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

- **Citation:** [1977] 3 S.C.R. 165
- **Court:** Supreme Court of India
- **Decided:** 1977-03-08
- **Case number:** Civil Appeal No. 106 of 1976
- **Bench:** P. N. Bhagwati, S. Murtaza Fazal Ali
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/vanguard-rolling-shutters-and-steel-works-ltd-v-commissioner-of-sales-tax-u-p-7173
- **Pages:** 7

## Headnote

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 customer 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 Commissioner (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 holding 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 payment 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 res

## Text

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 customer 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 Commissioner (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 holding 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 payment 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
Con1n1issioner of Sales Tax. M.P. v. Purshottam Premji 25 S.T.C. 38. referred to.
Mis T. V. Su11dran1 Iyengar & Sons v. The State of Madras 35 S.T.C.
24-[19751 2 S.C.R. 372 distinguished.
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 106 of 1976.
(Appeal by Special Leave from the Judgement and Order dated
30.9.1975 of the Allahabad High Court in S.T.R. No. 698/70)
S. C. Manchanda, Mrs. Urmila
Kapoor, !. D. Jain
and Miss
Kamlesh Bansal, for the appellant.
G. N. Dikshit and 0. P. Rana, for the respondent.
The Judgment of the Court was delivered by
F AZAL Au, J .-This is an appeoal by special leave by the assessee
who was a contractor dealing in fabrication of Vanguard rolling shutters and steel works.
The assessee manufactures iron shutters according to specifications given by the parties and fixes the same at the
premises of the customers. In the assessment year 1965-66 the
assessee received an aggregate sum of Rs. 1,08,633-08 in the execution of such contracts. This amount was claimed by the assessee
as not being liable to sales tax during the •assessment year 1965-66
on the ground that the same represented the proceeds of work contracts.
The Sales Tax Officer rejected the plea of the assessee and
the Assistant Commissioner (Judicial) on appeal also affirmed the
order of the Sales Tax Officer. But the plea of the assessee appears
to have found favour with the Judge (Revisions) Sales Tax
who
decided that the amount was not exigible to sales tax, because the
contracts in question were work contracts. Thereafter at the instance
of the Commissioner, the Revising Authority made a reference to the
High Court and referred the following question of law for its opini0n :
"Whether under the circumst•ances of the case and under
the terms of the contract the supply of shutters and iron
gates worth Rs. 1,08,633-08 was sale or amounted to work
H
contract ?"
The High Court, after hearing the parties and considering the materials
on the record, came to the conclusion that the contract entered into
l
•
I
VANGUARD ROLLING v. COMMR. OF S.T. (Fazal Ali, J.)
167
by'the appellant was not 'a work contract but a contract for the supA
ply of goods simpliciter and the assessee, was, therefore, liable to pay
;
tax.
The question referred to the High Court was answered accordingly.
The assessee's case was that having regard· to the circumstances
of the present case, the terms and conditions of the contract and the
nature of the work done by the appellant the contract in que•tion
B
was out and out a work contract and not a contract for supply of
goods or materials, In order to decide this question it may be neces-
. sary first to give the salient features of the contract between
the
parties.
A specimen of the contract has been filed by the assessee
ao Annexure 'A' in the Paper Book, the relevant portions of which
may be extracted thus :
"Please erect at our premises .... Nos. of .... of the
C
following: dimension against the contract price of
Rs. . .. .
.
1. Full payment ·against delivery prior to despatch
or
documents by Bank. It is clearly
understood that
there will be no such thing as to make payment after
fixing.
D
2. Material will be carried to the side of work at cost of
the party.
Our responsibility ceases when the same
leaves our premises.
3.
x
x
x
4. We dlil not hold ourselves responsible for any structural damage or dispute with the landlord. Masomiry
work done by the party at his cost according to our
instructions.
5.
x
x
x
6. No responsibilities for non.delivery or late despatch
of goods due. to any reason beyond our control."
It would appear from the terms extracted above, that the assessee
was required under the contract to fabricate the rolling shutters in the
first instance, to bring them to the site and thereafter to erect the
same at the premises. In an application given to the Assistant Come
missioner (Judicial), which is Annexure 'C' of the Paper Book, by
the assessee he explains the various steps which the contractor had
to take in order to fix the rolling shutters to the factory premises of
the owner.
First the different parts and components of the rolling
shuUers are fabricated. It is only when the various component parts
are fitted into one that they constitute the rolling shutter as one unit,
and taken separately they have no separate existence. It was
further explained that the component parts do not constitute a rolling
shntter unless they are affixed to and erected in the building in position
and in the required manner. It was further alleged that the contract was
not concluded merely by delivery of fabricated materials but. was
completed only afkr the same were taken to the site and
ftnally
erected and affixed to the site of the building. In order to fix them
12--240SCI/77
F
G
H
A
B
c
D
F
G
H
I Ii 8
SUPREME COURT REPORTS
[1977] 3 S.C.R.
to the premises certain masonary work had to be done by the owner
and that too according to the instructions of the contractor. It was
