ORDER This is appeal filed by assessee directed against order dt. 10th Jan., 2005 of CIT(A) for asst. yr. 2003-04 on following effective grounds : (1) learned CIT(A) erred in treating supply of material as works contract and relied on case laws which are not applicable to facts of this case. (2) learned CIT(A) did not apply Board Circular No. 681, dt. 8th March, 1994 [(1994) 117 CTR (St) 229], which is very specific and clear on issue of applicability of s. 194C in such cases. (3) learned CIT(A) erred in not accepting independent supply order, as supply of material which does not attract TDS. 2 . Brief facts of case are given below. assessee is Central Government undertaking engaged in activity of transmission and power distribution of electricity to various constituents across country. During year under consideration, assessee was involved in three projects for which contracts were awarded to different contractors. assessee awarded contracts to various parties to construct/execute transmission line/sub- station. categories of contracts entered into by appellant with various contractors for above purpose are as follows : (A) Pure supply contracts (B) Pure erection contracts (C) Supply-cum-erection contracts (but with separate agreements in respect of supply portion) contracts entered into with respective contractors are identical and scope of various contracts consisted of supply of conductor, insulators, towers and sub-stations and erection part is incidental. main features of various contracts are as under : "1. Supply Contract Award and scope : contract inter alia includes design, manufacture, testing at works and supply of kms. of Conductor on F.O.R. destination delivery at site basis for 400 KV D/C Nellore Sriperumbudur Transmission Line..........." letter of award is subject to terms and conditions detailed hereunder : (i) work under this letter of award shall be performed strictly in accordance with relevant terms and conditions of bidding documents referred to in cl. (1) above and specific confirmation and deviations agreed in minutes of post bid discussions referred to at para 1.0 except as specifically amended/modified in this Letter of Award. All other deviations and/or additional conditions, implicit or explicit, contained in your proposal referred to above and your subsequent communications, if any, stand withdrawn without any financial implication to Powergrid, insofar as they are repugnant to what has been stated in this letter of award and/or bidding documents and its amendments. (ii) title of goods in respect of equipment/materials to be supplied by you shall be transferred to Powergrid on ex-works dispatch. This transfer of title shall not relieve you from responsibility of all risks, loss or damage to equipment materials as specified in bidding documents. (iii) entire quantity under subject package shall be supplied from your Pondicherry works (a sales-tax free zone). (iv) value of advance BG s shall be reduced during execution of contract as per provisions of cl. 34.7.1 of GCC, Conditions of Contract, Vol. I of bidding documents. (v) Guaranteed Technical Particulars of ACSR "Moose" Conductor are given at Annex. IV of this Letter of Award. Contract price : total contract price for entire scope of work under contract shall be Rs. 37,70,10,000 (Rupees thirty seven crores seventy lakhs ten thousand only) as per following price break-up : Sl. Price (In Indian Price components No. Rupees) (i) Ex-works price 37,43,25,000 Inland insurance and freight (ii) 23,25,000 charges (iii) F.O.R. destination 37,66,50,000 (iv) Type test charges 3,60,000 (v) Total (iii + iv) 37,70,10,000 detailed price break-up of ex-works price component, freight and insurance charges and type test charges, for purpose of account payment, is enclosed at Annex. II and Annex. III respectively to this Letter of Award. Notwithstanding break-up of contract price, contract shall, at all times, be construed as single source responsibility and any breach in any part of this contract shall be treated as breach of entire contract : Taxes and duties : All taxes and duties such as customs duty, excise duty sales-tax and other levies payable by you in respect of transactions, between you and your sub- suppliers, either while procuring any equipment, components, sub-assemblies, raw materials and any other items used for your consumption or dispatched directly to Powergrid from your sub-supplier s works or godown to site are included in contract price and no claim on this behalf shall be entertained by Powergrid. For transactions between you and Powergrid, Powergrid shall pay excise duty applicable on scheduled date of dispatch or actual date of dispatch, whichever is lower. Further, no sales-tax or other levies shall be payable by Powergrid for supplies to be made under subject packages. For payment/reimbursement of excise duty, in respect of dispatches made directly from your works, per-numbered invoices duly signed by authorized signatory will be considered as evidence for payment of excise duty. Powergrid shall be entitled to deduct income-tax and other taxes at source in accordance with provisions of IT Act/other taxation laws as applicable from time to time, Necessary TDS certificate shall be issued by Powergrid. 2. Erection contract Award of contract and its scope : We are pleased to award you detailed Letter of Award for shifting of ICT from Vijayawada S/S to Khammam S/S, its erection, testing and commissioning at Khammam S/S dismantling of faulty ICT at Khammam S/S and transportation of same to CGIL Works, Mumbai which included dismantling of faulty 315MVA ICT main tank with bushings (excluding cooler banks) at Khammam S/S and dragging it on rail upto temporary sleeper platform. Dragging of ICT main tank weighing 180 MT at Vijayawada S/S on rail road, loading on to trailer and transporting to Khammam S/S, unloading and dragging on rail road upto plinth, erection of bushing, evacuation, drying out and oil processing as required, conduct commissioning checks and reconnect cable. FF pipes making transformer ready for energisation in all respect. scope also covers transportation of removed transformer tank at Khammam S/S weighing 180 MT from sleeper platform to CGL Works, Mumbai after dragging and loading on to trailer. 2.2 scope of works under contract shall also include all such items which are not specifically mentioned in BOQ, bidding documents and/or your proposal but are necessary for successful shifting, erection, testing and commissioning of ICT at Khammam sub-station. 3. Contract Price : 3.1 We agree to pay you Rs. 48,99,150 (Rupees forty-eight lakhs ninety- nine thousand one hundred and fifty only) for entire scope of work under this Award Letter on Firm Price basis. 3.2 detailed break-up of above contract price for purpose of on account payment is given at Annex. I enclosed to this Award Letter. 3.3 Notwithstanding break-up of contract price contract shall, at all times, be construed as single source responsibility contract and any breach in any part of contract shall be treated as breach of entire contract. 4.0 Taxes and duties : 4.1 contract price is exclusive of service-tax payable extra on transportation and erection, testing and commissioning services @ 10.2 per cent as applicable as contract price. All other taxes, duties and levies are included in contract price and Powergrid shall not entertain any claim on account of same. 4.2 Statutory deductions such as WCT, income-tax, etc. shall be affected t source in accordance with provisions of various tax laws as applicable from time to time. Necessary TDS certificate shall be issued by Powergrid. 