STATE OF TAMIL NADU Vs. EFF AAR FABRICATIONS

JUDGEMENT

(1.) THE Order of the Court is as follows: THE State which was unsuccessful before the Sales Tax appellate Tribunal (Main Branch), Madras , has filed the above tax revision. THE respondents- assessees registered as dealers under the Tamil Nadu General sales Tax Act were carrying on business in the manufacture and sale of rolling shutters, steel windows, etc. , during the assessment year 1978-79. For the said assessment year, they reported a total and taxable turnover of Rs. 6, 24, 588. 06 in the monthly returns in form A2. On check and verification of their accounts before finalising the assessment, the assessing officer found that certain exemptions claimed were not permissible and that a turnover of Rs. 3, 24, 352 said to represent the receipts in respect of works contract executed in the form of supplying rolling shutters was not allowable for the exemption claimed. Consequently, after issuing a show cause notice and giving them due opportunity and considering the explanations, the assessing officer, by his order dated March 26, 1980 determined a total and taxable turnover of the respondents- assessees for the year in question at Rs. 6, 83, 891. As noticed supra, the exemption claimed on receipts in respect of what the respondents- assessees claimed to be works contract was not allowed.

(2.) AGGRIEVED, the respondents- assessees filed an appeal before the Appellate Assistant Commissioner, Commercial Taxes, Kancheepuram . About three items of turnover including the receipt relating to the works contract referred to and the levy in respect of the same were challenged. Reliance was placed on the fact that the contract was for manufacture, supply and fixing or installation of the rolling shutters and the rate fixed therefor was all including erection charges and taxes. The assessees also placed reliance upon the decision of the apex Court in Sentinel Rolling shutters & Engineering Company Pvt. Ltd. v. Commissioner of Sales Tax to substantiate the plea that the contract was for work and labour and does not attract any liability to sales tax. The department has filed a petition for enhancement in respect of a turnover of Rs. 56, 302. 12 which was said to be labour receipts.

(3.) THE decision of the apex Court in Vanguard Rolling shutters & Steel Works v. Commissioner of Sales Tar concerned with a contract for the manufacture of iron shutters according to specification given and to be also fixed at the premises of the customers. As a matter of fact in that case the assessee was required to fabricate the rolling shutters, bring them to the site of the customers at the cost of the customers and erect them and the masonry work had to be done by the customers at their cost but according to the assessee's instructions. THE assessee therein was also entitled to be paid full price of the shutters against delivery prior to despatch and there was no such thing as making payment after fixing. THE apex Court while reversing the view of the Allahabad High court in the decision reported in Commissioner of Sales Tax v. Vanguard Rolling shutters and Steel Works held that the contract was a works contract and the transaction was not exigible to sales tax. While analysing the contract in that case, the apex Court expressed the view that the transaction is a composite consolidated contract which is one and indivisible comprising labour and services executed for a lump sum and, therefore, the materials are not supplied to the customer so as to pass as chattel simpliciter but really became an accretion to the immovable property when fixed and erected. It was also emphasised therein that the question as to under what circumstances a contract can be said to be a works contract is not free from difficulty and has to depend on the facts of each case and it would be also difficult to lay down any rule of universal application, but the issue has got to be decided only in accordance with the well recognised tests laid down by judicialpronouncements. In referring to such guidelines, the apex Court observed as hereunder : "one of the 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 sale of materials and the sale proceeds would be exigible 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 materials but it is a works contract. THE circumstance that the materials have no separate identity as a commercial article and it is only by bestowing work and labour upon them, as for example, by affixing them to the building in case of window-leaves or wooden doors and windows that they acquire commercial identity, would be prima facie indicative of a works contract. So also where certain materials are not merely supplied but fixed to an immovable property so as to become a permanent fixture and an accretion to the said property, the contract prima facie would be a works contract. This is exactly what has happened in the present case. " This decision was followed and the principles laid down therein were reiterated by the apex Court in Sentinel Rolling Shutters & engineering Company Pvt. Ltd. v. Commissioner of Sales Tax while reversing the decision of the Bombay High Court reported in Sentinel Rolling Shutters and engineering Co. Pvt. Ltd. v. Commissioner of Sales Tax.