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

- **Citation:** [2014] 5 S.C.R. 912
- **Court:** Supreme Court of India
- **Decided:** 2014
- **Bench:** R. M. Lodha, A. K. Patnaik, Sudhansu Jyoti Muj<Hopadhaya, Dipak Misra, FAKKIR MOHAMED l~RAHIM KALIFULLA
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/m-s-kone-elevator-india-pvt-ltd-v-state-of-tamil-nadu-and-ors-30152
- **Pages:** 161

## Headnote

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"

## Text

_Characters 0–39,956 of 334,037. This is a partial read: ask again with offset=39956 for what follows._

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 or value added tax
would be charged on the balance amount. In the instant
C case, the petitioner is engaged in the manufacture, supply
and installation of lifts involving civil construction. [Para
3-4] [942-8-E]
1.2. The authorities clearly show that a works contract
could· not have been liable to be taxed under the State
o sales tax laws and whether the contract was a works
contract or a contract for sale of goods was, earlier
dependent on the dominant intention as reflected from
the terms and conditions of the contract and many other
aspects. [para 27] [959-C-D]
E
State of Madras v. Gannon Dunkerley & Co., (Madras)
Ltd. (Gannon Dunker/ey-1) 1959 SCR 379 = AIR 1958 SC
560Car/ Still G.m.b.H. & Another v. State of Bihar and others
1962 SCR 81 = AIR 1961 SC 1615 State of Gujarat v. M/s.
Kai/ash Engineering ·ca. (Pvt.) Ltd. 1967 SCR 543 = AIR
F
1967 SC 547; The State of Madras v. Richardson & Cruddas
Ltd. (1968) 21 STC 245 (SC); State of A. P v. Kone Elevators
(India) Ltd. [2005] SCR 152 =(2005) 3 SCC 389; State of
Rajasthan v. Man Industrial Corporation Ltd. 1969 (3) SCR
505 = 1969 (1) -sec 567; State of Rajasthan and others v.
G Nenu Ram (1970) 26 STC 268 (SC); State of Punjap v. Mis.
Associated Hotels of India Ltd. 1972 (2) SCR 937 = 1972
(1) SCC 472; Vanguard Rolling Shutters and Steel Works v.
Commissioner of Sa/es Tax 1977 (3) SCR 165 =1977
(2) SCC 250; Federation of Hotel and Restaurant Association
H of India v. Union of India and others 1989 (2) SCR 918 = 1989
KONE ELEVATOR INDIA PVT. LTD. v. STATE OF T.N. 915
& ORS.
(3) SCC 634; State of Gujarat (Commissioner of Sales Tax,
A
Ahmedabad) v. Mis. Variety Body Builders 1976 Suppl.
SCR 131 = 1976(3) SCC 500; Sentinel Rolling Shutters &
Engineering Company (P) Ltd. v. Commissioner of Sa/es Tax
1979 (1) SCR 644 = 1978 (4) SCC 260, Ram Singh & Sons
Engineering Works v. Commissioner of Sa/es Tax, U. P. 1979
B
(2) SCR 621 = 1979 (1) SCC 487; Commissioner of Sa/es
Tax,
Madhya Pradesh v. Purshottam Premji 1970
(2) SCC 287; Hindustan Aeronautics Limited v. State- of
Orissa 1984 (2) SCR 267 = 1984 (2) SCC 16 - referred to.
Clark v. Bulmer (1843) 11 M & W. 243- referred to.
C
1.3. The works contract could not be made amenable
to sales tax as the State Legislatures did not have the
legislative competence to charge sales tax under Entry
48 List II of the Seventh .Schedule of the Constitution on
an indivisible contract of sale of goods which had
component of labour and service and it was nofwithin
D
the domain of the assessing officer to dissect an
indivisible contract to distinguish the sale of goods
constituent and the labour and service component. This
being the legal position, Parliament brought in the FortyE
sixth Amendment by incorporating Clause (29A) in Art.