3. Contract for erection executed by supply-cum-erection contractor 2.1 scope of work covered under contract, inter alia, includes following as detailed in bidding documents. (i) Preliminary survey, detailed survey, profiling, tower spotting/optimisation of tower locations, soil resistivity measurements, geo-technical investigation and check-survey. (ii) Selecting type of foundation for different types of towers and casting of foundation for tower footings as per Powergrid s foundation design. (iii) Protection of tower footings; (iv) Performance of all activities at site including inland transportation to final destination and insurance, taking delivery of equipment/material (to be supplied by you under Supply contract as well as owner supplied material), unloading, transportation to site, handling, storage; (v) Erection of towers, tack welding of bolts and nuts including supply and application of zinc rich primer and enamel paint, span market, painting towers for aviation requirements, tower earthing, fixing of insulator strings, stringing of conductor and earthwire along with all necessary line accessories; and (vi) Testing and commissioning of erected transmission line viz., 400 KV D/C Sitanagaram Gazuwaka Transmission Line (198 kms.) and handing over transmission line complete in all respect. 2.2 Your scope of work under this contract shall also include all such items which are not specifically mentioned in bidding documents, and/or your bid but are necessary for successful erection, testing and commissioning of transmission line for 400KV D/C Sitanagaram -Gazuwaka Transmission Line, as detailed in bidding documents unless otherwise specifically excluded in bidding documents or in this LOA. 2.3 This letter of award is subject to terms and conditions detailed hereunder : (i) work under this LOA shall be performed by you strictly in line with bidding documents and all its amendments referred to in para 1.2 above, except as specifically amended/modified in this LOA and/or in record notes of post bid discussions referred to at para 1.4 above. All other deviations and/or additional conditions, implicit or explicit, contained in your bid referred to at para 1.3 above and your subsequent communications, if any, shall stand withdrawn without any cost implication to Powergrid, insofar as they are repugnant to what has been stated in this LOA and/or bidding documents and its subsequent amendments. (ii) Another contract has been awarded on you vide our Letter of Award Ref. No. C.54705L195A-3/OA-1/990, dt. 28th Oct., 2002 (hereinafter called First Contract or Supply Contract ) for fabrication and supply on ex-works basis of all transmission line towers including bolts, nuts and washers, hangers, D- shackles and all types of tower accessories and line materials namely earthwire, hardware fittings and accessories for conductor and earthwire which are to be insured and transported to final destination site and erected/installed, tested and commissioned under this erection contract . You shall be fully responsible for work to be executed under supply contract , and it is expressly understood that any breach under supply contract , shall automatically be deemed as breach of this contract and any such breach or occurrence giving us right to terminate supply contract and/or recover damages under that contract shall give us right to terminate this contract and/or recover damages under this contract as well. However, such breach or occurrence in supply contract shall not automatically relieve you of any of your obligations under this contract. It is expressly understood and agreed by you that equipment/material supplied by you under supply contract , when transported to site and erected and commissioned under this contract shall give satisfactory performance in accordance with bidding documents. (iii) erection insurance shall be taken by you as per relevant provisions of cl. 38, section GCC and cl. 28, section ECC, Conditions of Contract, Vol. I of bidding documents. (iv) For equipment/material to be supplied by you under supply contract , it will be your responsibility to take delivery, unload and store same at site and execute indemnity bond as per proforma specified of Annex. VII, Section Annex., Conditions of Contract, Vol. I of bidding documents in favour of Powergrid against loss, damage and any risk involved for full value of equipment/material. This indemnity bond shall be furnished by you before commencement of supplies as per cl. 17.0 Special Conditions of Contract, Vol. IA of bidding documents and shall be valid till issuance of taking over certificate by Powergrid pursuant to cl. 31.0, section-GCC, Conditions of Contract, Vol. I of bidding documents. 3. Contract price : 3.1 We agree to pay you total sum of Rs 17,84,21,086 (Rupees seventeen crore eighty-four lakhs twenty-one thousand and eighty-six only) as contract price for entire scope of work under this LOA. break-up of above contract price is as follows : S. Amount in Price Component No. Rupees Inland Transportation and 1. 1,50,02,529 insurance charges Erection and civil works 2. 16,34,18,557 component Total contract price [(1) + (2)] 17,84,21,086 Further detailed break-up of contract price for purpose of on account payment is given at Annex. II. 3.2 Notwithstanding break-up of contract price, contract shall, be all times, be construed as single source responsibility contract and any breach in any part of this contract shall be treated as breach of entire contract. 4.0 Taxes and duties 4.1 contract price is inclusive of all taxes and duties and other levies and Powergrid shall not entertain any claim on account of same. 4.2 Powergrid shall be entitled to statutory deductions including income-tax at source in accordance with provisions of various tax laws as applicable from time to time. Necessary TDS certificate shall be issued by Powergrid. 4. Contract for supplies made by erection-cum-supply contractor : 2.1 Award of contract and its scope : scope of work under contract, inter alia, includes following : (i) Fabrication, galvanizing and supply on ex-works basis of all types of 400 KV double circuit transmission line towers based on Powergrid s drawings including bolts, nuts and washers, hangers, D-shackles and all types of tower accessories like phase plate, circuit plate, number plate, danger plate, anti- climbing device, etc. (ii) Other items not specified above but required as per BPS. list of materials to be supplied by you is given at Annex. II enclosed. 2.2 scope of work under this Letter of Award (LOA) shall also include all such items which are not specifically mentioned in bidding documents and/or your bid but are necessary for successful erection, testing and commissioning of line covered under LOA No dt. for "Erection Portion" unless otherwise specifically excluded in bidding documents or this LOA. 2.3 This LOA is subject to terms and conditions detailed hereunder : (i) work under this LoA shall be performed by you strictly in line with bidding documents and all its subsequent amendments/errata referred to in cl. (1.0) above except as specifically amended/modified in this LOA and in Annex. I to his LOA. All other deviations and/or additional conditions, implicit or explicit, contained in your bid referred to above and your subsequent communications, if any, shall stand withdrawn without any cost implication to Powergrid, insofar as they are repugnant to what has been stated in this LOA and/or bidding documents and its subsequent amendments. (ii) Year 2000 compliance. materials, equipment and services to be supplied by you under contract shall comply with following provisions : (a) to (d) * (iii) "Erection Contract" for subject line which includes performance of all other activities such as detailed survey, inland transportation, insurance, performance of all activities of sites viz. unloading, handling, storage at sites, erection, testing and commissioning of all equipment/materials to be supplied by you under this contract including taking delivery of owner supplied material, i.e. conductors, insulators, earthwire, hardware fittings and accessories for conductor and earthwire from nearest railway station and/or road transporter at your stores, unloading, transportation to site, handling, storage and erection, testing and commissioning of transmission line with owner supplied materials and associated civil works of all items as specified in bidding documents, has been placed on you vide our LOA No. SR-STR/C-54902-L165-3/PKG- A2/AL-II-84, dt. 6th Feb., 2001 (hereinafter called as second contract ). (iv) transfer of title and ownership in respect of equipment and materials supplied by you to Powergrid on ex-works basis shall pass on to Powergrid on dispatch of goods from your works i.e. on ex-works basis. This transfer of title shall not relieve you from responsibility of all risks, loss or damage to equipment and materials as specified in bidding documents. Further, this transfer of title shall not be construed as "taking over" of equipment and materials. contractor shall continue to be responsible for quality and performance of such equipment and materials and for their compliance with specification until taking over and fulfilment of guarantee provisions under contract. 