also averred that in erection of the shutters some parts were permanently. embedded into the walls and lintals and they become permanent fixtures which are 'not detachable. The allegations made
in
Anne~ure 'C' have not been controverted by the State either in this
Court or before the. High Court.
Moreover, the Indian Standard
Speci~cation Book for Metal Rolling Shutters and Rolling Grills the
particulars of the fittings of rolling shritters, whose authenticity has
not been doubted by counsel for the parties, clearly shows that rolling
shutters consist of curtains, lock plates, guide channels, bracket plates,
rollers, hood covers, gears, worms, fixing bolts, safety devices, anchoring rods, central hasp and staple. Each guide channel has to be
provided with a minimum of three fixing cleats or supports for attachment to the walls or column by means of bolts or screws. The guide
channels are further attached to the jambs, plumb either iu the overlapping fashion, projecting fashion or embedded in grooves, depending on the method of fixing.
All these operations take place at the
site after despatch of the component parts of the rolling
shutter.
Hood covers are fixed in a neat manner and supported at the top at
suitable intervals.
This also has to be done at the site. . Item 11.1
of the specifications shows that the rolling shutter curtain and bottom
lock plate are interlocked together and rolled in one piece, but the
other p&rts like guide channels, bracket plates, rollers etc., are despatched separately. Item 12.1 shows that all the rolling shutters are
erected by the manufacturer or his authorizoo representative hi
a
sound manner, so as to afford trouble-free and easy operation, long
life and neat appearance. Even after erection is done, grease is ap~
plied to the springs and on the sides of the guide channels.
Thus
the process involved in the fabrication of a rolling shutter and its
actual fixing to the premises at the site is a .continuous one and is
completed only when erection is completed in every way.
The price
charged by the contractor from the owner of the premises is
one
lumpsum with_<:>ut at all specifying as to what part is meant for the
materials used or fabricated and what part for the services or labour
put in by the contractor. It is, therefore, clear that in the facts and
circumstances of the present case, the transaction
is a
composite
consolidated contract which is one and indivisible comprising labour
and servic~s executed for a lumpsum. It is also clear that the materials are not merely supplied to the owner so as to pass as chattel
'simpliciter, but are actually fixed to an immovable property and
after the same arc fixed and erected they become a permanent fixture
so as to become an accretion to the immovable property. In these
circumstances, the conclusion is inescapable that the present contract
cannot he said to be a pure and simple sale of goods or materials as
chattels hut is a work contract. It is well settled ihat a work contract is a contract for construction of bridges, buildings etc., and infor a Iumpsum. The question as to under what circumstances a contract
can be s1id to be a work contract is not free from difficulty and has
to depend on the facts of each case. It is difficult to lay down any
rule of universal application, but there are some well recognized tests
which are laid down by decided cases. of this Court which afford
·.~
........
'
•
·~
'
'
VANGUARD ROLLING v. COMMR. OF S.T. (Faza.I Ali, J.)
169
guidelines for determining as to whether a contract in question is a
work contract or a con.tract for supply of goods. One of the important tests is to find out whether the contract is primarily a contract
for supply of materials at a price agreed to between the parties for
the materials s~ supphed and the work or service rendered is incidental to the execution of the contract. If so, the contract is one for
sale of materials and the sale proceeds would be exigible to sales tax.
On the other hand where the contract is primarily a contract for work
and labour and materials are supplied in execution of suck contract,
. there is no contract for sale of materials but it is a work contract.
The circumstance that the materials have no separate identity as a
commercial article and it is only by bestowing work and labour upon
them, as for example by affixing them to the building in case
of
window-leaves or wooden doors and windows that they acquire commercial identity, would be prima facie indicative of a work contract.
So also where certain materials are not merely supplied but fixed to
an immovable property so as to become a permanent fixure and an
accretion to the said property, the contract prima facie would be
work contract.
This is exactly what has happened in the present
case.
In State of Rajasthan v. Man Industrial Corporation Ltd.('), after
discussing the entire case law on the subject, this Court observed as
follows :
"The test in each case is whether the object of the party
sought to be taxed is that the chattel as chattel passes to the
other party and the services rendered in connection with the
installation are under a separate contract or are incidental
to the execution of the contract of sale."
B
c
D
E
Although the aforesaid case appears to us to be on all fours with the
facts of the present case, the High Court merely noticed the decision,
but did not try to apply it to the facts of the present case. Jn Mm1
Industrial Corporation Ltd's case (supra) the contract was to prepare
window-leaves according to specifications and fix them to the building.
F
It was held that fixing the window leaves to the building was not
incidental or subsidiary to the sale but an essential term of the contract, because the contract became complete only after the windows
v:ere fixed as stipulated in the contract. Similarly ill. the instant case,
the contract could not be completed merely by sending the matenals
at the site but would be completed only after erection of the shutters
