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

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A contained in the Field Installation Manual show that what was agreed as between the parties would fall within the definition of 'Wor~s Contract' and therefore, be held ~s the same. In the previous paragraphs, it has been stated as to how the contract between the Petitioner and its Purchaser is mainly for the supply B of the LIFT and the agreement is not in any way conditional to the insdllation part of it. Therefore, the reference to the Field Installation Manual will be of no assistance to the Petitioner, since it only describes as to how various steps are to be followed by the personnel of the Petitioner while erecting the 1

c LIFT. Since, the agreement, namely, the proposal for the supply and the consideration was agreed as between the Parties, without creating any legally enforceable rights as regards the installati<Pn part of it, the reference to the Field Installation Manual, which is an internal document of the Petitioner issued to its employees for their guidance, does not in anyway 0 advance the case af the Petitioner. Therefore, for the very same reasons, 1the said contention of the learned Senior Counsel is also liable to be rejected.

79Copy pinpoint79. I have also highlighted how as per the payment terms the parti~s agreed specifically to the effect: 'under this clause claim for 'manufactured materials shall be paid along with our material invoice and claim for installation labour shall be paid along with our final invoice.' In fact the copy of the two invoices dated 17 .~ 2.2009 and 20.09.2010, clearly explains the fact that the first one related to material cost and the subsequent one only related to labour cost.

80Copy pinpoint80. I have examined the provisions of the Bombay Lifts Act. 1939 which ' have been raised by learned Senior counsel for the

G petitioners in paragraph 25 and have extensively dealt with them in paragraph 37 of this judgment. Based on such examinatipn of the various provisions of the Act, I have found that these provisions are meant for getting a permit, licence, registration etc. and for the purpose of ensuring that in the course of the installation, as well as, while the LIFT is in H I

KONE ELEVATOR INDIA PVT. LTD. v. STATE OF T.N. &1037 ORS. [FAKKIR MOHAMED IBRAHIM KALIFULLA, J.] operation or in the course of the maintenance of the LIFT, no A damage is caused to men and materials. Beyond that, based on the said provisions there is no scope to reach a conclusion that a contract as between the Petitioner and the Purchaser would come within the definition of the 'Works Contract'. Therefore, the said submission of the learned Senior Counsel B cannot also be accepted.

81Copy pinpoint81. The learned Senior Counsel then referred to a decision of the Government of India reported in In Re: OTIS Elevator Co. (India) Ltd. (supra), which has been dealt in paragraph 38 C of this judgment. I fail to see any scope to rely on the said decision, as it is only that of the Department of Government of India. Even otherwise, the said decision was for the purpose of finding out as to whether 'excise duty' was payable at the time when the manufactured parts of elevators/escalators were cleared from the premises of the Petitioner. I do not find any D scope at all to apply the said conclusion of the Government of India to the case on hand, apart from the fact that the said conclusion reached under the provisions of the Central Excise Laws cannot be applied to the legal issue with which we are concerned. In any event, such a decision of the authority of the E Government of India cannot even have a persuasive value on this Court.

82Copy pinpoint82. A reference was also made to a notice issued by the Central Board of Excise and Customs dated 15.01.2002, under F Section 378 of the Central Excise Act which has been dealt with in paragraph 39 of this judgment. Here again I fail to see any acceptable grounds to apply any of the reasoning for such conclusion. When I examined the nature of the contract of the Petitioner for manufacture, supply and installation of the LIFTS G to its Purchaser, I do not find any scope at all to apply those decisions or the conclusions taken by the concerned authority under the provisions of Central Excise Act.

83Copy pinpoint83. The learned Senior counsel for the petitioner lastly made reference to sub-Sections 29, 39(a) and sub-clause (zzd) H

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A to sub-Section 105 of Section 65 along with a further reference to sub-Clause (zzza) to sub-Section 105 to Section 65, which has been dealt with in paragraph 41 of this judgment. Though in the first blush, the submission appears to be forceful, on a meticulous examination of the provisions with particular reference to the contract as between the Petitioner and its Purchaser, I am compelled to reject the said submission as it has no force.

84Copy pinpoint84. To note the fallacy in the submission, a clear understanding of the said provision is required. At the very outset, it will have to be stated that the present attempt is to find out ~n answer to the question whether manufacture, supply and eredtion of a LIFT, will fall under the category of 'Sale' or 'Works d:ontract' for the purpose of a levy under the Sales Tax Act. Section 65(29), 65(39a) and 65(105) (zzd) and (zzzza) are all provi$ions for the levy of Service Tax. It is well known that I while interpreting taxing statutes, strict and literal interpretation should be made. For this proposition of law, reference can be made td one of the earliest decisions of England in Cape Brand Syndicate vs. Inland Revenue Commissioner, 1921-1 E KB 64. The above decision was followed in Income Tax Officer, Tuticorin vs. T.S. Devinatha Nadar, Etc., AIR 1968 SC 623 wherein it held that what is applicable to another taxing statute may not be applied to a case governed by sales tax statutes. Keeping the above fundamental principle in mind, an examination of Section 65(29), defines 'commissioning and installation agency' to mean any agency providing service in relation to erection, commissioning or installation. Section 65(39a) further defines the expression 'erection, commissioning or installation' to mean any service provided by any such agency, in relation to, inter alia installation of LIFT and escalation. Section 65(105) (zzd) defines 'Taxable Service' inter alia to mean service provided or to be provided to any per.s0fti5Y erection, commissioning or installation agency in relation to commissioning and installation. Therefore, reading ,1 the abov~ provisions together, what emerges is that any service

KONE ELEVATOR INDIA PVT. LTD. v. STATE OF T.N. &1039 ORS. [FAKKIR MOHAMED IBRAHIM KALIFULLA, J.]

provided by way of commissioning and installation of LIFT and A Escalators by any agency would be a Taxable Service. Once the said position is steered clear of, the other provision referred to was Section 65(105)(zzzza), which again is one other taxable service, namely, a service to any person by any other person in relation to the execution of 'Works Contract'. It B excludes 'Works Contract' in respect of roads, airports, railways, transport terminals, bridges, tunnels and dams obviously because those are services of the State. The s~id sub-clause, however, contains a definition of 'Works Contract' in the explanation part. It, however, refers to a contract which c includes transfer of property in goods involved in the execution of a works contract. In Clause (i) of the Explanation, it makes it clear that such transfer of goods would attract levy of tax as sale of goods, under the relevant statutes, namely, Sales Tax Acts; State or Central. In Clause (ii) of the Explanation, it specifically includes erection, commissioning or installation of LIFT arid Escalator. It will be profitable also to refer to Section 65(50), which defines 'goods' to mean what is assigned to it in clause (7) of Section 2 of the Sale of Goods Act, 1930. Section 2(7) of Sale of Goods Act defines it to mean every kind of movable property other than actionable claim, etc. Similar such definitions are attributed to 'goods' under the Sales Tax Acts. Since Section 65 and the various subsections, namely,· (29), (39a), (105), (zzd), (zzzza) put together only relatable to Service Tax, the question of importing the said definition of 'Works Contract' in the explanation to Section (65)(105)(zzzza) to the provisions of Sales Tax Acts cannot be made. Further, clause (i) of the Explanation to sub clause (zzzza) of Sub-section 105 to Section 65, distinctly refers to transfer of goods in any such contract to mean such goods leviable to tax as a sale of goods. It will have to be stated that such leviability by itself may independently attract tax liability under the relevant Sales Tax Statutes. However, it is notthe coocern in this case and it is to be left open for consideration as and when any need arrives to decide that question. Therefore, the reference to the above H

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A provision~ under the Service Tax Act are of no assistance to the Petiti;oner to hold that its manufacture, supply and installation of a lift is a 'Works Contract'.

