through this case law, one can understand the difference between a contract of work & contract of sale

1. Kone Elevator India Pvt. Ltd.
Vs
State of Tamil Nadu and
Ors., 2014 7 SCC 1

2. Facts
• The petitioner is an elevator company, they were a awarded contract for supply,
erection, commissioning of elevators.
• It billed the purchaser for the entire transaction as work, charging the then applicable
works tax.
• The Sales Tax officials demanded sales tax on entire amount stating sale of Elevator
concluded after commissioning and the preparatory work was to be done by customer
before lift was brought to site.
• The Sales Tax Tribunal ruled otherwise and High Court (on appeal of Sales Tax
department, called Revenue) concurred with Tribunal leading to appeal in Supreme
Court

3. Issue
Whether a contract for manufacture, supply and installation of lifts is a contract
of sale or a works contract

4. Rule
Sale of Goods Act Sec 2(43)
"Works Contract" includes any agreement for carrying out for cash, deferred
payment or other valuable consideration, building construction, manufacture,
processing, fabrication, erection, installation, fitting out, improvement,
modification, repair or commissioning of any movable or immovable property

5. Rule
Contract of Sale
A contract of sale of goods is a contract whereby the seller transfers or agrees
to transfer the property in goods to the buyer for a price. There may be a
contract of sale between one part-owner and another. (2) A contract of sale
may be absolute or conditional.

6. Rule
The Bombay Lifts Act, 1939
• An Act to provide for the regulation of the construction, maintenance and
safe working of certain classes of lifts and all machinery and apparatus
pertaining thereto in the Province of Bombay.

7. Arguments
The petitioner is engaged in the manufacture, supply and installation of lifts
involving civil construction. Mr. Harish Salve, learned senior counsel for the
petitioners has argued that supply and installation of lift cannot be treated to be a
contract for sale, referring to Bharat Sanchar Nigam Ltd. and another v. Union of
India and others and Larsen and Toubro Limited and another v. State of
Karnataka and another. Mr. Salve had also referred to the Bombay Lifts Act, 1939

8. Arguments
Mr. Khambatta, learned Advocate General, appearing for the State of Maharashtra
has argued that there are two separate contracts entered into, for the sale of the lift
and services provided to install the lift. such an installation by way of contract is
permissible under the Bombay Lifts Act, 1939 read with the Bombay Lifts Rules,
1958. It is urged by him that prior to the decision in Kone Elevators case, the State
of Maharashtra had treated contracts for sale and installation of lifts as works
contract as per the decision of the High Court in Otis Elevator Company (India)
Ltd. v. The State of Maharashtra

9. Analysis
Works Contract is stated in Sec 2(43) which defines as “Works Contract”
includes any agreement for carrying out for cash, deferred payment or other
valuable consideration, building construction, manufacture, processing,
fabrication, erection, installation, fitting out, improvement, modification, repair
or commissioning of any movable or immovable property

10. Analysis
A contract of sale is one whose main object is the transfer of property in the dominant nature test or other test in
Larsen and Toubro
Once there is a composite contract for supply and installation, it has to be treated 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, a chattel being attached to
another chattel

11. Judgement
• The Constitutional Bench of the Hon’ble Supreme Court (SC), over-ruling
the earlier decision of three-member Bench re State of A.P. v. Kone
Elevators (India) Ltd1, has held that the activity of manufacturing, erecting,
installing and commissioning of a lift (an elevator) is indeed a ‘works
contract’ and not a ‘contract for sale of goods’.
• It held that a contract for supply and installation of a lift is a composite
contract for supply of goods as well as provision of service, and that the
service element is obvious in such a contract.

12. Conclusion
The activity of supply and installation of a lift would constitute to be a works
contract. The Constitutional Bench, thus, reversed the earlier decision based on
the logic that the major component was the lift and that the skill and labour
employed was only incidental to the supply of the lift and that this is a contract
for sale of goods.

13. Thank You for
listening