had been made and the shutters fixed to the premises so as to beco1:ie
G
an accretion to the premises.
Mr. Dikshit appearing for the State submitted that in the present
case the contract was merely for the supply of shutters in one unit
after being fabricated by the contractor and ·the price was paid for
the shutters, the question of fixing the shutters at the site was not
an integral part of the contract but was only incidental to the supply
of mate,rials and, therefore, the contract was not a work contract.
H
We are, however, unable to agree with this contention, because as
(I) 24 S.T.C. 349, 355.
170
SUPREME COURT REPORTS
[19771 3 S·C.R.
A . discussed above, the materials were sent with various component parts which had to be taken at the site, fitted into one another
and then finally fixed into a frame. so tt.ut the fixture became permanent and a part of the premises.
The operation to be done at the
site as required by the instructions in the Standard Book could not be
said to be merely incidental to the contract but was a fundamental part
of the contract itself. In our opinion, therefore, the decision in Man
B
Industrial Corporation Ltd's case (supra) fully covers the facts of the
present case.
It was further argued by Mr. Dikshit learned counsel appooring
for the State that it will appear from the terms of the contract that the
price of the goods had to be paid in advance before delivery of the
same to the wstomer which shows that the title to the shutters passed
C
to the customer as soon as the shutters were packed and despatched
to the site and the price paid and therefore the contract in the instaut
case cpuld not be a work contract. It is not possible to oaccept this
contention, because the advance payment of the entire price was a
term meant for the convenience of the parties as the contractor did
not want to take any risk for delayed payment of goods, but the
contract would be completed only after the
shutter~ were fully
D
assembled at the site and fixed according to the specifications which
was essentially the responsibility of the contractor.
In Richardson
and Crudda.s Lta. v. State of Madras(') there was a similar recital
in the contract for full price to be paid in advance and still the
Madras High Court held that the contract was a work contract.
The
decision of the Madras High Court was approved by this Court in
Man Industrial Corporation Ltd's case (Supra) and affirmed by this
E
Court in Staie of Madras v. Richardson and Cruddas Ltd.(2 )
Fer
these reasons the contention put forward by Mr. Dikshit on this sc01e
is overruled.
In a later case of this Court in State of Rajasthan v. Nanu Ram(•)
tenders were invited by the Chief Engineer from the contractors for
supplying and fixing of wooden door and windows, sashas together
with frames and painting them in the police lines building and for
F
supplying and fixing the wooden chowkhats and this was held to be
a work contract. The decision 'in Man Industrial Corporation Ltd's
case (supra) was followed by this Court in that case. Again in
Commissioner of Sales Tax, M.P. v. Purshottam Premji(') this Court
indicated the essential difference between a contract for work and
services and a contract for sale of goods and observed as follows :
G
"The primary difference between a ~ontract. for work or
service and a contract for sale of goods Is that m 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 a whole has
individual existence as the sole property of the party who
produced it, at some time before delivery, and the property
H
(1) 16 S.T.C. 827.
(2) 21 $.T.C. 245 (S.C.).
(3) 26 S.T.C. 26g.
(4) 2{; S.T.C. 38..
'
•
...
'
·-
VANGUARD ROLlING v. COMMR. OF S.T. (Fazal Ali, !.) .
171
therein passes only under the contract relating thereto to the
A
other party for price."
The High Court placed great reliance on the decision in M/ s T. V.
Sundram Iyengar & Sons v. The State of Madras(').
In that case
what had happened was that the contractor built bus bodies and fitted
the same to the chassis provided by the customers and clharged tbe
price for building the' body and fitting the same to the chassis. It was
held by this Court that the contract was completed only when the
complete bus with the body fitted to the chassis was delivered to the
customer and, therefore, the supply of body being one single. unit
constituted a sale of goods. That case is clearly distinguishable from
the facts and circumstances of the present case.
In the first place,
the supply of materials and completion of the contract was indisputably in respect of movable property, no immovable property was at
all involved at any st1ge in .the process of completion of the contract.
The bus-body built by the contractor was moveable property manufactured by the contractor and had merely to be fitted to the chassis
which was also movable property. Secondly, the bodies constructed
and fitted to the clhas.sis were easily detachable. In the instant case,
the shutters were fabricated and fixed to an immovable property so as
to become a permanent fixture and they were also not detachable.
The High Court failed to have noticed these important features which
distinguish the aforesaid decision from the facts of the present case.
We are of the considered opinion that the present-case is clearly
covered by the two decisions of this Court referred to in Man Industrial Corporation Ltd's case and Nenu Ram's case (supra), and applying the same we hold that the contract in the present case was a work
contract and the transaction was, therefore, not exigible to tax. The
High Court was in error in holding that the assessee was liable to pay
tax on the sale proceeds of the contract.
B
D
E
We, therefore, allow this appeal, set aside the order of the High
Court and restore the order of the Revising Authority and hold that
the assessee was not liable .to pay sales-tax. The appellant will be
entitled to his costs throughout.
F
P.B.R.
Appeal allowed .
(I) 35 S.T.C. 24-IJ975] 2 S.C.l'l. 372.