85Copy pinpoint85. The above conclusion is de hors the position that sub- B clause (zzzza) of Sub-section 105 of Section 65 came to be introduced under the Finance Act of 2007, which came into force w.e.f. 11.05.2007. It should also be noted that Section 65(29), 65(39a) and 65(105) (zzd) have nothing to do with manufacture and supply which is actually the activity of the C Petitioner. It is regarding the erection/commissioning/ installation simpliciter, even if the LIFT or Escalator is independently carried out by an Agency. According to me, by relying upon Section 65 (29), 65 (39a) and Section 105 (zzd), the case of the Petitioner cannot be comprehensively answered and he further cannot possibly contend that the contract should be construed as a works contract. Therefore, on the ground of any liability being cast on the Petitioner under the provisions of the Se~ice Tax Act, it will be wrong to hold that the Petitioner cannot be ~ailed upon to comply with the provisions relating to Sales Taxi The said submission of the learned Counsel is, therefore, liable to be turned down.

86Copy pinpoint86. On examination of the various decisions, which were relied upon by the learned Senior Counsel, the first case was the Division Bench decision of the Bombay High Court in OTIS . F Elevators Co. (India) Ltd. (supra). It is true that in the said decision the Bombay High Court dealt with the very same issue, namely, whether supply, erection, installation of LIFT by the Petitioner would fall within the definition of 'Works Contract' or a 'Sale'. Tile Division Bench of the Bombay High Court posed G two questions for consideration. The questions were:

"1. Whether on the facts and in the circumstances of the case, the Tribunal was justified in holding that the contract dated 10.06.1958 between the applicants and M/s Tea j

Mana~ and Co. was a composite and divisible contract, H I I

KONE ELEVATOR INDIA PVT. LTD. v. STATE OF T.N. &1041 ORS. [FAKKIR MOHAMED IBRAHIM KALIFULLA, J.) one for the sale of goods in which the property has passed A and the other for labour and service charges for the installation of the goods so sold.

2. Whether the said contract was one and indivisible contract for work and labour." B

87Copy pinpoint87. While examining the above two questions apart from the various terms of the contract, the Division Bench has referred to a very vital term in the contract, which again related to the payment of consideration. The said term has been extracted at page 531, which reads as under: c "531. We propose to furnish and erect the elevator, installation outlined in the foregoing specifications for the sum of price of two passenger lifts as above duly delivered and erected at site@ Rs.28,156/- each." D

88Copy pinpoint88. The Division Bench, thereafter, noted clause (iv) of the Agreement, which related to the payment of price. The said clause was as under: "30% within 30 days of the builders accepting the proposal; 60% on receipt of shipping documents from the applicants' factories; and the remaining 10% (+)or(-) any adjustments required on completion of erection or in any case within 6 months of delivery of equipment."

89Copy pinpoint89. After referring to the above clauses in the agreement and also the various decisions relied upon by the respective parties, the Division Bench noted the contention of the Department and the substance of the contention of the Department was as under:

"We have already referred to the contention of the G Department that in view of the proportion of cost separately indicated for the material as against labour, and the use of the word 'price' in describing the consideration for the supply, erection and installation of the lifts the intention of the parties was to sell the goods." H

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90Copy pinpoint90. While dealing with the said contention, the Division Bench observed as under:

"In the ultimate analysis in this case the form in which services are rendered does not permit its severance into two compartments. In this connection, there are certain B factors which have relevance in determining the intention of the parties. The time-limit fixed for doing the work, the mention of and all-inclusive price for the totality of the materials and services rendered. the absence of an agreement for the sale of chattel as chattel, the point of c time when, the property in the goods passed from the applicants to the opposite party, the nature of the contract undertaken by the Applicants under and the indivisibility of the contract, are all factors which would indicate what should be the proper construction of the contract entered D into between the parties."

91Copy pinpoint91. The Division Bench then felt it necessary to examine the terms pf the contract and the surrounding circumstances and ultimately!reached its conclusion as under: E "In this connection the mode of payment set out in clause 4 is also pertinent. Under that clause 30% of the price was to be paid within 30 days from the date of the acceptance of the proposal, 60% was to be paid on receipt of shipping documents from the factories, and the remaining 10% had F to be paid, subject to adjustments required, on completion of the erection, or, in any case, within six months of the delivery of the equipment, if the erection was delayed due to th~ reasons beyond their control. This is more consistent with <':Ind all-inclusive price being fixed irrespective of the G mateHals supplied from time to time with the building contractors."

92Copy pinpoint92. The answers to the questions were ultimately made at the end of the judgment to the following effect: H

KONE ELEVATOR INDIA PVT. LTD. v. STATE OF T.N. &1043 ORS. [FAKKIR MOHAMED IBRAHIM KALIFULLA, J.] "In the result, we answer the questions referred to us as A follows:-

Question No.(1) in the negative.

Question No.(2) in the affirmative." B

93Copy pinpoint93. The Division Bench ultimately held that the contract was a composite and indivisible contract for work and labour and, therefore, no sale of goods can be spelt out of the contract. As observed from the said judgment, the Division Bench has noted the agreed terms of the parties, which stated that the proposal C was to manufacture/erect/install the elevator, for which the price ~

was agreed upon. The payment term also made it clear that the entirety of the payment would be made on completion of the erection or in any case within six months of delivery of the equipment. It has further noted that the price was all inclusive o for supply, erection and installation which were the specific terms of the contract. Therefore, the said judgment having regard to the special facts, namely, the specific terms contained in the contract as between the parties, can have no application to the facts of this case. In the case on hand, the payment has really nothing to do with the erection and installation. It has also got no relation to the delivery of the LIFT, either in its full form or in any semi-installed condition. The contractual terms between the Petitioner and its Purchaser have been explained in detail and have no relation to any service to be performed by the Petitioner by way of the agreed terms of the contract. The said decision is, therefore, of no assistance to the case of the Petitioner. In any event, if it is argued that the contract involved in the said decision is identical to the case on hand, as it has been found and held that the terms of the contract is not persuasive enough to call it a 'Works Contract', the said decision will no longer hold good.

94Copy pinpoint94. Before analyzing the various other decisions relied

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A upon by either side, having regard to the above conclusion that the manufacture, supply and installation of LIFT by the Petitioner would constitute a 'Sale' and not 'Works Contract', a reference can be mCjde to t~e reasoning, which weighed with the learned Judges in the judgment rendered in Kone Elevators (India) Pvt. B Ltd. (supra). In the said judgment this very question which has been referred to this Constitution Bench directly arose for consideration. The present Petitioner when submitted its returns under the provisions of the Andhra Pradesh General Sales Tax Act, 1957 for the period 1.04.1995 to 31.05.1995 and c 01.06.1995 to 31.07.1995, provisional assessments were made byl the Commercial Tax Officer by order dated 19.08.1995 and 05.09.1995, respectively. The claim of the Petitioner by way of deductions of labour charges for composition of Tax under Section 5G read with Section SF of the said Act! .on the ground that the nature of work undertaken by it constitutes a 'Works Contract', was rejected by the Assessing Authority holding that the same amounted to 'Sale'. The appeal preferred by the Petitioner was also rejected. The further ap!peal to the Tribunal was allowed in favour of the assessee holding that the activities of the Petitioner would fall within the expression 'Works Contract' and not 'Sale'. The Department's challenge in the High Court also ended in a failure. In an appeal preferred by the Department before this Court, after applying the effect of sub-article (29A)(b) of Article 366 and also the decisions in Gannon Dunkerley (supra), F Hindusta1 Shipyard Ltd. (supra) etc., and after making a detailed reference to the contractual terms it was held as under in paragraph 12:

"12. On a careful study of the aforestated clause in the G Delivery Schedule, it is clear that the customer was required to do the actual work at the site for installation of lift. On reading the above clause, it may be observed that the e1tire onus of preparation and making ready of the site for in?tallation of lift was on the customer. It was agreed that under no circumstances would the assessee