3.0 Contract price : 3.1 We agree to pay 3.2 Notwithstanding break-up of contract price, contract shall, at all times, be construed as single source responsibility contract and any breach in any part of this contract shall be treated as breach of entire contract. 3.3 Powergrid shall be entitled to deduct income-tax and other taxes in accordance with provisions of IT Act/other taxation laws as applicable from time to time. Necessary TDS certificate shall be issued by Powergrid. 4.0 Taxes and duties : 4.1 Taxes and duties under this contract shall be governed by provision of cl. (15), section INB of Bidding Document (Vol. I) and as per following : 4.2 As all supplies under this contract are brought out items, contract price is inclusive of all taxes and duties and Powergrid shall not entertain any claim on account of same. However, wherever sale-in-transit is effected, Powergrid shall issue requisite sales-tax declaration forms to you. In respect of erection contracts, assessee had deducted taxes at source duly applying provisions of s. 194C of IT Act, 1961. Insofar as supply contracts are concerned, assessee did not make any deduction, on ground that provisions of s. 194C are not attracted to said payments. Excise duty and sales-tax were paid on invoices raised by contractors in respect of supply contracts. There was survey in premises of assessee on 28th Jan., 2004. In course of survey, AO observed that appellant entered into contracts with various organizations for supply and erection of equipment but has not deducted taxes. AO issued show-cause notice dt. 6th Feb., 2005, which was replied to by appellant. case of AO was that supply of transmission towers/cables involved design and manufacture of goods, and hence it was contract of works and not contract of sale. AO not convinced with reply filed by appellant passed order under s. 201(1) r/w s. 201(1A) of Act holding assessee as "assessee in default" for not having deducted taxes in respect of various contracts entered i n t o by it, which according to him, were contracts in nature of works contracts. While passing said order, AO held that appellant with view to avoid payment of taxes had split contracts namely supply and erection. According to AO since supply included design, engineering, manufacture, type testing, training of appellant s personnel and supplying, and also since contract price was inclusive of all customs duties, levies, excise duties, sales-tax and other duty payable on equipments, components, sub- assemblies and raw materials, contract was not supply contract but works contract. AO also held that since finished products is not commercial commodity and was made to specific need of assessee, contract in whole is works contract. AO accordingly raised demand under s. 201(1) of Act. 2.1 Aggrieved, assessee filed appeal before CIT(A), Hyderabad. assessee had raised similar contentions that were raised before AO and assessee had raised similar contentions that were raised before AO and had also relied upon decisions rendered by this Hon ble Tribunal and various Courts including Hon ble Supreme Court. learned CIT(A) has stated at para 2.3 that he does not agree with contention of appellant. According to him, transmission equipment/towers were manufactured by supplier in one sample case i.e. in case of M/s Tata Projects, as per requirements and specification given. appellant was not purchasing transmission equipment/towers in open market but bids/offers were invited from contractors and after examination of same, letter of award was issued. This clearly showed that transaction was not direct purchase from market but only in respect of future execution of specified contract. letter of award contained conditions of contract, technical specification, bid form, prices and other schedules and technical data requirement. learned CIT(A) has further stated at para 2.4 that relevant clauses of agreement stated as under : "2.1 First contract or supply contract which, inter alia, includes design, engineering, manufacture, type testing, training of Powergrid s personnel and supply of goods. 2.2 Scope of supplies under contract also includes all such items, equipments and materials which are not specifically mentioned in bidding documents. 4.2.1 Notwithstanding break-up of contract price, contract shall at all times be construed as single source responsibility contract and any breach in any part of this contract shall be treated as breach of entire contract." learned CIT(A) has held at para 6.10 of order that : "In view of above, it cannot be denied that appellant was liable to deduct tax at source from payments made to contractors who supplied materials as per specification and who also executed erection with or without additional material being supplied by appellant under s. 194C of Act." learned CIT(A) further held at para 6.13 of order as follows : "However, Hon ble Rajasthan High Court in case of Rathi Gum Industries, while examining issue, inter alia, held as under : provisions of s. 201 provides not only for collection of tax which has not been deducted but for levy and charge of interest also. If tax has already been paid by recipient on such income it may not be justified to recover said amount of tax, but so far as liability of interest is concerned, that cannot be considered to be non-existent on account of deposit of tax by recipient at subsequent or later stage ." learned CIT(A) upheld finding in order of AO that contracts entered into by assessee were "works contract". appeal was partly allowed to extent of TDS under s. 201 of Act on supply portion in case appellant establishes to satisfaction of AO that respective contractors engaged for supply of material as per specification have paid appropriate tax on income arising out of payment received by them from appellant during relevant previous year. CIT(A) reasoned that since contractors, were responsible for design, material selection, inspection, testing at manufacturer s works, packing for shipment, delivery at site, construction, installation, field testing and commissioning, contracts are "turnkey contracts". According to CIT(A), contracts were composite contracts, payments were made in stages, ultimately ending with installation and commissioning and completion of whole work including expiry of defects liability period. CIT(A) relied upon certain orders/judgments rendered by Tribunals and High Courts and circulars, which were as per his opinion not apposite to facts of present case, and held that contracts entered into by appellant were "works contract". Aggrieved assessee has filed present appeal before this Tribunal. 