Case Law Details
M/s. Bharat Heavy Electricals Ltd. Vs. State of Maharashtra (Bombay High Court)
It is evident that in the facts of the present case the contract was clearly one for supply and erection of equipment, supply of equipment being dominant purpose. No doubt the State of Maharashtra had enacted the Maharashtra Sales Tax on “Transfer” of property of goods involved in works contract Act only in 1982 but the contention that during the period under consideration 1979- 80 and 1980- 81 the State had no power to levy the tax on Works contract will not be of any assistance to the applicant. In our view the contract in the instant case is predominantly for supply of equipment, erection and installation. FPDIL was required to carry out all preparation work , provide foundation, provide all civil works required, the equipment was merely supplied and installed.
In Kone Elevator (supra) the Supreme Court has considered a series of judgments including that of Sentinel Rolling Shutters (supra) and has concluded that the question will depend upon intention of parties executing the contract and there can be no standard formality that one can distinguish a contract of sale from contract of work and labour. The Supreme Court also reiterated that as held in the case of Larsen and Toubro Limited vs. State of Karnataka5 the dominant nature of a contract must be examined. The “dominant nature test” can be culled out in what is reproduced below :
“Whether the contract involved a dominant intention to transfer the property in goods, in our view, is not at all material. It is not necessary to ascertain what is the dominant intention of the contract. Even if the dominant intention of the contract is not to transfer the property in goods and rather it is the rendering of service or the ultimate transaction is transfer of immovable property, then also t is open to the States to levy sales tax on the materials used in such contract if it otherwise has elements of works contract…”
The aforesaid extract read with four concepts that the Supreme Court has identified in paragraph 44 of the Kone Elevator (supra) will help to establish whether the contract in question is a works contract. Applying the aforesaid tests to the facts of the case we have no hesitation in concluding that reading the terms of the contract referred to herein above merely because there are small element of work in the contract, it cannot be concluded that the contract in the present case is a works contract. It is essentially a contract for supply of compressors and allied equipment with a minuscule amount of work. It is also seen that the contract is itself described as a “divisible contract”.
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