KONE ELEVATOR INDIA PVT. LTD. v. STATE OF T.N. &1045 ORS. [FAKKIR MOHAMED IBRAHIM KALIFULLA, J.] undertake installation of lift if the site was not kept ready by the customer. Under clause 4(g) of the "Customers' Contractual Obligations", the assessee reserved the right to charge the customer for delay in providing the required facilities. These facts clearly indicate that the assessee divided the execution of the contract into two parts, namely, B "the work" to be initially done in accordance with the specifications laid down by the assessee and "the supply" of lift by the assessee. 'The work" part in the contract was assigned to the customer and "the supply" part was assigned to the assessee. This "supply" part included c installation of lift. Therefore, contractual obligation of the assessee was only to supply and install the lift, while the customer's obligation was to undertake the work connected in keeping the site ready for installation as per the drawings. In view of the contractual obligations of the 0 customer and the fact that the assessee undertook exclusive installation of the lifts manufactured and brought to the site in knocked-down state to be assembled by the assessee, it is clear that the transaction in question was a contract of "sale" and not a "works contract". Moreover, on perusal of the brochure of the assessee Company, one finds that the assessee is in the business of manufacturing of various types of lifts, namely, passenger lifts, freight elevators, transport elevators and scenic lifts. A combined study of the above models, mentioned in the brochure, indicates that the assessee has been exhibiting various models of lifts for sale. These lifts are sold in various colours with various capacities and variable voltage. According to the brochure, it is open for a prospective buyer to place purchase order for supply of lifts as per his convenience and choice. Therefore, the assessee satisfies, on facts, the twin requirements to attract the charge of tax under the 1957 Act, namely, that it carries on business of selling the lifts and elevators and it has sold the lifts and elev;:itors during the relevant period in the course of its business. 1n the present case, on facts, we H

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A find that the major component of the ~nd product is the material consumed in producing the lift to be delivered and the s~ill and labour employ~d for converting the main components into the end product were only incidentally used and, therefore, the delivery of the end product by the B. assessee to the customer constituted a "sale" and not a "works contract". Hence, the transactions in question constitute "sale" in terms of Entry 82 of the First Schedule to the paid Act and, therefore, Section 5-G of the said Act was not applicable." c 95. It can be concluded that the reasoning of this Court in the above-referred decision is in tune with the law on the subject and it should be held that could be the only reasoning which can be ass,igned, having regard to the nature of the contract and the relevant provision of law that would apply to such a D transaction as between the Petitioner and its customers. Therefore, the said decision should remain as no other view other than what has been taken in the said decision is possible. I, thus, affirm the said decision and hold that the activity of the Petitioner i~ the manufacture, supply and installation of LIFT/ E ELEVATOR is a 'Sale' and not a 'Works Contract', having regard to the specific terms of the contract placed before this Court.

96Copy pinpoint96. On behalf of the Petitioners, reliance was heavily F placed upon the three Judge Bench decision of this Court in Larsen & toubro Ltd. (supra). That decision came to be rendered pursuant to a reference by a two judge Bench of this Court in K. Raheja Development Corporation vs. State of Karnataka, (2005) 5 SCC 162. In the order of reference dated G 19.08.2008, the two judge Bench after noticing the relevant provjsions pf the Karnataka Sales Tax Act, 1957 and the distinction between the 'contract of sale' and the 'Works Contract' felt it necessary to refer the question to a larger Bench. In the order of reference, it was held that prima facie it faced difficulty in accepting the proposition laid down in Raheja H

KONE ELEVATOR INDIA PVT. LTD. v. STATE OF T.N. & 104 7 ORS. [FAKKIR MOHAMED IBRAHIM KALIFULLA, J.] Development (supra), in particular, paragraph 20, inasmuch as A Larsen & Toubro being a developer undertook the contract to develop the property of one Mr. Dinesh Ranka, owner of the land and subsequently, the show cause notice issued to the said assessee proceeded on the basis that the tripartite agreement was a 'Works Contract'. Further, it noted that in the B show cause notice there was no allegation made by the Department that there was any monetary consideration involved in the first contract, which was the Development Agreement. The reference came before the three Judge Bench to which one of us was a party (Honble the Chief Justice of India, Mr. Justice c R.M. Lodha).

97Copy pinpoint97. Before referring to the various reasons in th~ said judgment, it will be appropriate to note the basic facts which were noted in the said judgment in paragraph 3, which reads as under: D

"3. Of the 26 appeals under consideration before us, 14 are from Karnataka and 12 from Maharashtra. Insofar as Karnataka appeals are concerned, it is appropriate that we take the facts from the leading case being Larsen and E Toubro. The ECC division of Larsen and Toubro (for short, "L&T") is engaged in property development along with the owners of vacant sites. On 19.10.1995, L& T entered into a development agreement with Dinesh Ranka, owner of the land bearing survey numbers 90/1, 91, 92 (Part), 94, F 95 and 96/1 (Part) together measuring 34 acres all situated at Kothanur Village, Bengur Hobli, Bangalore South Taluk, Bangalore, for construction of a multi-storeyed apartment complex. The owner was to contribute his land and L& T was to construct the apartment complex. After G development, 25% of the total space was to belong to the owner and 75% to L&T. A power of attorney was executed by the owner of the land in favour of L& T to enable it to negotiate and book orders from the prospective Purchasers for allotment of built up area. Accordingly, L&T H

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A entered into agreements of sale with intended Purchasers. The agreements provided that on completion of the construction, the apartments would be handed over to the Purchasers who will get an undivided interest in the land also. Sale deeds, thus, were exocuted in favour of the ihtended Purchasers by L& T and the owner."

98Copy pinpoint98. In the said case on behalf of Larsen and Toubro, it was argued that the Developer and the owner were on the one side, while :the Purchaser was on the other side, that there was no monetary consideration so far as the contract between the Develbper was concerned and the owne~ and that the only transaction was by the Developer/Owner to the prospective Purchaser after the construction of the flat and, therefore, there was only a sale element of the Flat along with the undivided share of the land jointly by the Developer/Owner in favour of the prosp~ctive Purchaser. H.ence, it was claimed that the agreement can only be construed as 'Sale' and not a 'Works Contra.ct'. It was also contended on the above footing as under:

"21 ..... Conversely a suit by an owner/developer against the flat Purchaser would be for payment of consideration of, the flaU fractional interest in the land .. Such suit would never be for payment of work done at the behest of the flat Purchaser and payment of consideration therefor. It is, thl!ls, submitted that the judgment in Raheja Development F ddes not lay down good law and deserves to be overruled."

99Copy pinpoint99. On the other hand, another learned counsel submitted that in a composite works contract transfer of immovable property will not denude it of its character of 'Works G Cohtract' and that Article 366(29A)(b) takes care of such situations where the goods are transferred in the form of immovable property.

1OQ. While dealing with the reference, the various contentions were noted in the first instance and while examining I

KONE ELEVATOR INDIA PVT. LTD. v. STATE OF T.N. &1049 ORS. [FAKKIR MOHAMED IBRAHIM KALIFULLA, J.] the implication of Article 366(29A)(b), it was observed in paragraph 60:

"60 ..... in other words goods which have by incorporation become part of immovable property or deemed as I goods the definition of Tax on the sale and purchase 8 of sale includes tax on the transfer of the property in the goods as goods or which have lost its form as goods and have acquired some other form involved in the execution of works contract."

101Copy pinpoint101. Thereafter, in paragraph 61 it was further observed as under:

"61. Viewed thus, a transfer of property in goods under clause 29-A(b) of Article 366 is deemed to be a sale of the goods involved in the execution of a works contract by the person making the transfer and the purchase of those goods by the person to whom such transfer is made."