366 of the Constitution to undo the base of the
Constitution Bench decision in Gannon Dunkerley's-1
case. [para 27] [959-E-G]
F
1.4. The constitutional validity of the Forty-Sixth
Amendment by which the State Legislatures were
conferred the competence to levy sales tax on certain
transactions, as incorporated in sub-clauses (a) to (f) of
Clause (29A) of Art. 366 of the Constitution, was upheld
in Builders' Association*. The Constitution Bench has
G
opined that it is open to the States to segregate works
contract into two separate components or contracts by
legal fiction, namely, contract for sale of goods involved
in the works contract and for supply of labour and
service.Another Constitution Bench, in Gannon
916
SUPREME COURT REPORTS
[2014] 5 S.C.R.
A Dunkerley-II**, has unequivocally restated and reaffirmed
the principle that the States have legislative power to
impose tax on the transfer of property in goods or in
some other form in the execution of works contract and
they have also the power to bifurcate the contract and
B levy sales tax on the value of materials used in the
execution of the works contract, regard being had to the
principle that the State Legislatures have been
empowered under Clause (29A) of Art:366 to levy tax on
the deemed sales. [para 29 and 31] [960-H; 961-A-B; 963C B-0]
*Builders' Association of India and others v. Union of
India and others 1989 (2) SCR 320 = (1989) 2 SCC 645 -
relied on
**Mis Gannon Dunkerley and Co. and others v. State of
D Rajasthan and others (Gannon Dunkerley-I/) 1992 (3)
Suppl. SCR 103 = (1993) 1 SCC 364 - followed.
1.5. It is significant to note that in Larsen and
Toubros, it has been stated that after the constitutional
E amendment, the narrow meaning given to the term
"works contract" in Gannon Dunkerley-/ no longer
survives. It has been observed in the said case that even
if in a contract, besides the obligations of supply of
goods and materials and performance of labour and
services, some additional obligations are imposed, such
F contract does not cease to be works contract, for the
additional obligations in the contract would not alter the
nature of the contract so long as the contract provides
for a contract for works and satisfies the primary
description of works contract. It has been further held
G that once the characteristics or elemerits of works
contract are satisfied in a contract, then irrespective of
additional obligations, such contract would be covered
by the term "works contract" because nothing in Art.
366(29-A)(b) limits the term "work~ contract" to contract
H for labour and service only. [para 40] [968-8-E]
KONE ELEVATOR INDIA PVT. LTD. v. STATE OF T.N. 917
& ORS.
$Larsen and Toubro Limited and another v. State of A
Karnataka and another (2014) 1 sec 708 - affirmed
1.6. At this juncture, it is condign to state that four
concepts have clearly emerged, viz. (i) the works contract
is an indivisible contract but, by legal fiction, is divided
into two parts, one for sale of goods, and the other for B
supply of labour and services; (ii) the cone-apt of
"dominant nature test" or, for that matter, the "degree of
intention test" or "overwhelming component test" for
treating a contract as a works contract is not applicable;
(iii) the term "works contract" as used in Clause (29A) of C
Art. 366 of the Constitution takes in its sweep all genre
of works contract and is not to be narrowly construed to
cover one species of contract to provide for labour and
service alone; and (iv) once the characteristics of works
contract are met with in a contract entered into between D
the parties, any additional obligation incorporated in the
contract would not change the nature of the contract.
[para 42] [969-A-C]
Bharat Sanchar Nigam Ltd. and anotherv. Union of India
and others 2006 (2) SCR 823 = 2006 (3) SCC 1; Associated E
Cement Companies Ltd. v. Commissioner of Customs 2001
(1) SCR 608 = 2001 (4) SCC 593; K. Raheja Development
Corporation v. State of Karnataka 2005 (3) SCR 1210 = 2005
(5) SCC 162; State of UP. and others v. P.N.C. Construction
Co. Ltd. and others 2007 (8) SCR 927 = 2007 (7) SCC 320
F
Hindustan Shipyard Ltd. v. State of A. P. 2000 (1) Suppl. SCR
592 = (2000) 6 sec 579 - referred to
1.7. In OTIS Elevator$, the High Court opined that
after the lifts were properly ~rected and installed in the
building, they became permanent fixtures of the G
premises. It took note of the t~rms of the agreement and
held that the terms in the agreement were also indicative
of the fact that the whole contractual obligation was not
divisible in parts, and was intimately connected with the
labour and services undertaken by the applicants in
H
918
SUPREME COURT REPORTS
[2014] 5 S.C.R.
