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

Citation: [2014] 5 S.C.R. 912 · Decided: 06-05-2014 · Supreme Court of India · Bench: RAJENDRA MAL LODHA · Disposal: Disposed off

Cited by 5 judgment(s) · see the full citation network in Lexace

Judgment (excerpt)

A 
B 
[2014] 5 S.C.R. 912 
M/S. KONE ELEVATOR INDIA PVT. LTD. 
v. 
STATE OF TAMIL NADU AND ORS. 
(Writ Petition (c) No. 232 of 2005) 
MAY El6, 2014 
[R. M. LODHA, CJI, A. K. PATNAIK, SUDHANSU JYOTI 
MUJ<HOPADHAYA, DIPAK MISRA AND FAKKIR 
MOHAMED l~RAHIM KALIFULLA, JJ.] 
C 
CONSTITUTION OF /NOIA, 1950: 
Art. 366(29A) (b) - Tax on sale and purchase of goods 
-
'Works contract'-Contract for manufacture, supply and 
installation of lifts in a building - Held: (Per majority)(Fakkir 
Mohamed Ibrahim Kalifulla,J. dissenting): Four concepts 
D emerge as regards a 'works contract', viz., (i) the works 
contract is an indivisible contract but, by legal fiction, is divided 
into two parts, one for sale of goods, and the other for supply 
of labour and services; (ii) the concept of "dominant nature 
test" or, for that matter, the "degree of intention test" or 
E "overwhelming component test" for treating a contract as a 
works contract is not applicable; (iii) the term "works contract" 
as used in Clause (29A) of Art. 366 takes in its sweep all 
genre of works contract and is not to be narrowly construed to 
cover one species of contract to provide for labour and service 
F alone; and (iv) once the characteristics of works contract are 
met with in a contract entered into between the parties, any 
additional obligation incorporated in the contract would not 
change the nature of the contract -
As far as installation of 
the lift is concerned, it has to be understood in the conceptual 
G context of the manufacture and installation of a lift in a building 
- Without installation, lift cannot be mechanically functional 
because it is a permanent fixture of the building having been 
so designed - If there are two contracts: one, for purchase of 
the components of the lift from a dealer, it would be a contract 
H 
912 
KONE ELEVATOR INDIA PVT. LTD. v. STATE OF T.N. 913 
& ORS. 
for sale; and two, if a separate contract is entered into for A 
installation, that would be a contract for labour and service -
But, a pregnant one, as in the instant matters, once there is 
a composite contract for supply and installation, it has to be 
trf!_ated as a works contract, for it is not a sale of goods/chattel 
simpliciter -
It is not chattel sold as chattel or, for that matter, 
B 
a chattel being attached to another chattel -
In fact, after the 
goods are assembled and installed with skill and labour at the 
site, it becomes a permanent fixture of the building -
Therefore, it would not be appropriate to term it as a contract 
for sale on the bedrock that _the components are brought to c 
the site, i.e., building, and prepared for delivery -
The 
contract itself profoundly speaks of obligation to supply goods 
and materials as well as installation of the lift which obviously 
conveys performance of labour and service -
Thus, the 
fundamental characteristics of works contract are satisfied -
0 
The decision rendered in Kone Elevators does not correctly 
lay down the law and it is, accordingly, overruled - Show 
cause notices and assessment orders challenged in the 
instant matters are set aside - Assessment orders which have 
attained finality and are not pending in appeal, shall be 
E 
treated to have been closed and where assessments are 
challenged in appeal or revision, the same shall be decided 
in accordance with the judgment- Orissa Sa/es Tax Act, 1947 
-
s 2(jj) -
Bombay Lifts Act, 1939 -
Finance Act, 1994 -
ss. 65(29), 65(39a) and 65(105) (zzd) and (zzzza) -
Sale of 
Goods Act, 1930 - s.2(7). 
F 
In the instant matters, referred to the larger Bench, 
the question for consideration of the Court was: "whether 
a contract for manufacture, supply and installation of lifts 
in a building is a "contract for sale of goods" or a "works G 
contract"." 
Disposing of the matters, the Court 
HELD: Per Dipak Misra, J. (for himself and for R.M. 
Lodha, CJI, A.K. Patnaik and Sudhansu Jyoti 
Mukhopadhaya, JJ): 
H 
914 
SUPREME COURT REPORTS 
[2014] 5 S.C.R. 
A 
1.1. The significance of the issue involved in these 
matters is that if the contract for manufacture, supply and 
installation of lift in a building is a "contract for sale of 
goods" the entire sale consideration would be taxable 
under the sales tax or value added tax enactments of the 
B State legislatures, whereas if it is a "works contract", the 
consideration payable or paid for the labour and service 
element would have to fle excluded from the total 
consideration received and sales tax o

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