102Copy pinpoint102. In paragraph 63 while interpreting the effect of Article 366 (29A)(b), which was brought into the Constitution by the 46th Amendment, the Bench held that tax on the sale or purchase of goods may include a tax on the transfer in goods as goods or in a form other than goods involved in the execution of the works contract. It was also held that it would be open to the States to divide the works contract into two separate contracts by legal fiction, namely: F

(ii) Contract for Sale of Goods involved in the works contract and

(iii) For supply of the labour and service. G

103Copy pinpoint103. It was then observed that by implication of the 46th Amendment, States have been empowered to bifurcate the contract and to levy sales tax on the value of the material in the execution of the works contract by holding it to be a deemed sale. H

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104Copy pinpoint104. As far as the implication of Article 366(29A)(b) after the 46th Amendment as held above is concerned, the same cannot be faulted. However, at this juncture, it will have to be kept in' mind that in that decision, this Court was dealing with a contract relating to development of land in which, the Developer B and owner of the land and the prospective Purchaser after the development in the form of constructed building units were parties: By virtue of the nature of the contract and its terms, immov~ble property in the form of a building ultimately emerged in the land in question where substantial use of materials in the c form of' goods was involved for which equal amount of labour was also employed. It was in that context the said judgment came tq be rendered. In fact, this court has noted that in the peculiar facts of that case, the goods employed became part of the immovable property and in the ultimate process lost its form as, goods. 0 1OB. In the above-stated background of the said case, what is relevant to be examined is, in order to invoke Article 366 (29A)(b), it will have to be found out whether a contract will fall withih the four corners of the expression 'Works Contract'. E Therefore, the endeavour is to find out the principles that have been staled in the various decisions, including in the decision of Larsen & Toubro Ltd. (supra), so that such principles can be applied to the case on hand to ascertain the nature of the contract., Keeping the said perception in mind, a detailed reading qf the decision in Larsen & Toubro Ltd. (supra) can be made.

106Copy pinpoint106. ,In paragraph 65 of the said decision reference was made to (3harat Sanchar (supra), wherein sub-clause (d) of G Clause 29A of Article 366 came to be considered. It was laid down theriein that all the sub-clauses of Article 366(29A) serve to bring transactions where essential ingredients of a 'Sale' as 1 defined in the Sale of Goods Act, 1930 are absent, within the ambit of sale or purchase fof the purposes of levy sales tax.

KONE ELEVATOR INDIA PVT. LTD. v. STATE OF T.N. &1051 ORS. [FAKKIR MOHAMED IBRAHIM KALIFULLA, J.] The said proposition stated in Bharat Sanchar (supra} would A only go to show that before invoking Article 366 (29A), the concerned transactions ought to be ex(lmined individually with particular reference to the essential ingredients contained therein to find out as to whether such ingredients would lead to a conclusion of a 'Sale' as defined in the Sale of Goods Act, B 1930 are present or not. In the event of such element of 'Sale' not being present, then alone Article 366(29A)(b) would get attracted for the purpose of applying the principle of deemed sale. I find no relevance in paragraph 76 of the said decision where this Court laid down as to what nature of contract can c be called as a 'Works Contract' falling under the said definition vis-a-vis Article 366 (29A)(b). Paragraph 76 reads as under:

"76. In our opinion, the term 'Works Contract' in Article 366(29A)(b) is amply wide and cannot be confined to a particular understanding of the term or to a particular form. D The term encompasses a wide range and many varieties of contract. The Parliament had such wide meaning of 'Works Contract' in its view at the time of Forty-sixth Amendment. The object of insertion of clause 29A in Article 366 was to enlarge the scope of the expression 'tax of sale or purchase of goods' and overcome Gannon Dunkerley-13. Seen thus, even if in a contract, besides the obligations of supply of goods and materials and performance of labour and services, some additional obligations are imposed, such contract does not cease to be works contract. The additional obligations in the contract would not alter the nature of contract so long as the contract provides for a contract for works and satisfies the primary description of works contract. Once the characteristics or elements of works contract are satisfied in a contract then irrespective of additional obligations. such contract would be covered by the term 'Works Contract'. Nothing in Article 366(29A)(b) limits the term 'Works Contract' to contract for labor and service only. Learned Advocate General for Maharashtra was right in his submission that the term H

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A 'Works Contract' cannot be confined to a contract to provide labour and services but is a contract for undertaking or bringing into existence some 'works'. We are also in agreement with the submission of Mr. K.N. Bhat that the term 'Works Contract' in Article 366(29A)(b) takes B within its fold all genre of works contract and is not restricted to one specie of contract to provide for labour and services above. The Parliament had all genre of works contract in view when clause 29A was inserted in Article 366." (Underlining is mine) c 107. While examining the above reasoning to ascertain a contract as to whether it is 'Works Contract' or 'Sale', it is stated that the characteristics of 'Works Contract' would be satisfied in a contract irrespective of any additional obligations. In other words, while applying Article 366(29A)(b), it should not be D limited to a contract for labour and service only. It was further held that it could not be confined to a contract to provide labour and services, but if a contract is for undertaking and bringing into existence some element of 'works', though the contract may be for supply of goods, it will become a 'Works Contract'. With E great respect, it will have to be held that such a sweeping interpretation may not be appropriate for invoking Article 366(29A)(b). I say so because if a contract can be ascertained based on its definite terms and can be held to be a contract for supply of goods, then in the course of implementation of the F said contract, namely, supply of the goods certain services are to be r.endered, it will have to be held that insignificant services rendered alone, cannot be the basis to hold the entire contract to be a 'Works Contract'.

108Copy pinpoint108. In this context, it will be relevant to note that in the execution of the present contract, the property in the goods would not loose its form as 'goods' as compared to a contract for development of a land into flats. What would be available after the ultimate conclusion or implementation of the contract would be an immovable property in the form of a building and H

KONE ELEVATOR INDIA PVT. LTD. v. STATE OF T.N. & 1053 ORS. [FAKKIR MOHAMED IBRAHIM KALIFULLA, J.] the goods employed in the course of execution of such contract, might have lost its character as goods such as bricks, cement, sand, steel, fittings etc. Therefore, as a general proposition of law, it will not be appropriate to hold that wherever an element of works is involved irrespective of its magnitude, all contracts should be held to be 'Works Contract'. Since the argument made by the Advocate General of Maharashtra, which weighed with the learned Judges in the said decision does not appear to be an appropriate reasoning, it will have to be held that such a proposition laid in paragraph 76 to hold every contract as 'Works Contract' based on a minuscule element of 'works' c involved cannot be accepted.

109Copy pinpoint109. In paragraph 66 of Larsen & Toubro Ltd. (supra), it was observed that in Bharat Sanchar (supra), this Court reiterated what was stated earlier in Associated Cement Companies Ltd. vs. Commissioner of Customs (2001) 4 SCC D 593 that 'Dominant Nature Test' has no application to a composite transaction covered by the Clauses of Article 366(29A). Therefore, it was concluded that there was no ambiguity in stating that after the 46th Amendment the sale element of those contracts which are covered by six sub- E clauses of Clause 29A of Article 366 are separable and may be subjected to sales tax by the States under Entry 54 of List II and there is no question of the 'Dominant Nature Test' being applied. With great respect, it will have to be stated that what was omitted to be considered, was as to in the first instance, F whether a contract would fall within the four corners of 'Works Contract' by virtue of the essential ingredients of that very contract. Even by referring to Bharat Sanchar (supra), before finding out the application of Article 366(29A), it will have to be seen whether the transaction and essential ingredients of 'Sale' G as defined in the Sale of Goods Act a.re present or absent for the purpose of levy of sales tax. In other words, if the essential ingredients of 'Sale' as defined in the Sale of Goods Act are present, then going by the ratio laid down in Bharat Sanchar H

1054 SUPREME COURT REPORTS (2014] 5 S.C.R.

A (supra), the application of Article 366(29A) will not be available. Therefore, in every contract what is to be seen in the first instance is the relevant terms of the contract and finding out as to whether the essential ingredients of those terms would lead the Court to hold whether the element of 'Sale' that would fall B within the definition of 'Sale' under the Sale of Goods Act is present. In this event, the question of construing the said contract as a 'Works Contract' covered by Article 366(29A) cannot be made. In fact, in the earlier part of this judgment a detailed reference has been made to the various terms of the .C contract to find out as to whether the element of sale was present or not. It has been held that by virtue of the essential ingredients of the contract, what was agreed between the parties was only sale of the LIFT and for that purpose the Petitioner also agreed to carry out the installation exercise.

