WAVES ELECTRONICS P LTD Vs. STATE OF KERALA

JUDGEMENT

(1.) THIS is a revision by the assessee against the order dated March 30, 1987, in T. A. No. 618 of 1982 on the file of the Kerala Sales Tax Appellate Tribunal, Ernakulam. The Tribunal by its order confirmed the order of assessment dated January 5, 1981, which relates to the assessment year 1979-80, and which stood confirmed in S. T. A. No. 1489 of 1981 by the Appellate Assistant Commissioner.

(2.) THE facts pertinent for the decision of this tax revision case are as follows : THE revision petitioner, Waves Electronics (P.) Ltd. , is engaged in the manufacture and sale of electrical goods and it also undertakes contracts for designing, execution and installation of various electrical goods. For the assessment year 1979-80, the petitioner filed a return for Rs. 5,91,332. 60 and it did not include in the return the amount of Rs. 1,35,411 which it received towards fabrication, supply and installation of M. V. switch boards for Kunnathara Textiles Ltd. , Calicut. That work was executed in pursuance of an order placed by them on November 8, 1977. That amount is not included in the taxable turnover as it represents receipts from a works contract and not from sale of goods. THE Sales Tax Officer rejected the contentions and included the same in the taxable turnover. When an appeal was filed on this aspect, the Appellate Assistant Commissioner sustained the order of the assessing authority by order dated January 1, 1982, in S. T. A. No. 1489 of 1981. THE Appellate Tribunal in T. A. No. 618 of 1982 affirmed the order. Hence the present tax revision case.

(3.) A perusal of the order of the Appellate Tribunal clearly indicates that the Tribunal relied upon various decisions, but it failed to understand the correct purport of those decisions and it committed a mistake in not applying the principles laid down in those decisions. To understand the nature of the contract and to find out whether it is a contract for works or a contract for sale of goods, the very document under which the order has been placed has to be perused. It is given at pages 21, 22 and 23 of the paper book. The order clearly mentions that the assessee has to fabricate, supply and instal MV switch boards for Kunnathara Textiles Ltd. , Calicut. It clearly mentions that they have to be fabricated and supplied strictly in conformity with the technical specifications for the switch boards enclosed, and as per the general arrangements drawing of Kunnathara Textiles Ltd. , the schematic wiring drawings were enclosed. The order itself mentions that the switch boards supplied shall be guaranteed for a period of 12 months against defective design, materials and workmanship. The specifications enclosed are given at page 23. A perusal of page 23 clearly indicates that the very drawings are to be prepared by the assessee. Preparation of drawing, designing, assembling, supply and erection has to be done by the assessee. The clause relating to inspection, testing and trial run clearly stipulates that the switch boards will be finally accepted only after supply, erection, commissioning and trial run to the satisfaction of the receiving party. As regards the clause relating to components, it clearly stipulates that the components should be of the best possible grade, and the list of components and the manufacturers' name should be given along with the control panels, drawings, etc. There are various other stipulations regarding the specifications for the materials to be used and regarding the manner in which the board should be designed and erected. A perusal of the specifications and a reading of the letter dated November 8, 1977, under which the order is placed, clinchingly establishes that this is a contract for works which includes preparation of drawings, designing, assembly, supply and erection and then giving a trial run and giving guarantee for 12 months. The skill part of the contract is predominant and the value of the materials is only incidental. It should be remembered that in every contract for works, certain goods are transferred or sold to the vendee, but such goods do not have a separate commercial identity. Only the designed, assembled, and fabricated switch board is useful for a particular party as it is designed for a specific purpose. Seeing the details of the contract, we are fully convinced that this is a case of a contract for works, where the works part of it, namely, the technical skill, preparation of drawings, design, assembling, etc. , assumed greater importance. The supply rate indicated in the contract is not only for the materials, but a composite rate including all these factors. It should also be remembered that these switch boards designed for specific purpose cannot be utilised by another party for a different purpose. Bearing in mind these findings of fact, we shall now examine the reasons given by the Tribunal and the decisions relied on by the Tribunal in support of its decision.