3. learned counsel for assessee in addition to his oral submissions, has filed detailed written submissions submitting that; order of CIT(A) is unsustainable on facts and in law and is liable to be set aside. CIT(A) while holding that contracts entered into by appellant are works contract, lost sight of relevant provisions of IT Act, 1961, valid tests and guidelines laid down by various Benches of Tribunal, jurisdictional High Court/other High Courts as well as Hon ble Supreme Court. Hon ble jurisdictional High Court in case of P.S. & Co. vs. State of Andhra Pradesh (1984) 56 STC 283 (AP) laid down guidelines at para 21 of judgment for distinguishing contract of sale from works contract, which is reproduced : "(i) essence of contract or reality of transaction as whole has to be taken into consideration, in judging whether contract is for sale or for work and labour. (ii) If thing to be delivered has any individual existence before delivery, as sole property of party who is to deliver it, then it is sale. (iii) If main object of contract is transfer from to B, for price, of property in thing in which B had no previous property, then contract is contract of sale. (iv) where main object of work undertaken by payee of price is not transfer of chattel qua chattel, contract is one for work and labour. (v) If bulk of material used in construction belongs to manufacturer who sells end-product for price that will be strong pointer to conclusion that contract is in substance one for sale of goods and not one for work and labour. (vi) contract where not only work is to be done but execution of such work requires goods to be used may take one of three forms : (a) contract may be for work to be done for remuneration and for supply of materials used in execution of work for price; (b) it may be contract for work in which use of materials is accessory or incidental to execution of work; or (c) it may be contract for supply of goods where some work is required to be done as incidental to sale." Hon ble Supreme Court in case of State of A.P. vs. Kone Elevators (India) Ltd. (2005) 3 SCC 389 considering case of installation of lifts held that contract is "contract for sale". Hon ble apex Court while enumerating tests to be considered while deciding nature of contract emphasized fact that intention of parties in contract would to large extent determine issue. Hon ble Court laid down following as probable tests that should be conducted before determining nature of contract : (i) Whether it was one for transfer of property or for work and labour; (ii) How and when property of dealer passed to customer, i.e., whether by transfer or accession. Hon ble apex Court while saying so has followed principles laid down by it in case of Hindustan Shipyard (1999) 115 STC 96 (SC) and clarified that it is not bulk of material used in construction alone but relative importance of material qua work, skill and labour of payee which also has to be seen, but it is relevant parameter. In present case, where contract of supply and erection is given to same party, value of erection contract as can be seen from Annexure is minimal. It cannot therefore control interpretation of contract. Further Hon ble Supreme Court while considering issue of "installation of lift" which is comparable to facts of present case, on facts came to conclusion that it is one in nature of sale. Hon ble Court observed that since obligation of assessee therein was only to supply and install lift manufactured and brought to site in knocked-down state to be assembled by assessee and customer s obligation was to undertake work connected in keeping site ready for installation as per drawings, held that contract was sale contract and not works contract . Hon ble Court also noticed that major component of end- product is material consumed in producing lift delivered. skill and labour employed for converting main components into end-product were only incidental. learned CIT(A) failed to consider any of above tests while coming to erroneous conclusion that contracts entered into by appellant were works contract. If facts of present case are tested by applying principles laid down by jurisdictional High Court and Hon ble Supreme Court obvious answer that would emerge is that contract is "supply contract" and not "works contract". nature of contract as to whether it is "contract for sale" or "works contract" will depend on terms of contract and its execution. In present case, contractors have to fabricate towers as per tested quality of conformity with (International Standard) IS : 2062. Further contractor has given option to use other equivalent grade of structural steel angle sections and plates conforming to latest International Standards. contractor fabricates tower with steel sections as per International Standards. rest of equipment such as insulators, conductors, transformers, circuit breakers, etc., are standard equipment. relevant technical specification is enclosed herewith. From this it can be seen that same is common to industry and no specific design is involved as stated by AO. Apart from appellant there are other customers for these products as well. property in goods was intended to be passed on, on ex-works basis and element of work employed by way of services is negligible. Just because it was tailor-made equipment, it does not become "work contract". 3.1 Reliance was placed on decision of Hyderabad Bench of Tribunal in case of Andhra Pradesh State Road Transport Corpn. vs. Dy. CIT (2002) 74 TTJ (Hyd) 531 wherein this Bench of Hon ble Tribunal while dealing with case of fabricators for construction of bus bodies, which ideally would be apt one for determining present controversy held, following judgment of Hon ble Supreme Court in case of State of Gujarat vs. Variety Body Builders (1976) 38 STC 176 (SC) that it is necessary to discern dominant object and intention of parties for determining nature of contract. Merely because certain specifications were given to seller, nature of contract would not be altered. He submitted that issue in present case is squarely covered by aforesaid Tribunal s order. learned counsel further submitted that just because "supply contract" and "erection contract" were entered into with same party in some cases, nature of contract will not alter. He drew attention of Bench to decision of Hon ble Bombay High Court wherein said Court while dealing similar issue in case of CST vs. Walchandnagar Industries (1985) 58 STC 89 (Bom), at p. 94 (p. 58 in judgment paper book) referred to judgment of Hon ble Supreme Court in case of State of Madras vs. Gannon Dunkerley & Co. wherein it was held that "the parties may enter into two contracts, one for sale and one for service. Even when such contracts are in one document they can be separate, far moreso when they are in two separate documents." 3.2 He then has drawn attention of this Bench to decision of this Tribunal in case of APGENCO vs. Asstt. CIT which, while dealing with issue of turnkey contract, where erection part was incidental to supply contract (at pp. 21, 22 and at 30 of order in ITA Nos. 1057-1060/Hyd/2002), Hyderabad "B" Bench by following decision of jurisdictional High Court in case of CIT vs. Sundwiger EMFG & Co. (2003) 183 CTR (AP) 434 : (2003) 262 ITR 110 (AP), held that contracts were contracts for sale. Hon ble Supreme Court in case of Mahabir Commercial Co. Ltd. vs. CIT 1972 CTR (SC) 375 : (1972) 86 ITR 417 (SC) has held that mere fact that in case of contract of sale, seller does certain acts even after sale or retains certain amount of control over assets sold even after sale, does not mean that sale has not taken place earlier. It is respectfully submitted that Board Circular No. 681, dt. 8th March, 1994 while dealing with contracts which are attracted by s. 194C of Act pursuant to judgment of apex Court in case of Associated Cement Company Ltd. vs. CIT (1993) 111 CTR (SC) 165 : (1993) 201 ITR 435 (SC) has clarified that provisions of said section will not cover contracts for sale of goods like in present case. circulars issued by Board are binding on Department. As to question when and at what time title to goods pass, it was submitted that contract between parties is sacrosanct. Also Hon ble Supreme Court in case of CIT vs. Motors & General Stores (P) Ltd. (1967) 66 ITR 692 (SC) held that unless it is established that contract is sham, or is contrary to law, contract should be respected. 3.3 He sought to distinguish decisions relied upon by CIT(A) while holding that contracts entered into by appellant is work contract to submit that they are not applicable to facts of present case. Revenue cannot take support of Board Circular No. 715, dt. 8th Aug., 1995 [(1995) 127 CTR (St) 13] for facts of present case because said circular was issued clarifying legal position with respect to contracts like advertisement, print media contract for carriage of goods or passengers, travel agency, courier print media contract for carriage of goods or passengers, travel agency, courier services, transport, catering, recruitment agency etc. said circular is totally relevant so far as facts of present case is concerned. 