Works contract or sale and service contract – Nature of contract is relevant

Karnataka High Court in the case of Thyseenkrupp Elevator v. Commissioner has held that when there are two contracts, one for purchase of component and other for labour and service then the nature of contract is relevant in determining transaction as sale simpliciter or works contract.

The Court, considering documentary evidence, held that transaction of sale was inter-State sale, and Section 3(a) of Central Sales Tax Act would be applicable thus excluding State authorities from imposing VAT. The court on 24-4-2018 observed that purchase orders were placed by the contractees/purchasers with the manufacturing unit in Maharashtra, and that movement of goods occasioned from Maharashtra to Karnataka.

The ground that assessee had employed dubious method by executing separate contracts for works and sale was also rejected by the Court while allowing the writ petition.