchaser is boung to pay the balance 10% also within 90 days from the date of such availability of materials for dispatch without any other stipulation as to such equipments or components being delivered at the spot of the Purchaser for its installation. If the conditions of the contract relating to c payment are discernable to that effect, it can only be stated ttlat the contract of the Petitioner with the Purchaser is virtually for . the manufacture of the materials and for its absolute readiness to supply those materials and nothing more. The sum and substance of the conditions of the contract de hors the other clauses is only to that effect.

66Copy pinpoint66. As far as the other clauses are concerned, they have nothing to do with the execution of the works or creating any duty or respon'sibility on the Petitioner to carry out such execution and thereby, .any corresponding liability being fastened on the Petitioner in the event of its failure to carry out the erection/installation part of it will not become attributable. It ' " also be relevant to note that if for any reason, the contract is.not fulfilled due to reasons attributable to the Purchaser, the apportionment clause will enable the Petitibner to retain such part of the amount of 90% already received to cover its costs and expenses. In fact the whole discretion vests with the Petitioner to determine such apportionment under Clause 21. Therefore, on a detailed consideration of the conditions of the contract, one will not be able to state with any certainty that the contract has got anything to do only with any work or service to be performed in the course of supply of the LIFT/ELEVATOR by the Petitioner.

67Copy pinpoint67. The signed part of the said contract makes it clear that H

1030 SUPREME COURT REPORTS (2014) 5 S.C.R.

A the price is inclusive of indirect taxes, as is currently applicable either leviable by the Central Government or State Government or any local Authority, including Excise Duty and Service Tax. However, it also states that in the event of any such statutory levy or payment of tax or otherwise faced by the Petitioner, then 8 unaer such circumstances, that should be borne by the Purchaser.

68Copy pinpoint68. Having considered the above terms of the contract threadbare, I am convinced that it can only be concluded that this contract is only one for the manufacture and supply of the C LIFT/ELEVATOR and the installation though mentioned in the contract, has very insignificant relation to the consideration agreed upon between the parties. In any event, as I have found that the contract of supply and installation are divisible in very many aspects, it is difficult to hold that it is a 'Works Contract'. D Therefore, it will have to be held that the manufacture, supply and erection of LIFT/ELEVATOR agreed upon by the Petitioner to any of its customers, would only fall within the expression 'Sale' and can never be called as 'Works Contract'. Once that is the conclusion that can be made based on the contractual terms as agreed between the Petitioner and its customers, the application of Article 366(29A)(b) cannot be made and does not in any way support the contentions raised by the Petitioner.

69Copy pinpoint69. De hors the abovesaid conclusion, based on the very contract, I wish to deal with the various submissions of the Petitioner based on various decisions relied upon, including the decision in Larsen & Toubro Ltd. (supra).

70Copy pinpoint70. Keeping the above salient features of the contract between the Petitioner and the Purchaser in mind, I now deal with the submissions made by the learned Senior Counsel for the Petitioners. Mr. Salve, learned Senior Counsel in his opening submission relied upon Section 2Uj) of the Orissa Sales Tax Act, 1947 and contended that applying the said definition of 'Works Contract' to the present contract, the same H

KONE ELEVATOR INDIA PVT. LTD. v. STATE OF T.N. & 1031 ORS. [FAKKIR MOHAMED IBRAHIM KALIFULLA, J.] would squarely fall within the said definition. When examining A the said contention, it will be relevant to make a detailed reference to the said provision under the Orissa Sales Tax Act. For appreciating this provision, a reading of it is required and has been extracted in paragraph 24 of this judgment. The definition of 'Works Contract' under Section 20j) of the Orissa B Sales Tax Act states that it would include any agreement for carrying out for cash or deferred payment or other valuable consideration, among other activities, fabrication, erection, installation or commissioning of any movable or immovable property. c