3.4 He then referred to decision of Pune Bench of Tribunal and Hon ble apex Court in cases of BDA Ltd. (2003) 78 TTJ (Pune) 925 : (2003) 84 ITD 442 (Pune) and Anandam Viswanatham (1989) 23 STC 1 (SC) (sic) which are relied upon by AO and CIT(A) and submitted that they cannot be applied to present case because Pune Bench of Tribunal and Hon ble apex Court in said cases were dealing with issue pertaining to printing and supply of multicoloured receipt books and printing and supply of question papers to university. said products are not comparable to supply of equipment like towers and conductors. It was submitted that supply contracts entered into by appellant involve manufacturing activity and are not works/service-oriented contracts. contention of Revenue that finished product supplied to assessee is not commercial commodity in sense that it cannot be sold in market to any other person and, therefore, transaction is works contract is totally wrong and misplaced statement. As per assessee, such statement is general statement, which is not borne out from record. It is submitted that specification mentioned by assessee are common to power transmission sector on following reasons : (a) Standard specified are IS/ANSI/IEE/IEC etc., which are used by all power transmission sector all over world. (b) International competitive bids are invited for which even foreign parties are also quoting. (c) equipments are basically required to meet power load requirements, wind zone, soil testing, climatic, geographical and terrain requirements but not for specific requirement of appellant or any particular user. (d) equipments used by Powergrid are also used by State transmission companies, private transmission companies, Railways, power generating companies for switchyard equipments. (e) Even appellant supply same to other utilities while executing various consultancy job on their behalf. (f) Indian manufacturers of power transmission equipments are quoting for supplying to various foreign transmission companies. (g) There are more manufacturers for same equipments, which clearly shows that it is standard equipment e.g. transformers, current transformers, isolators, circuit breakers etc., such as BHEL, ABB, Crompton Greaves, etc. He then distinguished case law relied on by lower authorities and submitted that while some of them are not relevant, others have no application to facts of present case. He went on to submit that s. 194C would be applicable if any person is making payment to any resident for carrying out any work. assessee is procuring plant and machinery/equipments and getting them erected, charges for which is subjected to TDS and point relevant here is whether said supply of plant and machineries is covered within ambit of definition of "contract for carrying out any work. 3.5 decision of Pune Bench in case of ITO vs. Narmada Cements Co. Ltd. (2003) 81 TTJ (Pune) 955 is also not apt as Hon ble Pune Bench was dealing with case of printed PP Woven Sacks. Similarly judgment of Hon ble Supreme Court in case of State of Gujarat vs. Variety Body Builders 38 STC 178 is not applicable to facts of present case because Hon ble Supreme Court was dealing with case of railway coach. It is pertinent to mention here that this Hon ble Tribunal in case of APSRTC vs. Dy. CIT (supra) has considered judgment of Hon ble Supreme Court in case of Variety Body Builders (supra) and distinguished same. It is respectfully submitted that facts in case of Variety Body Builders (supra) turned on its own facts. On facts of said case, intention of parties at time of entering into contract was not to transfer any completed railway coach, and Hon ble Supreme Court having regard to said facts held that contract performed was works contract. 3 . 6 judgment of Hon ble Kerala High Court in case of Waves Electronics (P) Ltd. vs. State of Kerala 82 STC 143 (Ker) is also not applicable as in said case nature of contract was predominantly skill oriented and value is only incidental. Therefore, law laid down in said case cannot be applied to facts of present case. 3.7 Other judgments relied upon by AO and CIT(A) are also not relevant for issue under consideration as they were rendered in different context. contention of Revenue that all equipments supplied by contractors are as per specification of appellant and therefore it is "works contract" is devoid of merits and unsubstantiated. As already submitted, averment that items supplied by contractors are not marketable and hence contract is "work contract" is totally misplaced statement. 3.8 Coming to application of s. 194C, it was submitted that section would be applicable if any person is making payment to any resident for carrying out any "work" also is defined under Expln. III to s. 194C of Act. assessee is procuring plant and machinery/equipments and getting them erected and question is whether said supply of plant and machineries is covered within ambit of definition of "contract for carrying out any work" and submitted that supply and erection of plant and machineries/equipments is not covered by Expln. III to s. 194C. Therefore, provisions of s. 194C are not applicable for said supply and erection contract placed by assessee. 3.9 learned counsel concluded his arguments by submitting that price quoted and paid by assessee is for supply or sale of equipments and not for any design of work. predominant object underlying contract is for sale of goods and sought setting aside of orders of lower authorities and allowing appeal filed by it. 4. learned Departmental Representative, on other hand, has also filed detailed written submissions in addition to his oral submissions and submitted that : only issue in instant case is whether provisions of s. 194C are attracted to payments made to contractors involved in supply contracts and supply-cum-erection contracts. According to him, crux of argument of assessee is that supply contracts and supply portion in supply-cum-erection contracts, in pursuance of which assessee made payments were not for carrying out any work within meaning of s. 194C but for sale of goods simpliciter and therefore, payments made under these contracts are not covered by provisions of s. 194C and these arguments of assessee are not valid for following reasons. To understand true nature and perspective of contract, he referred t o some of clauses in letter of award issued by assessee to contractors. perusal of one such letter of award for supply-cum-erection contracts showed that contract for supply portion (first contract) also contains references to erection portion (second contract) which is as under : "2.2 scope of work under this Letter of Award shall also include all such items which are not specifically mentioned in bidding documents and/or y o u r bid but are necessary for successful erection, testing and commissioning of line covered under Letter of Award No. SR-STR/C-54902- L165-3/PKG-A2/AL-II/784, dt. 6th Feb., 2001 for "Erection Portion" unless otherwise specifically excluded in bidding documents or this letter of award. 