NEW DELHI, May 12: The Supreme Court has held that Government can impose tax only on the goods component and not on the services rendered by the manufacturing companies for installation of elevators.
A five-judge constitution bench, headed by Chief Justice R M Lodha, by a majority verdict of four to one, said supply and installation of elevators, should be termed as ‘works contract’ and not ‘sale’.
It said that in case of the ‘contract for sale of goods’, the entire sale consideration would be taxable under the sales tax or value added tax enactments of the state legislatures whereas in the case of ‘work contract’, the consideration payable or paid for the labour and service element would have to be excluded from the total consideration received and sales tax or value added tax, would be charged on the balance amount.
The bench was dealing with the seminal controversy whether a contract for manufacture, supply and installation of lifts in a building is a “contract for sale of goods” or a “works contract”.
The majority judgement by the bench, also comprising justices A K Patnaik, S J Mukhopadhaya and Dipak Misra overruled its earlier judgement in which such activities were termed as sale and it came as a relief for the companies involved in manufacturing, supply and installation of elevators.
The apex court clarified that installation of elevators was a work contract and sales tax can be levied only on the goods component involved in its execution and not on the total value of the contract, which involves aspects like manufacture, supply and installation of lifts.
The court passed the order on a batch of petitions filed by various elevator manufacturing companies after different states had started levying sales tax/ VAT, following the 2005 order of the apex court.
Justice Misra, writing the majority judgement said, “It is perceivable that the three-judge bench has referred to statutory provisions of Act and decisions on cases….To state about the major component facet and how the skill and labour employed for converting the main components into the end product, was only incidental and arrived at the conclusion that it was a contract for ‘sale’.”
“The principal logic applied, i.E., the incidental facet of labour and service, according to us, is not correct,” said the bench.
Justice F M Ibrahim Kalifulla, who gave a dissenting judgement, said he was not able to subscribe to the views and conclusions of other judges, holding the manufacture, supply and installation of lifts as work contract and in his view it should be treated as a contract of ‘Sale’.
Justice Kalifulla said he was convinced that various tests, laid down to determine if manufacture and installation of lifts was sale or works contract in the earlier verdicts, in particular, the ones which have been relied upon….Still hold good.
“Consequently, the ultimate conclusion is that the present contract between the petitioner and its purchaser is one for ‘Sale’ and not ‘Works Contract’, is justified,” he said. (PTI)
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