110Copy pinpoint110. In Larsen & Toubro Ltd. (supra), this Court rightly noted in paragraph 72 that to attract Article 366(29A)(b) there has to be a 'Works Contract' and what is its meaning should also be found out. It was further held that the term 'Works Contract' needs to be understood in a manner that the E Parliament had in its view at the time of introducing the 46th Amendment and which is more appropriate to Article 366(29A)(b). Reference can be made to paragraph 76, which has been extracted in paragraph 102 of this judgment.

111Copy pinpoint111. In fact, I find that in the abovesaid paragraph in Larsen & Toubro Ltd. (supra), it was ultimately held by accepting the argument of the learned Advocate General of Maharashtra that the term 'Works Contract' cannot be confined to a contract to provide labour and services alone. The said G conclusion having regard to the nature of contract which was dealt with in the said judgment could not be in any way contradicted since as noted earlier, in Larsen & Toubro Ltd. (supra) the contract related to development of a property which consisted of the developer, the owner and the prospective Purchasers of the 1;1ltimate building units constructed. In that H

KONE ELEVATOR INDIA PVT. LTD. v. STATE OF T.N. &1055 ORS. [FAKKIR MOHAMED IBRAHIM KALIFULLA, J.] context, whatever held in paragraph 76 to the effect that a A contract which was undertaken to bring into existence some element of works, would be sufficient to hold the said as a 'Works Contract', would be perfectly in order. The question is as to whether such a ratio can be applied universally to every other contract where some miniscule or insignificant element B of works is involved. In fact, in the case on hand when the very contract itself was for supply of LIFT to its Purchaser, simply because there was some work element involved for the purpose of installation of the LIFT, it cannot be held that the whole contract is a 'Works Contract' falling within the ambit of c Article 366(29A). Therefore, the principle stated in paragraph 76 of Larsen & Toubro Ltd. (supra) would apply in the peculiar facts relating to that case where it related to construction of a building by virtue of the contract between the developer and owner on the one side and the prospective Purchaser on the D other side. It is difficult to apply the said ratio rendered in the context of the said contract as applicable universally in all sorts of contracts where some element of work is involved and state that such contract would also fall within the definition of 'Works Contract'. E

112Copy pinpoint112. The said conclusion is also fully supported by the reasoning in Larsen & Toubro Ltd. (supra), as held in paragraph 94, which is to the followinQ effect:

"94. For s11staining the levy of tax on the goods deemed to have been sold in execution of a works contract, in our opinion, three conditions must be fulfilled: (i) there must be a works contract. (ii) the goods should have been involved in the execution of a works contract, and (iii) the property in those goods must be transferred to a third party either as goods or in some other form. In a building contract or any contract to do construction. the above three things are fully met. In a contract to build a flat there will necessarily be a sale of goods element. Works contracts also include building contracts and therefore without any fear of H

1056 SUPREME COURT REPORTS [2014] 5 S.C.R.

A contradiction it can be stated that building contracts are species of the works contract. (Underlining is mine)

113Copy pinpoint113. A reading of the above paragraph, thus discloses three conditions and that at the foremost a contract must be a 'Works Contract' and in that contract in the course of its 8 execution, goods must have been applied and the property in those goods ultimately gets transferred either as goods or in some other form. If the said condition is not fulfilled, the other two conditions will have no application. Therefore, the above principles stated in paragraph 94 of Larsen & Toubro Ltd. C (supra) are applied to the contract-necessarily an exercise has to be carried out to find out whether the contract was a 'Works Contract' or not. Having regard to the essential ingredients of the contractual terms, it is difficult to hold that the supply of LIFT by the Petitioner to its Purchaser can be called as a 'Works D Contract' and, therefore, since the very first condition is not fulfilled, the other conditions are of no consequence in order to invoke Article 366(29A)(b) to the case on hand.

114Copy pinpoint114. Even when the ultimate conclusion as noted in E paragraph 101 (x) is applied, the supply of LIFT by the Petitioner to its Purchaser satisfies the definition of 'Sale' as defined under the Sale of Goods Act, and, therefore, the question of deemed sale does not arise. Analyzing the decision from all frontiers it can be concluded that the ratio laid down in Larsen F & Toubro Ltd. (supra) which related to a construction contract, cannot be applied to the case on hand, and therefore, would not be a sufficient reasoning to hold the present contract as 'Works Contract'.

115Copy pinpoint115. Once the application of Larsen & Toubro Ltd. (supra) G judgment to the facts of this case has been steered clear, next it is to be found out as to whether the other judgments relied upon by the learned Senior Counsel for the Petitioner support his submission, claiming that the transaction, namely, manufacture, supply and installation of LIFT is a 'Works H Contract' or not. Reliance was placed upon the decision of this

KONE ELEVATOR INDIA PVT. LTD. v. STATE OF T.N. & 1057 ORS. [FAKKIR MOHAMED IBRAHIM KALIFULLA, J.] Court in Richardson Cruddas Ltd. (supra). In order to note the A distinction as to the nature of the contract in that case as compared to the present one, the relevant paragraph in page 249 can be usefully extracted which reads as under:

"249.There is no formal contract in the present case for 8 fabrication and erection of the steel structures required by the society. The agreement between the parties has to be ascertained from the correspondence between them. The correspondence may be briefly referred to. By letter dated December 4, 1956 the Corporative Society informed the C Respondents that they had placed an order for a sugar plant and machinery for manufacture of sugar and they had to design the factory." (Underlining is mine)

116Copy pinpoint116. Therefore, the above passage in the said judgment itself discloses that the contract itself had to be understood based on the correspondence as between the parties. There was no formal contract in any event. What was required to be fulfilled by the Respondent was setting up of a sugar plant and machinery for the manufacturing of sugar and that too to be decided by the contractor. It is difficult to understand as to how the conclusion reached in the said case based on the above contract could be applied to the case on hand. In the present case, the contract was put into writing containing various clauses and conditions which were elaborate and definite to the effect that the Petitioner should manufacture, supply and then erect a product, namely, the LIFT. Apart from setting up of a sugar plant in Richardson Cruddas (supra), the parties also agreed for supply of fabrication and installation of bottle cooling equipment at the premises of the customer. While describing the said contract, it was held in page 251 that the contractor fabricated the component parts according to the requirements and specification of the customer and installed the same on a suitable base and foundation at the premises of the customer. It was held that the installation of the bottle cooling unit in the premises of the customer was not merely H

1058 SUPREME COURT REPORTS [2014] 5 S.C.R.

A ancillary or incidental to the supply of the unit. Here again it was noted that for the installation of bottle cooling equipment also, there was no formal written contract and the terms of the contract had to be gathered from the correspondence. Having regard to such a nature of contract which was dealt with in that B decision, it will have to be held that it will not be safe to apply the said ruling to the facts of this case where the contract is definite and the terms of the contract sufficiently demonstrate that it is one for supply of LIFT and not a contract for works.

117Copy pinpoint117. Mr. Dwivedi, learned Senior Counsel appearing for C State of Orissa in support of his submission relied upon the Constitution Bench decision of this Court in Mis. Patnaik and Company (supra). In paragraph 28 as a proposition of law, the Constitution Bench has held as under:

D "28. In Commissioner of Sales Tax, UP. v. Haji Abdul Majid [1963] 14 STC 435 (All), the Allahabad High Court arrived at the conclusion that in the circumstances of the case the transaction was a contract for the sale of bus bodies and not a contract for work and labour. Desai, C.J., E rightly pointed out at p. 443 that "since it makes no difference whether an article is a ready- made article or is prepared according to the customer's specification, it should also make no difference whether the assessee prepares it separately from the thing and then fixes it on it or does the preparation and the fixation simultaneously in F one operation."