2.3(ii) "erection contract" for performance of all other activities viz., inland transportation, insurance, taking delivery and storage of towers/tower extensions including bolts, nuts and spring washers, hangers, D-Shackles and all types of tower accessories like phase plates, number plates, anti-climbing devices, danger plate etc. And line material namely earthwire, hardware fittings and accessories for conductor and earthwire, unloading, storage at site of Powergrid s supplied materials, i.e., conductor and insulator; detailed survey, including profiling, tower spotting/optimization of tower locations, soil resistivity measurements and geo-technical investigations, check survey, casting of foundation for tower footing as per Powergrid s design, erection of towers, track welding of bolts and nuts and application of zinc rich enamel paint, tower earthing, fixing of insulator strings, stringing of conductor and earth wire along with all necessary line accessories and testing and commissioning of 400 KVS/C Khammam-Nagarjunasagar Transmission Line as set forth in bidding documents, has been placed on you vide our LOA Ref. C-55204-L195A-7/LOA- II/884, dt. 7th Jan., 2002. You shall be fully responsible for work to be executed under second contract and it is expressly understood by you that any breach under second contract shall automatically be deemed as breach of this contract and any such breach or occurrence giving us right to terminate second contract and/or recover damages under that contract shall give us right to terminate this contract and/or recover damages under this contract as well. However, such breach or occurrence in second contract shall not automatically relieve you of any of your obligations under this contract. It is expressly understood and agreed by you that equipment/materials supplied by you under this contract when erected, strung and transmission line is commissioned under second contract shall give satisfactory performance in accordance with bidding documents." Para 2.4(iii) of supply contract reads as follows : "The supply contract" which includes fabrication and supply on ex-works basis of various types of 400 KV single circuit transmission line towers based on Powergrid s structural/shop drawings, including bolts, nuts and washers, hangers, D-Shackle, all types of tower accessories like phase plate, number plate, danger plate, anti-climbing devices etc., various line materials, namely, earthwire, hardware fittings and conductor and earthwire accessories; as detailed in bidding documents referred to in cl. (1.0) hereinabove has been placed on you vide our LOA No. C-5504-L 195A-7/LOA-I/883, dt. 7th Jan., 2002. . You shall be fully responsible for work to be executed under abovementioned "first contract" and it is expressly understood by you that any breach under "first contract" shall automatically be deemed as breach of this contract and any such breach or occurrence giving us right to terminate "first contract" and/or recover damages under that contract shall give us right to terminate this contract and/ or recover damages under this contract as well. However, such breach or occurrence in "first contract" shall not automatically relieve you of any of your obligations under this contract. It is expressly understood and agreed by you that equipment/materials erected and commissioned by you under this contract which are supplied by you under "first contract" shall give satisfactory performance in accordance with bidding documents." Clause (9) of agreement entered into with contractors reads as under : "In view of criticality of project implementation, Powergrid requested B&C to complete commissioning of line by 28 months from date of LOA. B&C agreed for same. However, they requested Powergrid that liquidated damages for delay should be made leviable based on commissioning period of 36 months from date of LOA, which is specified commissioning period for this line. Powergrid agreed for same. B&C, however, agreed that PV shall (be) applicable as per agreed commissioning period of 28 months, from date of LOA." According to learned Departmental Representative, above clauses in agreements clearly demonstrate that although agreements were split i n t o two parts, i.e., one for supply of equipment and other for erection/installation, they are in essence and substance one composite contract for supply and erection inasmuch as breach of one leads to breach of other contract. two parts of agreement if read together and construed as whole clearly establish that they were for carrying out work within meaning of s. 194C as per specifications of assessee. Even otherwise, h e submitted that in so-called supply portion of contract, it may be noticed that equipments which are engineering goods are required to be manufactured strictly as per specifications of assessee and utilized for specific requirement of assessee. principal object of assessee is to get equipment as per prescribed specifications and not to purchase material as available in market. Further it is provided in contract that assessee has sufficient control over equipments manufactured at every stage of manufacturing process till they are finally delivered. If it is sale of goods per se, there is no question of manufacturing process of seller. Simply because sales-tax, excise duty etc. were charged only supply of material in invoice, it does not lead to conclusion that it was purely purchase of goods because said levy under Sales-tax Act, etc. has its own identity and nothing to do with income-tax. Even otherwise, he submitted, contracts involving work are brought within purview of Sales-tax Act and hence inclusion of sales-tax and other levies in invoice does not necessarily lead to conclusion that transaction in question are that of sale. Therefore he submitted that supply of equipment as per specifications of assessee is not sale but contract involving work. It is executory contract rather than case of mere supply or sale of goods. In short, according to him, although part of contract is termed as supply portion of contract, if terms of contract are considered as whole, entire contract is to be considered as one indivisible contract and treated as composite contract and once it is composite and indivisible contract in substance, tax has to be deducted at source from gross payments under supply as well as erection portion of contracts. 4.1 learned Departmental Representative submitted that clauses in letter of award clearly indicate that even in contract for supply of equipment, it may be noticed that equipments which are engineering goods are required to be manufactured strictly as per specifications of assessee and utilized for specific requirement of assessee. equipments supplied were not standard goods and were not capable of any use to anyone else and thus had no commercial value. Further it is provided in contract that assessee has sufficient control over equipments manufactured at every stage of manufacturing process till they are finally delivered. If it is sale of goods per se, there is no question of buyer having control over manufacture of goods at every stage of manufacturing process of seller. If contract is for supply of off shelf goods or bought out goods, finished product along with its operational manual is only given. That is not case here as scope of contract includes design, engineering, manufacture, type testing, and training of Powergrid personnel and supply of goods. Further, as per conditions of supply of contract, contract price is inclusive of all customs duties, levies, excise duty, sales-tax and other duties payable on equipments, components, sub-assemblies and raw materials or any other items used and it is clearly mentioned that no separate claim on these duties will be entertained by Powergrid. Merely because sales-tax, excise duty, etc., were charged on supply of material in invoice, it does not lead to conclusion that it was purely purchase of goods because said levy under Sales-tax Act, etc., has its own identity and nothing to do with income-tax. Even otherwise, he submitted contracts involving work are brought within purview of sales-tax enactments and hence inclusion of sales-tax and other levies in invoices does not necessarily lead to conclusion that transaction in question are that of sale. It is rather composite package, which does consist of some material also. But entire package is inseparable and is accordingly to be considered as Rendering of one single service . He thus argued that in present case agreements were not for sale of goods per se. It is executory contract rather than case of mere supply or sale of goods. According to learned Departmental Representative, agreements entered into between assessee and contractors were basically for carrying out work as per specifications of assessee. From various covenants of contract and by reading contracts as whole, it is clear that contract entered into by assessee corporation with its contractors is not merely supply contract but that of works contract and any payments made under contract are covered by provisions of s. 194C. 4.2 Reliance was placed on following decisions : (1) Associated Cement Co. Ltd. s case (supra); (2) Sentinel Rolling Shutters & Engg. Co. (P) Ltd. vs. CST 42 STC 409; (3) BDA Ltd. vs. ITO (supra); (4) Waves Electronics (P) Ltd. vs. State of Kerala (supra); (5) Chitram & Co. (P) Ltd. vs. State of Tamil Nadu 51 STC 367 (Mad); (6) Dy. Commr. (CT) vs. Indian Refrigeration Industries Ltd. 27 STC 427; (7) Essar Oil Ltd. vs. ITO (2001) 71 TTJ (Rajkot) 599 : (2001) 77 ITD 92 (Rajkot). 