STATE OF GUJARAT Vs. ELECON ENGINEERING COMPANY LIMITED

JUDGEMENT

(1.) The Tribunal had referred, under section 69 of the Gujarat Sales Tax Act, 1969, the following question for the opinion of this Court :

(2.) The opponent is an engineering company engaged in the business of manufacture of mechanical handling equipments and other engineering products. It entered into a contract with M/s. Fertilizer Corporation of India Limited, Trombay, for complete designing, engineering, manufacturing, supplying, erection and commissioning of N.P. handling system. The contract between the parties is evidenced by the request for quotation made by Fertilizer Corporation of India and the purchase order dated September 4, 1975, given by Fertilizer Corporation of India. Under the contract the respondent-company despatched some goods being components of material handling equipment, to Fertilizer Corporation of India. One such despatch was made under bill dated December 14, 1976. A doubt arose as to whether the sales tax charged by the opponent company was really leviable. Therefore the opponent company made an application on October 8, 1979, to the Deputy Commissioner of Sales Tax for determination under section 62 of the Act, whether the transaction of supply, erection and commissioning of N.P. handling system to Fertilizer Corporation of India as evidenced by the latter's purchase order dated September 4, 1975, was a transaction of sale of goods. The Deputy Commissioner of Sales Tax held that "there was a distinct contract for sale of goods accompanied by another contract for transportation, handling, erection, etc." He further held that there was a "specific agreement to sell conveyors, belts and other equipments separately as chattel" and thus the transaction was a transaction of sale. Aggrieved by that order, the assessee preferred an appeal before the Gujarat Sales Tax Tribunal. The Tribunal did not agree with the conclusion of the Deputy Commissioner that the contract was divisible. It held that the contract was essentially a works contract and could not be broken up into two contracts - one for sale of components or equipments and another for erection and commissioning of the material handling system. Taking this view, the Tribunal allowed the appeal. The department therefore, moved the Tribunal under section 69 of the Act to refer the abovementioned question to this Court. As a question of law did arise from its order, it has referred the above stated question.

(3.) As pointed out by the Supreme Court in a number of cases, the primary test to be applied in such cases is whether the contract is one whose main object is transfer of property in a chattel as a chattel to the buyer, though some work may be required to be done under the contract as ancillary or incidental to the sale or it is carrying out of work by bestowal of labour and service and materials are used in execution of such work. This test has been recognised and approved in a number of decisions and it may now be regarded as beyond controversy; but the real difficulty arises in its application as there are a large number of cases which are on the borderline and fall within what may be called the grey area. To solve this difficulty, the courts have evolved some subsidiary tests and one of such tests is that formulated by the Supreme Court in Commissioner of Sales Tax V/s. Purshottam Premji [1970] 26 STC 38. It is as under :