71Copy pinpoint71. As far as a LIFT is concerned, in one sense it can be called as a movable property when it is in the course of operation after its installation and that it is not embedded to the earth permanently while, in another sense, having regard to the manner in which the LIFT is installed in a premises, it can also be stated to be part of an immovable property. In my view, whether as a movable property or immovable property, it may not make any difference while considering the other prescriptions contained in the said provision. What is really relevant for consideration is to examine the issue by referring to the said provision, which in the foremost, depends upon an agreement between the parties. The said agreement should ordain an obligation on one party who has been entrusted with the task of fabrication, erection, installation of any movable or immovable property. The most mandatory requirement for invoking the said provision and for applying the said definition would be that the whole of the agreement should be for carrying out the work of fabrication, installation or erection of a movable or immovable property. Significantly, the expression 'manufacture' is absent in Section 2Qj). G

72Copy pinpoint72. Next, as per the agreement, it should be for cash or deferred payment or other valuable consideration. In other words, it must first satisfy the definition of a 'concluded contract' as provided under that Section. In this context, it would be H

1032 SUPREME COURT REP.ORTS [2014] 5 S.C.R.

A relevant to refer to Section 2(h) and the first part of Section 10 of the Indian ·contract Act, 1872. Section 2(h) reads as under:

"Ah agreement enforceable by law is a contract."

The first part of Section 10 reads as under: B I • "What Agreements are contracts - All Agreements are Contracts if they are made by the free consent of parties, competent to contract, for a lawful consideration and with th~ lawful object and are not hereby expressly declared to c be void."

73Copy pinpoint73. Therefore, in order for a contract to be valid, it must be one which can be enforced by law and such agreements if made between the parties must be for a lawful consideration and wi.th a lawful object. It is needless to state that for any D contract to be valid and lawful, the basic ingredients of offer and acceptance for valuable consideration must be present. Keeping the said provisions relating to a valid contract under the provisions of the Indian Contract Act in mind, when an examination is made on the implication of the definition of E 'Works Contract' under Section 2Ui) of the Orissa Sales Tax Act to the base on hand, at the foremost, it is necessary to examine as to whether there is a valid agreement and that valid agreement and if such an agreement is for a lawful consideration to perform the work of fabrication, erection, installation of any movable or immovable property. Further, such an agreement should also be one for cash or deferred payment or oth~r valuable consideration.

74Copy pinpoint74. Keeping the above statutory prescriptions in mind, the same ~an be applied to the case on hand. As has been pointed out in the earlier part of the judgment, where the various terms of the contract as between the Petitioner and the Purchaser have beenI examined, in particular the consideration part of it, it is found that the majority of the consideration was payable· to the Petitioner within one monti 1 from the date of commissioning

KONE ELEVATOR INDIA PVT. LTD. v. STATE OF T.N. &1033 ORS. [FAKKIR MOHAMED IBRAHIM KALIFULLA, J.] , or within 90 days of keeping the materials ready for supply in its premises. This is on the ground that the commissioning could not be effected as agreed or within 30 days of its readiness to commission and by stating that its inability to commission was delayed due to reasons beyond its control. This provision in the Contract is de hors the stipulation in Condition No.25(a) under which a minimum of 16 weeks is prescribed for commissioning while the maximum period is 52 weeks, which again depends upon the fulfillment of the agreed conditions fastened on the Purchaser. It also provides for extending the contract periods. To recapitulate the said regime of the contract, it can be stated c that the parties agreed as per the agreement wherein the Purchaser is bound to pay 90% of the agreed sum at the time of signing of the contract itself and the balance 10% within 90 days from the day the Petitioner gets the materials ready for dispatch in its premises, if it could not commission as agreed or within 30 days of its readiness to commission. Therefore, D. the whole of the valuable consideration becomes payable and was relatable or as agreed upon by the parties merely for the Petitioner's readiness to take up the contract of supply of the ELEVATOR and for its endeavour to effect the manufacture, procure the entire materials for a LIFT/ELEVATOR and keep it ready for dispatch in its premises. In other words, the moment the materials for a LIFT/ELEVATOR are made ready and kept for dispatch in the premises of the Petitioner, under a particular contingency within 90 days thereof, the majority of the contracted amount is to be paid to the Petitioner without any corresponding legally enforceable obligation on the Petitioner to carry out the erection or installation in the premises of the Purchaser.