118Copy pinpoint118. Thereafter, while repelling the contention made on behalf of the Appellant in that case, it was held as under:

G "31. To constitute a sale there must therefore be an agreement and in performance of the agreement property belonging to one party must stand transferred to the other party for money consideration. Mere transfer of property in goods used in the performance of a contract is, however, not sufficient: to constitute a sale there must be

KONE ELEVATOR INDIA PVT. LTD. v. STATE OF T.N. &1059 ORS. [FAKKIR MOHAMED IBRAHIM KALIFULLA, J.] an agreement - express or implied - relating to sale of goods and completion of the agreement by passing of title in the very goods contracted to be sold. It is of the essence of the transaction that the agreement and sale should relate to the same subject-matter i.e. the goods agreed to be sold and in which the property is transferred." (Emphasis B Added)

119Copy pinpoint119. Going by the above dictum of the Constitution Bench of this Court, the contract as a whole will have to be examined to see as to what was the real intention of the parties. In my opinion, the said legal principle will continue to apply even after the 46th Amendment while examining each case to find out as to whether the contractual terms would persuade the Court to. hold that the said contract as a whole would fall within the definition of 'Works Contract'. This Court in paragraph 31 rejected the submission of the counsel for the Appellant and clearly pointed out the distinction as between a building contract and a contract for supply of a chattel as a chattel. I am in full agreement with the proposition of law laid down in the said decision, which fully supports my conclusion. E

120Copy pinpoint120. The learned Senior Counsel also relied upon the decision in Mis. T. V. Sundaram Iyengar (supra). Paragraph 7 is relevant for the case on hand where the principle has been laid down, which reads as under:

'7. The question with which we are concerned, as would appear from the resume of facts given above, is whether the construction of the bus bodies and the supply of the same by the assessees to their customers was in pursuance of a contract of sale as distinguished from a contract for work and labour. The distinction between the two contracts is often a fine one. A contract of sale is a contract whose main object is the transfer of the property in. and the deliverv of the possession of. a chattel as a chattel to the buyer. Where the main object of work H

1060 SUPREME COURT REPORTS [2014] 5 S.C.R.

A undertaken by the payee of the price is not the transfer of a chattel qua chattel, the contract is one for work and labour. The test is whether or not the work and labour bestowed end in anything that can properly become the subject of sale; neither the ownership of th~ materials, nor B the value of the skill and labour as compared with the value of the materials, is conclusive, although such matters may be taken into consideration in determining in the circumstances of a particular case, whether the contract is in substance one for work and labour or one for the sale c of a chattel." (Emphasis Added)

121Copy pinpoint121. When the above principles are applied to the facts of this case, it can be aptly held that the present contract is nothing but a contract for 'Sale' and not a 'Works Contract'.

122Copy pinpoint122. A profitable reference can also be made to another Constitution Bench decision of this Court in Commissioner of Commercial Taxes Mysore, Bangalore (supra). The question that arose for consideration was as to whether construction of railway coaches from the materials belonging to railways under E a contract is a sale or works contract. Dealing with the said question, this Court held as under in paragraphs 12 and 13:

"12. On these facts we have to decide whether there has been any sale of the coaches within the meaning of the Central Sales Tax Act. We were referred to a number of cases of this Court and the High Courts. but it seems to us that the answer must depend upon the terms of the contract. The answer to the question whether it is a works contract or it is a contract of sale depends upon the construction of the terms of the contract in the light of the surrounding circumstances. In this case the salient features of the contract are as follows:

KONE ELEVATOR INDIA PVT. LTD. v. STATE OF T.N. &1061 ORS. [FAKKIR MOHAMED IBRAHIM KALIFULLA, J.] (3) .. . . .. ... A ~

13. On these facts it seems to us that it is a pure works contract. We are unable to agree that when all the material used in the construction of a coach belongs to the Railways C there can be any sale of the coach itself. The difference between the price of a coach and the cost of material can only be the cost of services rendered by the assessee. If it is necessary to refer to a case which is close to the facts of this case, then this case is more in line with the decision of this Court in State of Gujarat v. Kai/ash Engineering Co. than any other case." (Emphasis Added)

123Copy pinpoint123. It can be discerned from the abovementioned case that having regard to the specific terms of the contract, which inter a/ia states that the material used for construction of coaches before its use was the property of the railways and the contract substantially related to the service or works to be rendered by the contractor for the construction of the coaches, it was, therefore, held that it was a 'Works Contract' and not a F 'Sale'. However, it was categorically held that the question whether a contract is a 'Works Contract' or a contract of 'Sale' depends upon the conception of the terms of the contract in the light of the surrounding circumstances. Therefore, applying the above principle to the case on hand, I am convinced that by virtue of the terms as has been noted in the earlier part of this G judgment, the manufacture, supply and installation of a LIFT is a contract for 'Sale' and not a 'Works Contract'.

124Copy pinpoint124. Mr. Dwivedi, learned Senior Counsel also placed reliance upon the three Judge Bench decision of this Court in H

1062 SUPREME COURT REPORTS [2014] 5 S.C.R.

A The Central India Machinery Manufacturing Company Limited (supra). An identical question has arisen for our consideration, namely, whether manufacture and supply of wagons by way of a contract between Union of India and Central India Machinery Manufacturing Company Limited was a s contract of 'Sale' or 'Works Contract'. Dealing with the said question, this Court after making a detailed reference to the various terms of the contract as between the Appellant and Respondent therein, held as under in paragraphs 31 and 32:

"31. The upshot of the above discussion is that with the c exception of wheelsets (with axle boxes and couples), substantially all the raw materials required for the construction of the wagons before their use belong to the Company and not to the President/Railway Board. In other words with the exception of a relatively small proportion of the components supplied under Special Condition 6, the entire wagons including the material at the time of its completion for delivery is the property of the Company. This means that the general test suggested by Pollock and Chalmers has been substantially albeit not absolutely satisfied so as to indicate that the contract in question was one for the sale of wagons for a price, the Company being the seller and the President/Railway Board being the buyer. It is true that technically the entire wagon including all the material and components used in its construction cannot be said to be the sole property of the Company before its delivery to the Purchaser. But as pointed out by Lord Halsbury in the above quoted passage from his renowned work neither the ownership of the materials nor the value of the skill and labour as compared with the value of the materials used in the manufacture is conclusive. Nevertheless. if the bulk of the material used in the construction belongs to the manufacturer who sells the end 2roduct for a price that will be a strong pointer to the conclusion that the contract is in substance one for the sale , of goods and not one for work and labour. H

KONE ELEVATOR INDIA PVT. LTD. v. STATE OF T.N. & 1063 ORS. [FAKKIR MOHAMED IBRAHIM KALIFULLA, J.]

32. Be that as it may clause (1) of Standard Condition 15 A dispels all doubt with regard to the nature of the contract. This clause stipulates in unmistakable terms that as soon as a vehicle has been completed, the Company will get it examined by the Inspecting Officer and submit to the Purchaser an "On Account" Bill for 90% of the value of the B vehicle and within 14 days of the receipt of such bill together with a certificate of the Inspecting Officer, the Purchaser will pay 90% bill and on such payment, the vehicle in question will become the property of the Purchaser. There could be no clearer expression of the c intention of the contracting parties than this clause that the contract was, in substance, one for the sale of manufactured wagons by the Company for a stipulated price." (Emphasis Added)

125Copy pinpoint125. I find that the ratio laid therein mutatis mutandis apply D to the facts of this case. In fact, in the said decision the Constitution Bench decision of this Court in Mis. Patnaik and Company (supra) was followed. Therefore, it has now become clear to the effect that such contract for manufacture, supply and installation of LIFT is nothing but a 'Sale' and not a 'Works E Contract'.