A erecting and installing the apparatus. After so stating, the
High Court observed that the work of erection and
installation of an apparatus like the lift in a huge building,
which has to carry passengers to several floors, is a type
of work which calls for considerable skill and experience
B and the technical skill and precision in execution of the
work is absolutely essential if satisfactory services are to
be rendered by the person who undertakes such work.
Eventually, the High Court ruled that it would be difficult
to hold that the mere use of the material, or the ultimate
C passing of property in the article or apparatus as a result
of the execution of the contract, will make it possible to
sever the agreement into two parts, one for the sale of
goods, and the other for services rendered, for the two
are so intimately connected that severance is not
0
possible in such cases and, in fact, it was an indivisible
contract. Further various technical aspects go into the
installation of the lift. There has to be a safety device. In
certain States, it is controlled by the legislative enactment
and the rules. In certain States, it is not, but the fact
remains that a lift is installed on certain norms and
E parameters keeping in view numerous factors. The
installation requires considerable skill and experience.
The labour and service element is obvious. [para 43 and
64] [972-A-E; 985-B]
F
$$QTfS Elevator Company (India) Ltd. v. The State of
Maharashtra (1969) 24 STC 525 (Born) - approved.
Name Tulaman Manufacturers Pvt. Ltd., Hyderabad v.
Collector of Central Excise, Hyderabad 1988 (3) Suppl.
SCR 1 = (1989) 1 SCC 172; Collector of Central Excise,
G Calcutta-I/ v. Eastend Papers Industries Ltd. 1989
(3) SCR 1017 = (1989) 4 SCC 244; Aspinwall & Co. Ltd. v.
Commissioner of Income Tax, Ernakulam 2001 (2)
Suppl. SCR 559 = (2001) 7 SCC 525; MIL India Ltd. v.
Commissioner of Central Excise, Noida 2007 (3) SCR 476 =
H (2007) 3 SCC 533; Sirpur Papers Mills Ltd. v. Collector of
KONE ELEVATOR INDIA PVT. LTD. v. STATE OF T.N. 919
& ORS.
Central Excise, Hyderabad 1997 (6) Suppl. SCR 431 = A
(1998) 1 sec 400 - referred to.
Underwood Limited v. Burgh Castle Brick and Cement
Syndicate (1922) 1 KB 343 - referred to.
1.8. As far as installation of the lift is concerned, it B
has to be understood in the conceptual context of the
manufacture and installation of a lift in a building. The lift
basically comprises components like lift car, motors,
ropes, rails, etc. having their own identity even prior to
installation. Without installation, the lift cannot be C
mechanically functional because it is a permanent fixture
of the building having been so designed. Therefore, the
installation of a lift in a building cannot be regarded as a
transfer of a chattel or goods but a composite contract.
[para 48] [974-G-H; 975-A]
D
1.9. This Court is of the convinced opinion that the
principles stated in Larsen and Toubro do correctly
enunciate the legal position. Therefore, "the dominant
nature test" or "overwhelming component test" or "the
degree of labour and service test" are really not E
applicable. If the contract is a composite one which falls
under the definition of works contracts as engrafted
under clause (29A)(b) of Art. 366 of the Constitution, the
incidental part as regards labour and service pales into
total insignificance for the purpose of determining the
nature of the contract. [para 63] [984-C-E]
F
1.10. Involvement of the skill has been elaborately
dealt with by the High Court of Bombay in Otis Elevator
and the factual position is undisputable and irrespective
of whether installation is regulated by statutory law or G
not, the result would be the same. This position is stated·
in respect of a composite contract which requires the
contractor to install a lift in a building. It is significant to
note that if there are two contracts - one, for purchase
of the components of the lift from a d·ealer, it would be a H
920
SUPREME COURT REPORTS
[2014] 5 S.C.R.
A contract for sale; and two, if a separate contract is
entered into for 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 treated as a works contract,
B for it is not a sale of goods/chattel simpliciter. It is not
chattel sold as chattel or, for that matter, a chattel being
attached to another chattel. Therefore, it would not be
appropriate to term it as a contract for sale on the
bedrock that the components are brought to the site, i.e.,
c building, and prepared for delivery. [para 64] [985-F-H;
986-A-B]
Patnaik & Co. v. State of Orissa (1965) 2 SCR 782 -
distinguished.