75Copy pinpoint75. In fact, the period actually agreed between the parties, as per which the Petitioner is to carry out the installation part of the LIFT runs to 52 weeks i.e., for one full year, whereas the whole of the consideration would become payable within 90 days from the date the materials are kept ready for dispatch in the premises of the Petitioner. Therefore, I fail to understand H

1034 SUPREME COURT REPORTS [2014] 5 S.C.R.

A as to how it can be held that there was any sordid agreement as between the Petitioner and the Purchaser for any valuable consideration only for the purpose of carrying out erection/ installation of the LIFT in the premises of the Purchaser. If for any reason after the full payment is effectuated by the Purchaser B as per the term relating to the payment of the contracted amount, due to any fault of the Petitioner, the supply of the material ,or erection or installation fails to take place, the remedy of the Purchaser may at best be for recovery of the material part of the contract and I do not find any provision in the terms C of the c©ntract, which would entitle the Purchaser to lawfully enforce as against the Petitioner for the execution part of it, namely, the erection/installation of the LIFT in its premises. In my opinion such a consequence would be inevitable having regard to the terms of the contract, which in spite of my best efforts, was not able to discern any specific clause which would 0 entitle the Purchaser to seek for such enforcement for erection/ installation. On one hand, a provision from the contract states that the Purchaser may be entitled to retain the materials even in uninstalled position in the event of the contract not being fulfilled in its fullest terms. E

76Copy pinpoint76. ~n the other hand, in the event of any failure on the part of the Purchaser in effectuating the payment or in fulfilling certain other aspects, such as construction of hoist way and other wor~s related, obligations to be performed on its part, the F Petitioner has retained every right to charge interest for such delay, if any, caused at the instance of the Purchaser and in the event1of the Contract failing to fructify, the Purchaser would be liable to pay compensation/damages to the Petitioner and not vice versa. Since the above conclusion is the outcome based on 1the relevant terms of the Contract, the mentioning in Clauses 10 and 14 that the contract is otherwise indivisible 'Works Contract' will not by itself make it indivisible or a 'Works Contract'.j When that is the factual and legal outcome as per the terms of the contraQt, it will have to be held that there is no scope to ~pply Section 2Uj) of the Orissa Sales Tax Act to the I

KONE ELEVATOR INDIA PVT. LTD. v. STATE OF T.N. & 1035 ORS. [FAKKIR MOHAMED IBRAHIM KALIFULLA, J.] case on hand and hold that the manufacture, supply and installation of the LIFT by the Petitioner would fall within the said definition of 'Works Contract'. It may be a different situation if the contract was one for mere fabrication/erection/installation. Certainly a simple activity of fabrication cannot be equated to manufacture of parts of a LIFT since such fabrication may take place at the site with the aid of material and labour.

77Copy pinpoint77. That apart, provisions of the Indian Contract Act stipulates the element of offer., acceptance and consideration for a concluded contract. In the case on hand, the offer would be for supply of the LIFT as described in the proposal made by the Petitioner. The consideration upto 90% would become payable the moment the Purchaser agrees to the proposal made by the Petitioner and the balance 10% can also be collected without any positive guarantee for completion of erection or installation of the LIFT under certain contingencies without any corresponding right in the Purchaser to seek for enforcement of the erection/installation. In fact for payment of the balance 10% under such contingencies, what all the Petitioner has to show is that the materials meant for the supply of the LIFTS are ready for dispatch in its premises, which would mandate the Purchaser to make the payment within 90 days of such readiness as reported by the Petitioner. In effect such a contract as agreed between the Petitioner and its Purchaser as per the provisions of the Indian Contract Act if were to be considered for the invocation of the definition of 'Works F Contract' under Section 2Uj), it can be found that the said contract does not in any way create any legal obligation on the Petitioner to effect the erection or installation of the LIFT as a movable or immovable property, satisfaction of which contract alone will attract the definition of 'Works Contract' under Section G 2Uj) of the Orissa Sales Tax Act.

78Copy pinpoint78. Mr. Salve, learned Senior Counsel then contended that the terms contained in the contract for manufacture, supply and installation of the LIFT as well as the various prescriptions H