126Copy pinpoint126. Mr. Salve, learned Senior Counsel in his submissions placed reliance upon a Division Bench judgment of this Court in Mis Vanguard Rolling Shutters and Steel Works (supra). F That was a case where the question of law was as to 'whether under the circumstances of the case and under the terms of the contract the supply of shutters related and iron gats worth Rs.1,08,633.08/- was sale or amounted to 'Works Contract'. The Appellant therein was a contractor dealing in fabrication G of rolling shutters and steel works who used to manufact4re iron shutters according to specifications given by the partil:!s and fix the same at the premises of the customers. This Court after considering the terms of the contract took the view that the same would amount to a 'Works Contract' and not 'Sale'. H

1064 SUPREME COURT REPORTS [2014] 5 S.C.R.

A However, in paragraph 2, the principle to be applied to find an answer to such a question has been set out as under:

"2 .... ... The question as to under what circumstances a contract can be said to be a work contract is not free from difficulty and has to depend on the facts of each case. It B is difficult to lay down any rule of universal application, but there are some well recognised tests which are laid down by decided cases of this Court which afford guidelines for determining as to whether a contract in question is a work contract or a contract for supply of goods. One of the c important tests is to find out whether the contract is primarily a contract for supply of materials at a price agreed to between the parties for the materials so supplied and the work or service rendered is incidental to the execution of the contract. If so, the contract is one for D sale of materials and the sale proceeds would be eligible to sales tax. On the other hand where the contract is primarily a contract for work and labour and materials are supplied in execution of such contract, there is no contract for sale of material but it is a work contract. ...... " E (Emphasis Added)

127Copy pinpoint127. Therefore, even as per the above principle stated in the said decision and applying the same to the facts of this case, it is found, based on the contractual terms as between the Petitioner and its Purchaser that the value of the LIFT upto the extent of 90% is payable, under certain contingencies, even when such materials are made ready and available for dispatch at the premises of the Petitioner. It has also been found based on the terms of the contract that the value of the labour content referable to the remaining 10%, becomes payable after the installation of the LIFT. That apart in the said decision the Constitution Bench decision of this Court in Mis. Patnaik and Company (supra) and Commissioner of Commercial Taxes Mysore, Bangalore (supra) were not brought to the notice of the learned Judges. Therefore, the reliance placed upon the H

KONE ELEVATOR INDIA PVT. LTD. v. STATE OF T.N. &1065 ORS. [FAKKIR MOHAMED IBRAHIM KALIFULLA, J.] said decision is of no assistance to the Petitioner except to the A general proposition of law propounded in paragraph 2 referred to above.

128Copy pinpoint128. The learned Senior Counsel also relied upon a three Judge Bench decision of this Court in Purshottam Premji 8 (supra). That was also a case where the assessee was to quarry stones from the quarries belonging to the South-Eastern Railways and thereafter break those stones into pieces and convert them into ballast of a specified size Cl,nd thereafter, supply them to the South-Eastern Railway. Dealing with the said contract, it was held that it was a 'Works CoRi1"?ct' and not a 'Sale'. In paragraph 7, the principle was stated as under:

"7. The primary difference between a contract for work or service and a contract for sale of goods is that in the former there is in the person performing work or rendering service no property in the thing produced as a whole notwithstanding that a part or even the whole of the materials used by him may have been his property. In the case of a contract for sale, the thing produced as .a whole has individual existence as the sole property of the party who produced it, at some time before delivery, and the property therein passes only under the ·contract relating thereto in goods used in the performance of the contract is not sufficient; to constitute a sale there must be an agreement express or implied relating to the sale of goods and completion of the agreement by passing of title in the very goods contracted to be sold ...... " (Emphasis Added)

129Copy pinpoint129. Even applying the above principle to the case on hand, I find that the whole of the materials manufactured° for the installation of the LIFT belong to the Petitioner and after the installation of the LIFT and after receipt of the full payment, the title to the LIFT passes on to the Purchaser. Hence, it will have to be held that the contract as between the Petitioner and the Purchaser was nothing but a 'Sale' and not a 'Works Contract'. H

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

130Copy pinpoint130. Dr. Singhvi, learned Additional Advocata General for Rajasthan in his submissions contended that to find out an answer to the question whether the present contract for supply of LIFT and its installation is a sale or works contract, the test which were invoked prior to the 46th Amendment continue to s remain. In support of the said submission the learned Additional Advocate General relied upon a three Judge Bench decision of this Court in Bharat Sanchar (supra). Paragraph 43 of the said judgment is relevant for the case on hand, which reads as under: c "43. Gannon Dunkerley survived the Forty-sixth Constitutional Amendment in two respects. First with regard to the definition of "sale" for the purposes of the Constitution in general and for the purposes of Entry 54 of List II in particular except to the extent that the clauses in Article 366(29-A) operate. By introducing separate categories bf "deemed sales", the meaning of the word "goods" was not altered. Thus the definitions of the composite elements of a sale such as intention of the parties, goods, delivery, etc. would continue to be defined according to known legal connotations. This does not mean that the content of the concepts remain static. The courts must move with the times. But the Forty-sixth Amendment floes not give a licence, for example, to assume that a transaction is a sale and then to look around for what could be the goods. The word "goods" has not been altered by the Forty-sixth Amendment. That ingredient of a sale continues to have the same definition. The second respect in which Gannon Dunkerley has survived is with reference to the dominant nature test to be applied to a composite transaction not covered by Article 366(29-A). Transactions which are mutant sales are limited to the clauses of Article 366(29-A). All other transactions would have to qualify as sales within the meaning of the Sales of Goods Act 1930 for the purpose of levy of sales tax." (Emphasis Added) H

KONE ELEVATOR INDIA PVT. LTD. v. STATE OF T.N. &1067 ORS. [FAKKIR MOHAMED IBRAHIM KALIFULLA, J.]

131Copy pinpoint131. I am in full agreement with the proposition of law A stated in the said paragraph as regards the tests to be applied even after the introduction of Article 366(29A) into the Constitution. Therefore, I am convinced that the various tests laid down in the earlier Constitution Bench decisions, in particular, the ones which have been relied upon, namely, Mis. B Patnaik and Company (supra), Hindustan Aeronautics Ltd. (supra), The Central India Machinery Manufacturing Company Limited (supra) still hold good. Consequently the ultimate conclusion is that the present contract between the Petitioner and its Purchaser is one for 'Sale' and not 'Works Contract', c is justified.

132Copy pinpoint132. Dr. Singhvi, learned Additional Advocate General also relied upon the decision of this Court in Hindustan Shipyard Ltd. (supr,a) wherein reference to Halsbury's Laws of England (4th Edn. Vol.41, para 603) has been noted to understand the distinction between contract of sale and contract for work and labour. The said paragraph as extracted in paragraph 8 of the said judgment can be usefully referred to, which reads under:

"8. We will shortly re~rt back to analysing the abovesaid terms and conditions of the contract and in between try to find out the tests which would enable determination of the· nature of the transactions covered by such contracts. The distinction between contract of sale and contract for work and labour has been so stated in Halsbury's Laws of F England (4th Edn., Vol. 41, para 603):

"603. Contract of sale distinguished from contract for work and labour.-A contract of sale of goods must be distinguished from a contract for work and labour. The distinction is often a fine one. A contract G of sale is a contract the main object of which is the transfer of the property in, and the delivery of the possession of, a chattel as such to the buyer. Where the main object of work undertaken by the payee of the price is not the transfer of a chattel as H

1068 SUPREME COURT .REPORTS [2014] 5 S.C.R.

A such, the contract is one for work and labour. The test is whether or not the work and labour bestowed end in anything that can properly become the subject of sale. Neither the owne'rship of the materials, nor the value of the skill and labour as B compared with the value of the materials, is conclusive, although such matters may be taken into consideration in determining in the circumstances of a particular case whether the contract is in substance one for work and labour or one for the c sale of a chattel."