1.11. In Kone Elevators case, the three-Judge Bench
D ruled that a dealer carries on business of selling lifts and
elevators and the major component of the end product is
the material consumed in producing the lift to be delivered
and the skill and labour employed for converting the main
components into the end product are incidentally used
E and, therefore, the delivery of the end product by the
assessee qua the customer has to be constituted as a sale
and not a works contract. This Court is of the opinion that
in Kone Elevators the principal logic applied, i.e., the
incidental facet of labour and service, is not correct. [para
F
54,. 57 and 64] [981-C-D; 984-D]
1.12. What has been taken note of in Kone Elevators
is that the company had brochures for various types of
lifts and one is required to place order, regard being had
to the building, and also make certain preparatory work.
G But it is not in dispute that the preparatory work has to
be done taking into consideration as to how the lift is
going to be attached to the building. The. nature of the
contracts clearly exposit that they are contracts for
supply and installation of the lift where labour and serviCe
H
el~ment is involved. Individually manufactured goods
KONE ELEVATOR INDIA PVT. LTD. v. STATE OF T.N. 921
& ORS.
such as lift car, motors, ropes, rails, etc. are the A
components of the lift which are eventually installed at
the site for the lift to operate in the building. In
constitutional terms, it is transfer either in goods or some
other form. In fact, after the goods are assembled and
installed with skill and labour at the site, it becomes a B
permanent fixture of the building. [para 64) [985-C-F]
1.13. The conclusion, as has been reached in Kone
Elevators, is based on the bedrock of incidental service
for delivery. It would not be legally correct to make such
a distinction in respect of lift, for the contract itself C
profoundly speaks of obligation to supply goods arid
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. Thus analysed, this Court holds that the D
decision rendered in Kone Elevators does not correctly
lay down the law and it is, accordingly, overruled. [para
64) [986-B-D]
State of A. P v. Kone Elevators (India) Ltd. [2005] SCR
152 = (2005) 3 sec 389 - overruled.
E
2.1. The writ petitions have been filed either against
the show-cause notices where cases have been
reopened or against the orders of assessment framed by
the assessing officers and civil appeals have been filed
against certain assessment orders or affirmation thereof
F
which are based on the decision of the three-Judge
Bench in Kone Elevators case. Considering the factual
matr!x, it is directed that the show-cause notices, which
have been issued by taking recourse to reopening of
assessment, shall stand quashed. The assessment G
orders which have been framed and are under assail
before this Court are set aside. [para 65] [986-E-F]
2.2. Where the assessments have been framed and
have attained finality and are not pending in appeal, they
922
SUPREME COURT REPORTS ·
[2014] 5 S.C.R.
A shall be treated to have been closed, and where the
assessments are challenged in appeal or revision, the
same shall be decided in accordance with this judgment.
[para 65] [986-G]
T. V. Sundram Iyengar & Sons v. State of Madras 1975
B (2) SCR 372 = 1975 (3) SCC 424, Union of India v. Central
India Machinery Manufacturing Company Ltd. and others
1977 (3) SCR 437 = 1977 (2) SCC 847, Titan Medical
Systems (P) Ltd. v. Collector of Customs, New Delhi 2003
(9) SCC 133; Commissioner of Central Excise, Ahmedabad
C v: Solid & Correct Engineering of Works and others 2010
(.:\) SCR 476 = 2010 (5) sec 122- cited.
J. Marcel (Furrier) Ltd. v. Tapper (1953) 1 All ER 15 and
Love v. Norman Wright (Builders) Ltd. (1944) 1 All ER 618;
Anglo-Egyptian Navigation Co. v. Rennie (1875) LR 10 CP
D 271; Detroit Steel Cooperage Company v. Sistersville
Brewing Company 58 L.Ed. 1166 - cited.
Per Fakkir Mohammed Ibrahim Kalifulla, J(Dissenting):
1.1. The manufacture, supply and installation of lifts
E are to be treated as a contract of 'Sale'. [para 1] [987-8]
F
State of Andhra Pradesh vs. Kone Elevators (India) Pvt.
Ltd.
2005 (2) SCR 152 = (2005) 3 sec 389 - affirmed.
Mis. Patnaik and Company vs. State of Orissa 1965
SCR 782 =AIR 1965 SC 1655 - relied on.
