VANGUARD ROLLING SHUTTERS AND STEEL WORKS LTD. versus COMMISSIONER OF SALES TAX, U.P.

Citation: [1977] 3 S.C.R. 165 · Decided: 08-03-1977 · Supreme Court of India · Bench: P.N. BHAGWATI · Disposal: Appeal(s) allowed

Judgment (excerpt)

J 
VANGUARD ROLLING SHUTTERS 
AND STEEL WORKS LTD. 
v. 
COMMISSIONER OF SALES TAX, U.P. 
March 8, 1977 
[P. N. BHAGWATI AND S. MURTAZA FAZAL ALI, JJ.J 
165 
S'ales Tax-Contract for sale of material and works contract-Tests 
for 
distinguis!1f11g. 
The 
n~se'i~ee, \vho was a manufacturer of iron shutters, fabricates 
the 
different nart:; and comoonents and fits them into shutters. 
The shutters are 
prepared ·ric,·c1ding to the specific requirementfJ cf the customer and fixed in 
the custotner's p::emises. 
Though the ma<;onary work connected with the 
fitting of the shutters \Vas done by the customer, it was done according to the 
contractor's instructions. 
The contract was comr>lete after the shutters were 
taken to the ore1nises of the customer and affixed to tho building; and 
when 
htted into the-\Valls the shutters becom.e permanently embedded into 
the wall<; 
and are not detachable. 
The price charged by the contractor from the custo-
mer was a lun1psum and did not show a break up of the rnateri·als used or 
fabricated or the cost of services or labour. 
The assessee claimed that the contract being a works contract, the proceeds 
from such contracts: are not exigible to tax. 
But this plea vvas rejected by the 
Sales Tax Officer. 
The asses<iee's appe::il was rejected by the Assi-stant Com-
missioner (Judicial). The Judge (Revisions) Sales·T·ax upheld the assesee.'s 
contention. 
On reference the High Court held that the contract was not a 
v.orks contract but a contract for the supply of gocxls sin1pliciter. 
Allowing the .. assessee's appeal, 
HELD '. The contract in the present case was a works contract and 
the 
transaction \Va"> not exii~ible to tax. 
The High Court was in error in hold-
ing that the assessee wa~ liable to pay tax on the sale proceeds of the contract. 
[171 EJ 
( 1) The question whether a contract can be said to be a works contract 
has to depend on the facts of each case. 
It is difficult to lay down any rule 
of universal application but some of the important tests evolved by this Court 
are: [168 HJ 
(i) Where the contra:ct was primarily a contract for the supply of materials 
at a price agreed to bet\veen the parties for the materials so supplied and the 
work or service rendered is incidental to the execution of the contract, 
the 
contract is one for sale of materials and the sal_e proceeds would be exigible 
to sales-tax. [169 A-Bl 
(ii) Where the contract is primarily for work and Jabour, and ma·terials 
A 
B 
c 
D 
E 
F 
are supplied in execution of such contract, there is no contract for sale of 
G 
ni.ateriats but it is a works contract. 
The circumstance that the materials 
have no ~evarate identity as a commercial article and it is only by bestowing 
\\'Ork and labour upon them, that is, by affixing them to the building Would be 
prilna facie indicative of a works contract. 
Where certa·in materials are not 
:rr.erely suppi;cd but fixed to an immovable property so as to become a per~ 
nJanent fixtlire apd anl accretion to the said prope·rty, the contract prbna facie 
would be a works contract. [169 CJ 
Jn the instant case the transa<:tion was a composite, consolidated contract 
which was one and indivisible comprising labour and services executed for a 
H 
Jumpsum. 
The contract could be completed when materials with various 
component parts had been taken to the site, fitted into one another and then 
finally fixed ibt0 a frame so that the fixture became permanent and a, part of 
A 
B 
c 
D 
E 
F 
G 
166 
SUPREME COURT REPORTS 
[1977] 3 s.c.R. 
... 
the premises. This operation oould not be. sai,d to be merely incidential to 
the contract but was fundamental part of the contract itself. [168 I' & 170 A] 
(2) It is not correct to say that the contract could not be a works contract 
because the price was paid in advance and the title passed to the customer as 
soon as the shutters were packed and despatched to the site. 
Advance pay-
ment of the price was a term meant for the convenience of the parties 
as 
the contractor did not want to take any risk for delayed payment; the contract 
would be completed only after the shutters were finally assembled at the site 
and fixed according to specifications, which was essentially the responsibility of 
the contractor. (170 DJ 
State of' Rajasthan v. Man Industrial Corporation Ltd. 24 -5:r C. 349, 355 
and Srate of RajaSthan v. Nanu Ran1 26 S.T.C. 268 followed. 
State of Madras v. Richardson and Cruddas Ltd. 21 S.T.C. 245 (S.C.) and

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