4.3 Countering contention of assessee that Board Circular No. 681 should have been followed by AO, learned Departmental Representative submitted that in fact Board s Circular No. 715, dt. 8th Aug., 1995 issued later is binding on AO. Moreover validity of Circular No. 681 was also challenged before Courts as result of which Circular No. 715 was issued. Therefore, Circular No. 681 has to be read along with Circular No. 715 and not in isolation. He then went on to distinguish decisions relied on by assessee and submitted that in view of legal position and for elaborate reasons mentioned in order under s. 201(1) r/w s. 201(1A) and order of first appellate authority, sought sustenance of order of lower authorities. 5 . We have carefully considered rival submissions. crux of issues involved in this appeal is whether s. 194C is applicable to payments made to contractors who were given separate contracts for supply as well as for erection. To resolve issue we have to decide first whether contracts in question are contracts of sale or they are work contracts. While argument of assessee is that contracts concerned are supply contract Revenue took view that they are works contract taking support from Circular No. 715, dt. 8th Aug., 1995 issued by Board. As far as erection contracts are concerned assessee had already deducted tax as per provisions of s. 194C of Act. Revenue took view that supply of transmission towers/cables involved design and manufacture of goods and therefore was contract of works and not contract of sale. 5.1 We find substantial force in arguments of learned counsel for assessee which are supported by case laws cited and we are inclined to agree with these contentions of assessee, that contract in question are pure contracts of sale and not works contract for reasons given below. 5.2 In this case, as already stated, assessee entered into contracts with various contractors for supply of conductors, insulators, transmission towers and sub-stations. contracts were not only to supply equipment, but also by way of separate contract to erect transmission towers and also sub-stations. contract, though contained in same document in some cases are in two parts. Simply because supply and erection parts of contract were entered into with same party in some cases and in some other cases, were in two separate parts in same agreement nature of each part of contract will not alter. In this connection we may refer to decision of Bombay High Court in case of CST vs. Walchandnagar Industries (1985) 58 STC 89 in which Hon ble High Court referred to judgment of Hon ble Supreme Court in case of State of Madras vs. Gannon Dunkerley & Co. (1958) 9 STC 353 (SC) wherein it was held that "the parties may enter into two contracts, one for sale of goods and one for services. Even when such contracts are in one document they can be separate, for moreso when they are in two separate documents". Similar view was taken by Hon ble apex Court in case of Associated Hotels of India Ltd. (1972) 29 STC 474 (SC). 5 . 3 In Andhra Pradesh State Road Transport Corpn. s case (supra), Hyderabad Bench of Tribunal held as follows : "In instant case, if we closely go through various covenants of contract, excerpts of which have selectively been quoted by learned CIT(A) in order impugned and salient features of which are extracted by us as referred above, inescapable conclusion is that contract entered into by appellant-corporation with its fabricators was contract for purchase/sale of bus bodies and cannot be construed as contract of work and labour simpliciter. dominant object and intention between parties was to construct and sell and purchase bus bodies in terms of requirements and specifications indicated by appellant-corporation and deliver them duly fitted on chassis supplied. Whole exercise involved resulted into purchase and sale of bus bodies in fact. Merely because specifications are provided by appellant-corporation to suit bus bodies according to appellant s requirements, does not alter basic crux and character of contract, which in instant case is nothing but contract of sale and purchase. materials involved in construction of bus bodies were to be procured by fabricators and thereafter bus bodies were to be constructed and to be fitted on chasis supplied by appellant-corporation. At no point of time, appellant had any property or ownership in material used in bus body building or in bus body itself unless these were delivered to appellant and approved by appellant for final use. Property in bus bodies was to pass on acceptance of bus bodies by appellant. Purchase of any item which is constructed as per bus bodies by appellant. Purchase of any item which is constructed as per agreed specifications would involve labour and skill but these two elements by themselves alone are not enough to turn transaction of sale into transaction of "work". Object and end-result of entire process through which that transaction passes shall be looked into. In case before us, we are of considered view in backdrop of object and end-result of contract, that it was contract of sale ultimately and finally. In fact, issue which is involved in present case came to be considered by Hon ble Madras High Court in case of City Motor Services (P) Ltd. vs. State of Madras, wherein interestingly, assessee sought to claim that bus body building activity was "works contract" on which sales-tax was not leviable. Therefore, Hon ble High Court of State of Madras considered issue whether work of building body constituted contract of sale or not and held that it was contract of sale. It is pertinent to quote relevant portion of judgment of Madras High Court, which is as under : "It has to be decided in light of terms of contract in each case. Certain primary tests, however, have to be applied in construing contract. principal test is how and when property is intended to pass. There is nothing in terms of contracts before us to show that property in materials used in process of bus body building should pass to customer who supplied chasis moment materials were affixed to chasis. On other hand, stipulation relating to payment, namely, payment against delivery, clearly shows that property passed only at time of delivery of bus body. It is explicit from this term that if there is no delivery of bus body as such, there will be no liability for payment. position would be otherwise if property in materials used in bus body building passed as and when they were affixed to chasis. This position also demonstrates that risk in respect of materials used in bus body building is with assessee and that before completion of bus body and delivery thereof, customers bears no risk in respect of it. It is not stray words used in contract that by themselves would govern intention of parties. contract will have to be read as whole and terms therein will have to be read as whole and terms therein will have to be interpreted in context of each other and also taken together. Undoubtedly, idea of construction is involved in process of bus body building. But point is whether parties bargained only for work and labour or for delivery of bus body as such fitted to chasis. In other words, if parties intended that there should be delivery of bus bodies as units or as bus bodies though fitted to chasis, that will be case where property passed only at time of delivery. Such transaction will be sale of goods. That precisely is position in this case. We agree with Tribunal that turnover in respect of these transactions was rightly charged to sales-tax." Similar issue was dealt with by Hon ble Supreme Court in case of Patnaik & Co. vs. State of Orissa (1965) 2 SCR 782 : 16 STC 364 (SC) in which Hon ble Supreme Court held that bus body constructed by fabricator was sale and was not "works contract". Circumstances considered and relied upon in above cases for holding that transaction amounted to sale and not to "works contract", we find, do exist in case before us also as is clear from salient features of contract mentioned earlier and from discussion and findings in preceding paras. Therefore, contract entered into by appellant corporation with its fabricators in instant case, was contract of sale upon which provisions of s. 194C were not applicable." 