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SENTINEL ROLLING SHUTTERS AND ENGG. CO. (P) LTD. V. CST (1978) 4 SCC 260 : AIR 1978 SC 545

 SENTINEL ROLLING SHUTTERS AND ENGG. CO. (P) LTD. V. CST 

(1978) 4 SCC 260 : AIR 1978 SC 545

FACTS

  • The appellant, Sentinel Rolling Shutters and Engineering Co. (P) Ltd., entered into a contract with M/s C.M. Shah & Co. (P) Ltd. for fabrication, supply, erection, and installation of rolling shutters.
  • The contract specified prices per square foot for different types of rolling shutters, inclusive of "erection at site."
  • Terms and conditions included clauses regarding rejection claims, customer's risk during erection, and payment terms.
  • The appellant fulfilled its obligations by manufacturing and installing the rolling shutters in the designated sheds of the Company.
  • Dispute arose regarding the contract's nature: whether it constituted a sale of goods or a contract for work and labour.
  • The appellant sought clarification from the Commissioner of Sales Tax.
  • The Deputy Commissioner determined the contract as a sale, subjecting the appellant to sales tax.
  • The appellant appealed to the Sales Tax Tribunal, which upheld the Deputy Commissioner's decision with modifications.
  • Dissatisfied, the appellant approached the High Court, which affirmed the Tribunal's view.
  • Aggrieved by the High Court's judgement, the appellant filed an appeal with the Supreme Court, seeking special leave.

ISSUE

  • The primary issue was whether the contract was a contract for sale of goods or a contract for work and labour, for assessing the tax liability of the appellant.

JUDGMENT

  • The Supreme Court allowed the appeal, overturning the High Court's judgement and holding that the contract was indeed for work and labour, not for sale.

LEGAL ANALYSIS

  • The Supreme Court emphasised that determining whether a contract is for sale or work and labour depends on the main object of the parties, gathered from the terms of the contract, circumstances of the transaction, and trade customs.
  • It outlined three forms a contract may take: one primarily for sale, one primarily for work and labour, and one where work and sale are intertwined.
  • The Court noted that the contract involved fabrication, supply, erection, and installation of rolling shutters, with no clear separation between supply and installation in terms of pricing.
  • It explained that a rolling shutter is not a complete unit until its component parts are fixed and installed at the site, distinguishing it from a contract solely for the sale of goods.
  • The Court rejected the Revenue's argument that the delivery ex-works indicated a sale, emphasising that the true nature of the contract cannot be determined solely by the mode of payment.
  • It highlighted that the completion of the contract was contingent upon the erection and installation of the rolling shutters to the satisfaction of the company, further supporting the view that it was a contract for work and labour.

COMMENTARIES RATIO

  • Where the property in material which were used in the execution of the job entrusted to the contractor become the property of the government before it was used and there was no possibility of any other material to be used in the process of repairing, servicing and overhauling of the aircrafts, their instruments and accessories, it was held that there was no sale of material in execution of the work.