1.2 As and from 16.05.2008, the erection,
commissioning or installation of lift and Escalator would
fall within the expression 'works contract' having regard
to the specific definition so brought out under the
G Finance Act, 1994 w.e.f. 16.05.2008 for the purpose of
Service Tax. [para 31] [1009-D]
Commissioner of Central Excise, Ahmadabad vs. Solid
and Correct Engineering Works and others 201 O
(4) SCR 476 = (2010) 5 SCC 122 - referred to.
H
1.3. Even after the Constitutional Amendment
KONE ELEVATOR INDIA PVT. LTD. v. STATE OF T.N. 923
& ORS.
introducing Art. 366(29A)(b), it will have to be necessarily A
examined for its application as to whether a particular
contract would fall within the expression 'works contract'
and only thereafter, the incidence of taxation as provided
in the said sub-clause could operate. This principle has
also been emphasised in the decision of Larsen & Toubro
B
Ltd*. [para 7] [989-F-G]
The Commissioner of Commercial Taxes Mysore,
Bangalore vs. Hindustan Aeronautics Ltd. (1972) 1 SCC 395;
and *Larsen & Toubro Ltd. vs. State of Karnataka 2013 (12)
SCALE 77 - referred to.
C
1.4. In the instant case, admittedly, the business of
the petitioner is manufacture and supply of lifts/elevators
as well as its installation. It is not the case of the
petitioner that mere installation/ erection of lift/elevator
simpliciter is their business activity. It cannot also be said
D
that the job of installation/erection of a lift/elevator can be
done only by lift/elevator manufacturers. Thus,
manufacture of lift and erection of a lift can be
independently handled by different persons. [para 52]
[1020-8-D]
E
1.5. In the instantcase, the terms of the contract are
significant, though it is one single contract, it contains
separate terms and conditions dealing with different
aspects relating to the supply and erection of the
elevator. The petitioner while agreeing to supply an
F
elevator of a specific model, highlighted the details of the
lifts, such as, its technical details, advantages of its
product and other sophisticated equipments put into the
product. In fact, if at all any work element is involved in
the activity of supply of the ·lifts/elevators, the major part G
of the work has been directed to be carried out by the
purchaser, in its premises, in order to enable the
petitioner to erect its lift/elevator in the said premises. In
a very insignificant manner, the petitioner undertakes to
H
924
SUPREME COURT REPORTS
[2014] 5 S.C.R.
A attend to certain aspects while erecting the lifts in the
premlses of its ·purchaser, such as connecting the power
supply to the lift after fixing it in the identified place where
the purchaser has prepared the hoist/well in its premises
and such other aspects as mentioned in the contract. The
B petitioner cannot be heard to say that it brings different
parts of the lift and that its activity of assembling the
~ame in the premises of the purchaser should be
construed as one of service. In view of the nature of
product that the petitioner agreed to supply to its .
c purchaser, it has to necessarily assemble different parts
in the premises of the' purchaser and thereby, fulfill its
contract of supply of the lift/elevator in a working
condition. [para 1 O and 55] [991-A; 1021-G-H; 1022-A-D]
1). When examining the claim of the petitioner that
o what was agreed by it in the contract with its purchaser
is nothing but a 'works contract', such a claim should be
explicit and must be discernible from the contract itself.
When in the contract the element of 'works contract' is
totally absent and what was agreed between the parties
E was only supply of its elevator for a fixed price, mere
m~ntioning of the expression 'works contract' or by
making reference to the basis for fixing the cost of labour
involved in the manufacture or by simply using the
expression 'works contract' without any scope of
F performing any work at the command of the purchaser,
the petitioner's claim to hold its activity as a 'works
contract' cannot be accepted on mere asking: the
contract must disclose in no uncertain terms that it was
one for carrying out 'the work' and the supply of the
materials were part of such agreement to carry out any
G such specified work. In the instant case, it is the other
way around, the contract is only for supply of lifts/elevator
and whatever element of works which the petitioner
claims to carry out in effecting the supply is virtually very
insignificant as compared to the element of sale, which
H
KONE ELEVATOR INDIA PVT. LTD. v. STATE OF T.N. 925
& ORS.