133Copy pinpoint133. It must be stated that when the said principle to ascertain a contract of 'Sale' and 'Works Contract' is applied to the case on hand, it can be held that under the contract of the Petitioner with its Purchaser, what was agreed was to D ultimately supply its product of LIFT/ESCALATOR to its customers. Therefore, after execution of the installation part of it, what is transferred by the Petitioner to its Purchaser is the LIFT as a chattel and this contract is nothing but a contract of 'Sale'. E

134Copy pinpoint134. Mr. K.N. Bhatt, learned Senior Counsel appearing for the State of Karnataka submitted that the question posed for consideration before this Bench no longer survives in the light of the 46th Amendment, as well as, the judgment of this Court F in Larsen & Toubro Ltd. (supra). The learned Senior Counsel relied upon Builders' Association of India and others v. Union of India and others, (1989) 2 sec 645, which is also a Constitution Bench judgment, wherein in paragraph 41 it was held as under:

G "41 ......... The case-book is full of the illustrations of the infinite variety of the manifestation of 'works contracts'. Whatever might be the situational differences of individual cases, the constitutional limitations on the taxing power of the State as are applicable to 'works contracts' H

KONE ELEVATOR INDIA PVT. LTD. v. STATE OF T.N. & 1069 ORS. [FAKKIR MOHAMED IBRAHIM KALIFULLA, J.] represented by 'building c9ntracts' in the context of the expanded concept of 'tax on the sale or purr::hase of goods' as constitutionally defined under Article 366(29-A}, would equally apply to other species of 'works contracts' with the requisite situational modifications." (Underlining is mine)

135Copy pinpoint135. The learned Senior counsel, fairly brought to our notice paragraph 94 of the judgment in Larsen & Toubro Ltd. (supra), which has been dealt with in paragraph 112 of this judgment, wherein it has been concluded as a case dealing with building contracts and hence is inapplicable to the case on hand. C

136Copy pinpoint136. While considering this submission of Mr. Bhatt, learned Senior Counsel for Karnataka, it can be found in paragraph 94 of Larsen & Toubro Ltd. (supra}, that the first condition stated therein is that it must be a 'Works Contract'. Therefore, while all building contracts have been held to be D 'Works Contract' by virtue of the Constitution Bench decision in Builders' Association of India (supra}, when it comes to the question of other contracts, if the ingredients of Article 366(29A) are to be applied, the first exercise to be carried out is to find out as to whether such contract would fall within the definition of 'Works Contract'. It must be stated at the risk of repetition that simply because some element of work is involved in a contract, it cannot be straight away concluded that such contract would become a works contract, irrespective of the nature of contract, which if probed into would show that it is a contract for sale. Therefore, even going by the decision reported in Builders Association of India (supra), as well as, the conditions set out in paragraph 94 of the Larsen & Toubro Ltd. (supra}, it shall be ascertained whether the contract of the Petitioner with its Purchaser falls within the definition of 'Works Contract', in order to apply the implication of Article 366(29A). Hence, the said submission of the learned Senior Counsel therefore, does not appeal to us.

137Copy pinpoint137. A useful reference can also be made to one other H

1070 SUPREME COURT REPORTS [2014] 5 S.C.R.

A decision of this Court in Commissioner of Sales Tax, Gujarat vs. Mis. Sabarmati Reti Udyog Sah?kari Mandali Ltd. reported in (1976) 3 SCC 592. In paragraph 6, this Court has laid down as to how to find an answer to a question whether a particular transaction is a contract of sale or a works contract. The said paragraph is as under: "6. It is well-settled that whether a particular transaction is a contract of sale or a works contract depends upon the true construction of all the terms and conditions of the document. when there is one. The question will depend upon the intention of the parties executing the contract. As we have observed in our judgment in Civil Appeal Nos. 1492 and 1493of1971 which we have just delivered there is no standard formula by which one can distinguish a contract of sale from a contract for work and labour. The O ·question is not always easy and has for all time vexed jurists all over. The distinction between a contract of sale of goods and a contract for work and labour is often a fine one. A contract of sale is a contract whose main object is the transfer of the property in, and the delivery of the possession of, a chattel as a chattel to the buyer. (Halsbury's Laws of England, 3rd edn., Vol. 34, p. 6) (Emphasis Added)

138Copy pinpoint138. The above paragraph sufficiently demonstrates that the question will depend upon the intention of the parties executing the contract and that there can be no standard formula by which one can distinguish a contract of sale from a contract of work and labour. The said principle stated in the above said paragraph can be applied under all situations and since after the 46th Amendment as held in Larsen & Toubro G Ltd. (supra), the first condition to be found out is as to whether a contract is a 'Works Contract'. It has to be necessarily examined based on the terms agreed between the parties as to what is the intention of the parties. Therefore, applying the above tests, since it is found that the present contract is a H contract for sale, it cannot be held to be a 'Works Contract'.

KONE ELEVATOR INDIA PVT. LTD. v. STATE OF T.N. &1071 ORS. [FAKKIR MOHAMED IBRAHIM KALIFULLA, J.]

139Copy pinpoint139. In support of my conclusion, reliance can also be placed upon the majority view of the judgment of this Court in Govt. of Andhra Pradesh vs. Guntur Tobaccos Ltd. reported in AIR 1965 SC 1396. Paragraph 18 is relevant for the case on hand, which reads as under: "18. The fact that in the execution of a contract for work some materials are used and property in the goods so used passes to the other party, the contractor undertaking to do the work will not necessarily be deemed on that ... account to sell the materials. A contract for work in the execution of which, goods. are used may take one of three forms. The contract may be for work to be done for remuneration and for supply of materials used in the execution of the works for a price: it may be a contract for work in which the use of materials is accessory or incidental to the execution of the work: or it may be a D contract for work and use or supply of materials though not accessory to the execution of the contract is voluntary or gratuitous. In the last class there is no sale because though property passes it does not pass for a price. Whether a contract is of the first or the second class must depend E upon the circumstances: if it is of the first; it is a composite contract for work and sale of goods: where it is of the second category, it is a contract for execution of work not involving sale of goods." The above ratio also demonstrates as to how to find out i= · whether a contract is a 'Works Contract' or one for 'Sale'. .,

140Copy pinpoint140. In light of the above discussions, it will have to be held that even after the 46th Amendment, if Article 366 (29A)(b) is to be invoked, as a necessary concomitant, it must be shown that the terms of the contract would lead to a conclusion that it G is a 'Works Contract'. In other words, unless a contract is proved to be a 'Works Contract' by virtue of the terms agreed as between the parties, invocation of Article 366 (29A)(b) of the Constitution, cannot be made. Alternatively, if the terms of H

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A the contract disclose or 'lead to a definite conclusion that it is not a 'Works Contract', but one of outright sale, the same will have to be declared as a 'Sale' attracting the provisions of the relevant sales tax enactments. Therefore, based on the conclusions arrived at and having applied the above principles B to the case on hand, and having regard to the nature of the terms of the contract displayed, it will have to be held that the manufacture, supply and installation of LIFTS/ELEVATORS comes under the definition of 'Sale' and not 'Works Contract' and the decision in Kone Elevators (India) Pv~ Ltd. (supra) has c been correctly decided. The Reference is, therefore, answered on the above terms. ORDER

1. Keeping in view the conclusions of the majority, expressed in the judgment of Dipak Misra, J., it is held that the 0 decision rendered in State of A.P. v. Kone Elevators does not correctly lay down the law and it is accordingly overruled.

2. It is directed that the show-cause notices, which have been issued by taking recourse to reopening of assessment, shall stand quashed. The assessment orders which have been framed and are under assail before this Court are set aside. It is necessary to state here that where the assessments have been framed and have attained finality and are not pending in appeal, they shall be treated to have been closed, and where the assessments are challenged in appeal or revision, the same shall be decided in accordance with the decision rendered by us

3.; he writ petitions and the civil appeals are disposed of with no order as to costs. G Rajendra Prasad Matters disposed of.