RAM SINGH & SONS ENG. WORKS versus COMMISSIONER OF SALES TAX, U.P.

Citation: [1979] 2 S.C.R. 621 · Decided: 07-12-1978 · Supreme Court of India · Bench: P.N. BHAGWATI · Disposal: Appeal(s) allowed

Judgment (excerpt)

621 
RAM SINGH & SONS ENG. WORKS 
v. 
COMMISSIONER OF SALES TAX, U.P. 
December 7, 1978 
(P. N. BHAGWATI AND R. S. PATHAK, JJ.] 
Contract of sale and contract for work and labour, distinction and test a/-
Whether a contract for fabrication and erection of 3-motion electrical overhead 
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(travelling cranes) is a contract of sale or contract for work and labour. 
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The appellant <issessee was a p<i!rtnership firm carrying on business inter alia 
of manufacture and erection of cranes. During the assessment year 1965-66, 
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the assessee entered into two contracts for supply and erection of 3-motion elec-
trical overhead travelling cranes. The assessee carried out both the contracts 
and fabricated and erected 3-motion electrical overhead travelling cranes accord-
ing to the contract specifications. A question arose in the assessment of the 
assessee to sa•les tax for the assessment year 1965-66 whether the an1ount of 
Rs. 1,34,500/- received by the assessee under the contract with M/s. Kamlapati 
Motilal Sugar Mills and the amount of Rs. 2,38,000/ • received under the contract 
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\Vith M/s. Upper Doab Sugar Mills Ltd., formed part of the turnover of the 
a.ssessee and was liable to sales tax. The Sales Tax Officer took the view th3.t 
the contracts were essentially contracts of sale of ready made cranes and the 
erection of the era nes at the factory site was merely incidental to the sales Md 
the amounts of Rs. 1,34,500/- and Rs. 2,38,000/- received under the contracts 
were, therefore taxable. This view was upheld by the Assistant Commissioner 
in appeal, but in revision the Additional Judge (Revisions) held that each of 
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the two contracts was a works contract not involving any sale of goods and 
hence the amounts were not exigible to sales tax. 
On a reference to the l-Iigh 
Court at the instance of the Cornntissioner of Sales Tax, the High Court took 
the view that each of the two contracts was for supply of 3-motion electrical 
overhead travelling cranes as a complete unit acd "the predominant object 
was supply <;f crane as complete unit" and "the bestowing of labour and skill 
in the execution of the contract" appeared to have been incidental to the supply 
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of the machine." The High Court observed that in its view parties "intended 
the property to pat1s in the subject matter of the contract, namely, the completed 
crane as movable property" and concluded that it was a contract of sale of 
goods and not a contract for work and labour. The High Court accordingly 
answered both the questions referred to it against the assessee a·nd in favour 
of the Revenue. 
Allowing the appeal by special leave the Court, 
HELD : 1. The primary test to find out whether a contract is a contract of 
sale or a contract for work and labour is ·whether the contract is one whose 
ma.in object is transfer of property in a chattel as a chattel to the buyer, thougb 
some \\'Ork may be requ'ired 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. 
The Court's have 
evolved some subsidiary tests to resolve the difficulty arising in the applicooon 
of this prim3ry test ~ there are a large number of cases which are on the 
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622 
SUPREME COURT REPORTS 
[1979] 2 s.c.R. 
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border line and fall within what may be called "grey area". 
One such test 
formulated by the Supreme Court in 
Con1missioncr of Sales Tax, A1adhya 
Pradesh v. Purshottam Pnemji, 26 STC 38 is : 
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"The primary difference between a contract for work or service and a con~ 
tract for sale of goods is that in the former there is in the person performing 
work or rendering service no property in the thing produced as a whole ..... . 
In the case of a contract for sale, the thing produced as ai whole bas individual 
existence as the sole property of the party who produced it (at some time before 
delivery, and the property therein passes only under the contract relating thereto 
to the other party for price." [628 C-G] 
Com1nissioner of Sales Tax, M.P. v. Purshottani Pren1ji, 26 STC 38; State 
of Rajasthan v. Man industrial Corporation 24 STC 349; Sentinel Rolling Shutters 
& Engineering Co. (P) Ltd. 
v. 
Commissioner of Sales Tax, .f.\,faharashtra, 
[1979] I SCR 644; applied. 
2. Each of the two contracts for fabrication and erection of a 3-motion 
electrical overhead tr.welling crane is not a contract for sal

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