is paramount as found in the terms of the contract. The A
whole of the preparatory work for the erection of the lift
is that of the purchaser and the petitioner merely goes
to the purchaser's premises and fixes the various parts
of the lift in the slots created for it. [para 56] [1022-E-H;
1023-A-B]
B
1.8. While making a deeper scrutiny of the terms of
the contract as a whole in Annexure A•1, which is the
acknowledgement of the Order dated 23.12.2009, the
contents of the letter also state that the petitioner received
the order placed with it by the purchaser and it is C
·prepared "to supply and install One (1) No. OTIS Electric
Traction Passenger Elevator". The other set of terms are
called as 'Preparatory Work'. Under the said head, it is
mainly stated as to the nature of preparatory work that
the purchaser will have to organize in its premises, such D
as, the time within which such preparatory work is to be
carried out, which would require the purchaser to design
and furnish what is called as elevator hoist way/structure
to provide in its building to enable the petitioner to supply
its lift and locate it. It contains as many as 21 different E
aspects of preparatory work. It could not be held to be a
service or work for which the contract was entered into.
It is like doing some incidental work for fixing a Fan or
an Air Conditioner. [para 57, 59 and 60] [1023-B-C; 1024C, D; 1025-B]
F
1.9. There is no basis in the petitioner referring to the
Price Variation Clause under the caption 'works contract'.
Therefore, it can be validly stated that by calling the Price
Variation Clause as an 'elevator works contract', the
contract cannot be construed as a 'works contract'. On G
the other hand, going by the stipulations contained
therein viz., that the claim for manufactured materials
should be paid along with material invoice and the
installation charges to be paid based on final invoice
makes it clear that the contract is divisible in its nature H
926.
SUPREME COURT REPORTS
[2014] 5 S.C.R.
A and to call it an indivisible one, is contrary to its own
terms. [para 62] [1026-G-H; 1027-A]
1.10. When examining the "conditions of the
contract", in the first instance, the most relevant and
clinching condition. is the one relating to the payment to
B be effected by the purchaser, which is to the effect that
on signing the contract, 90% of .the contract amount
should be paid and the balance 10% either on the
commissioning of the ljft or within 30 days of the
petitioner's offer to commission the lift and if for any
C delay caused beyond the control of the petitioner, within
90 days from the date the materials are ready for dispatch
at the premises of the petitioner. The agreed period for
execution of the supply of the lift, as per the contract, is
52 weeks i.e., one full year. The terms relating to payment
o in Condition No.5 and the right retained by the petitioner
to cancel the contract for any reason whatsoever under
Condition No.8 disclose that for mere signing of the
contract for supply of the lift, the petitioner would get the
whole value of it without any corresponding obligation
E to effect the supply or to suffer any damages. The said
outcome based on the payment conditions when read
along with the other stipulations, disclose that the claim
for manufactured materials should be paid along with the
material invoice and the claim for installation should be
F paid along with their final invoice. It further makes it
abundantly clear that the right of the petitioner to realize
the full value of the materials of the lift to be supplied does
not entirely depend upon the installation part of it. Supply
of materials of the lift and installation costs are separately
worked out in order to ensure that irrespective of the
G installation, the petitioner will be able to realize the value
of the material cost. This conclusion which is based on
the terms of the contract also strengthens the reasoning
that the contract is not an indivisible one and is always
separable i.e., one for supply of materials and the
H miniscule part of the work involved. The division of 90%
KONE ELEVATOR INDIA PVT. LTD. v. STATE OF T.N. 927
& ORS.
payment in the first instance and the balance 10% under A
certain other situations, fully supports the conclusion.If
the conditions of the contract relating to payment are
discernible to that effect, it can only be stated that the
contract of the petitioner with the purchaser is virtually
for the manufacture of the materials and for its absolute
B
readiness to supply those materials and nothing more.
The sum and substance of the conditions of the contract
de hors the other clauses is only to that effect. Op a
detailed consideration of the conditions of the contract,
one will not be able to state with any certainty that the c
contract has got anything to do only with any work or
service to be performed in the course of supply of the lift/
elevator by the petitioner. [para 64-66] [1027-C-H; 1028A-E; 1029-C, D, G]
1.11. The signed part of the contract makes it clear
D
that the price is inclusive of indirect taxes, as is currently
applicable either leviable by the Central Government or
State Government or any local Authority, including Excise
Duty and Service Tax. However, it also states that in the
event of any such statutory levy or payment of tax or
E
otherwise faced by the petitioner, then under such
circumstances, that should be borne by the purchaser.
[para 67] [1029-H; 1030-A-B]
1.12 Keeping in view the terms of the contract
threadbare, it can only be concluded that the contract in
F
the instant case is only one for the manufacture and
supply of the lift/elevator and the installation though
mentioned in the contract, has very insignificant relation
to the consideration agreed upon between the parties. In
any event, the contract of supply and installation are
G
divisible in very many aspects, it is difficult to hold that it
is a 'works contract'. Therefore, it will have to be held that
the manufacture, supply and erection of lift/elevator
agreed upon by the petitioner to any of its customers,
would only fall within the expression 'sale' and ca·n never
H
928
SUPREME COURT REPORTS
[2014] 5 S.C.R.
A be called as 'works contract'. Once that is the conclusion
that can be made based on the contractual terms as
agreed between the petitioner and its customers, the
application of Art. 366(29A)(b) cannot be made and does
not in any way support the claim of the petitioner. [para
B 68] [1030-C-E]
/
2.1. The definition of 'works contract' u/s 2(jj) of the
Orissa Sales Tax Act, 1947 states that it would include any
agreement for carrying out for cash or deferred payment
or other valuable consideration, among other activities,
C fabrication, erection installation o~commissioning of any
movable or immovable properw. The most mandatory
requirement for invoking the said provision and for
applying the said definition would be that the whole of the
agreement should be for carrying out the work of
D fabrication, installation or erection of a movable or
immovable property. Significantly, the expression
'manufacture' is absent in s. 2(jj). [para 70-71] (1031-A, FG]
, 2.2. As far as a lift is concerned, in one sense it can
E be called as a movable property When it is in the course
of operation after its installation and that it is not
embedded to the earth permanently while, in .another
sense, having regard to the manner in which the lift is
installed in a· premises, it can also be stated to be part of
F an immovable property. However, whether as a movable
property or immovable property, it may not make any
difference while considering the other prescriptions
contained in the s.2 (jj) of the Orissa Sales Tax Act. [para
71] [1031-C-E]
G
2.3. In the instant case, as per the· agreement
H
between the parties, the purchaser is bound to pay 90%
of the agreed sum at the time of signin'g of the contract
itself and the balance 10% within 90 days from the day
the petitioner gets. the materials. ready for dispatch in its
KONE ELEVATOR !NOIA PVT. LTD. v. STATE OF T.N. 929
& ORS.
premises, if it could not commission as agreed or within
A
30 days of its readiness to commission. Therefore, the
whole of the valuable consideration becomes payable
and was relatable _or as agreed upon by the parties
merely for the petitioner's readiness to take up the
contract of supply of the elevator and for its endeavour
B
to effect the manufacture, procure the entire materials for
a lift/elevator and keep it ready for dispatch in its
premises. [para 7 4) (1033-C-E]
2.4. It cannot be said that there was any sordid •
agreement as between the· petitioner and the purchaser C
for any valuable consideration only for the purpose of
carrying out erection/installation of the lift in the premises
of the purchaser. If for any reason after the full payment
is effectuated by the purchaser as per the term relating
to the payment of the contracted amount, due to any fault O
of the petitioner, the contract could not be performed,
there is no specific clause which would entitle the
purchaser to seek for enforcement for erection/
installation. Merely mentioning in .some Clauses that the
contract is otherwise indivisible 'works contract' will not
E
by itself make it indivisible or a 'works contract'. In the
factual and legal outcome as per the terms of the
contract, it will have to be held that there is no scope to
apply s.20j) of the Orissa Sales Tax Act to the case on
hand and to hold that the manufacture, supply and
F
installation of the lift by the petitioner would fall within the
said definition of 'works contract'. {para 75-76) (1034-AD, ~H; 1035-A]
3.1. Besides, the provisions of the Contract Act
stipulate the element of offer, acceptance and
G
consideration for a concluded contract. In the case on
hand, the offer would be for supply of the lift as described
in the proposal made by the petitioner. The consideration
upto 90% would become payable the moment the
purchaser agrees to the 'proposal made by the petitioner
H
930
SUPREME COURT REPORTS
[2014] 5 S.C.R.
A and the balance 10% can also be collected without any
positive guarantee for completion of erection or
installation of the lift under certain contingencies without
any corresponding right in the purchaser to seek for
enforcement of the erection/installation. In fact for
B payment of the balance 10% under such contingencies,
what all the petitioner has to show is that the materials
meant for the supply of the lifts are ready for dispatch in
its premises, which would mandate the purchaser to
make the payment within 90 days of such readiness as
c reported by the petitioner. In effect such a contract as
agreed between the petitioner and its purchaser as per
the provisions of the Contract Act if were to be
considered for the invocation of the definition of 'works
contract' u/s 2(jj) of the Orissa Sales Tax Act, it can be
0 found that the said contract does not in any way create
any legal obligation on the petitioner to effect erection or
installation of the lift as a movable or immovable
property, satisfaction of which contract alone will attract
the definition of 'works contract' u/s 2(jj) of the Orissa
Sales Tax Act. [para 77f [1035-C-G]
E
3.2. As per the payment terms, the parties agreed
specifically to the effect: "under this clause claim for
manufactured materials shall be paid along with our
material invoice and claim for installation labour shall be
F paid along with our final invoice." In fact the copies of the
two invoices dated 17.12.2009 and 20.09.2010, clearly
explain the fact that the first one related to material cost
and the subsequent one only related to labour cost. [para
79] [1036-E-F]
G
3.3. The provisions of the Bombay Lifts Act, 1939
H
leave no scope to reach a conclusion that a contract as
between the petitioner and the purchaser would come
within the definition of the 'works contract'. [para 80]
[1037-B]
KONE ELEVATOR INDIA PVT. LTD. v. STATE OF T.N. 931
& ORS.
Re: OTIS Elevator Co. (India) Ltd. (1981) ELT 720 - held
A
inapplicable.
3.4. Sections 65(29), 65(39a) and 65(105) (zzd) and
(zzzza) of the Finance Act, 1994 are all provisions for the
levy of Service Tax. It is well known that while interpreting
taxing statutes, strict and literal interpretation should be
B
made. In T.S. Devinatha Nada*, this Court has 'held that
what is applicable to another taxing statute may not be
applied to a case governed by sales tax statutes. Since
s. 65 and the various sub-sections, namely, sub-ss. (29),
(39a), (105), (zzd), (zzzza) put together are only relatable
C
to Service Tax, the question of importing the said
definition of 'works contract' in the explanation to
s.65(105)(zzzza) to the provisions of Sales Tax Acts
cannot be made. Further, clause (i) of the Explanation to
sub clause (zzzza) of sub-s.(105) of s.65 distinctly refers
D
to transfer of goods in any such contract to mean such
goods leviable to tax as a sale of goods. Such leviability
by itself may independently attract tax liability under tlie
relevant Sales Tax statutes. Therefore, from these
provisions under the Service Tax Act, it cannot be s.aid
E
that manufacture, supply and installation of a lift is a
'works contract'. Besides, sub-clause (zzzza) of sub-s.
(105) of s.65 came to be introduced under the Finance Act
of 2007, which came into force w.e.f. 11.05.2007. [para 8485] [1038-D; 1039-E-G; 1040-A-B]
F
Income Tax Officer, Tuticorin vs. T.S. Oevinatha Nadar
AIR 1968 SC 623- relied on.
Cape
Brand
Syndicate
vs.
Inland
Revenue
Commissioner, 1921-1 KB 64 - referred to.
3.5. It should also be noted that ss. 65(29), 65(39a)
and 65(105) (zzd) have nothing to do with manufacture
and supply which is actually the activity of the petitioner.
G
It is regarding the erection/commissioning/installation
simpliciter, even if the activities regarding lift or escalator
H
is independently carried out by an Agency. On the basis
932 · SUPREME COURT REPORTS
[2014] 5 S.C.R.
A of ss.65 (29), 65 (39a) and 65 (105) (zzd), the contract
cannot be construed as a works contract. Therefore, on
the ground of any liability being cast on the petitioner
under the provisions of the Service Tax Act, it will be
wrong to hold that the petitioner cannot be called upon
B to comply with the provisions relating to Sales Tax. [para
85] [1040-B-E]
3.6.