5.4 Hon ble Supreme Court in case of Kone Elevators (India) Ltd. (supra) considering case of installation of lifts held that contract is "contract for sale". Hon ble apex Court while enumerating tests to be considered while deciding nature of contract emphasized fact that intention of parties in contract would to large extent determine issue. Hon ble Court laid down following as probable tests that should be conducted before determining nature of contract : (i) Whether it was one for transfer of property or for work and labour; (ii) How and when property of dealer passed to customer i.e., whether by transfer or accession. Hon ble apex Court while saying so has followed principles laid down by it in case of Hindustan Shipyard (1999) 115 STC 96 and clarified that it is not bulk of material used in construction alone but relative importance of material qua work, skill and labour of payee which also has to be seen, but it is relevant parameter. In present case, where contract of supply and erection is given to same party, value of erection contract as can be seen from annexure is lesser than value of supply contract. It cannot therefore control interpretation of contract, specifically when property in goods have passed ex-works on delivery and not on theory of accession. assessee took possession of goods and title passed on to it as chattel prior to commencement of erection portion of contract. 5 . 5 Further Hon ble Supreme Court while considering issue of "installation of lift" on facts came to conclusion that it is one in nature of sale. Hon ble Court observed that since obligation of assessee therein was only to supply and install lift manufactured and brought to site in knocked-down state to be assembled by assessee and customer s obligation was to undertake work connected in keeping site ready for installation as per drawings, held that contract was sale contract and not "works contract". Hon ble Court also noticed that major component of end-product is material consumed in producing lift delivered. skill and labour employed for converting main components into end-product were only incidental. learned CIT(A) failed to consider any of above tests while coming to erroneous conclusion that contracts entered into by appellant were works contract. If facts of present case are tested by applying principles laid down by jurisdictional High Court and Hon ble Supreme Court, obvious answer that would emerge is that this is "supply contract" and not "works contract". nature of contract as to whether it is contract for sale or "works contract" will depend on terms of contract and its execution. In present case, contractors have to fabricate towers as per tested quality of conformity with International Standard-(IS) : 2062. Further contractor has been given option to use other equivalent grade of structural steel angle sections and plates conforming to latest International Standards. contractor fabricates and manufactures tower with steel sections as per International Standards. material is that of "the supplier" and not of "the purchaser". "supplier" does not work on material supplied by "purchaser". There is no accretion of material to purchaser, part by part, unit by unit. rest of equipment such as insulators, conductors, transformers, circuit breakers, etc., are standard equipments. relevant technical specification is specified by purchaser . title in goods passes as chattel on delivery though certain obligations are still necessarily to be performed by "supplier". Though assessee claims that design specification are not unique in sense that same specifications are used by many other concerns, to our mind, this is not relevant test. issue is as to time and situs of passing of property and as to whether property passes "brick by brick" on theory of accretion or as chattel qua chattel. mere fact that supplier has to perform many other obligations cast on it by virtue of contract after delivery of goods does not change nature of transaction. supply portion of contract are predominant object and intention of parties. Erection is relatively minor portion as compared to supply portion. If erection portion cannot be taken as main object of these contracts, title in goods was transferred as movables prior to erection. If equipment are manufactured as per design, engineering, etc., specified by customer, it would not result in works contract especially when all material belong to supplier, even though it produced tailor-made product. erection portion being subsequent to passing of title by execution of supply portion, it cannot be said that erection portion controls supply portion, though fulfilment of conditions of erection contract has bearing on fulfilment of condition of supply portion of contract, and though in some cases both contracts are in same document. scope and object of each part of contract is different. Though supply portion and erection portion dovetail into each other, erection portion does not control supply portion and supply contract does not become works contract, just because there is obligation cast on supplier to erect equipment which by that time has become property of purchaser. title in goods in respect of equipment/material to be supplied as per terms of contract is to be transferred "ex-work" on dispatch as movable property. critical test to be applied is as to when title in goods is transferred. Thus as title in goods were passed on to assessee, before commencement of works or erection contract and as admitted by assessee had treated these goods as its property and entered same as such in its stock register before issuing same for erection, it is contract of sale and s. 194C has no application. On erection portion as admitted TDS is made. order in case of Essar Oil Ltd. (supra) does not apply to facts of this case as original contract was single contract and later on this was split into 3 contracts. order in case of BDA Ltd. (supra) relates to printing press and similar issue was considered by Hyderabad Bench in case of APSRTC (supra). Thus these cases are not applicable to facts of this case. Hon ble Supreme Court in case of Associated Hotels of India Ltd. (supra) has laid down that "It may in some cases be that even while entering into contract of work or even service, parties might enter into separate agreements, one of work and service and other of sale and purchase of material to be used in course of erecting work or performing service. In such cases, transaction would not be one indivisible but should fall into two separate agreements, one of work or performance and other of sale". Applying proposition, we hold that contract of sale, does not become contract of work, as there are two separate agreements. 5.6 Sec. 194C with its Expln. III reads as follows : "194C. (1) Any person responsible for paying any sum to any resident (hereafter in this section referred to as contractor) for carrying out any work (including supply of labour for carrying out any work) in pursuance of contract between contractor and.... shall at time of credit of such sum to account of contractor or at time of payment thereof in cash or by issue of cheque or draft or by any other mode, whichever is earlier, deduct amount equal to... Explanation III. For purposes of this section, expression work shall also include (a) advertising; (b) broadcasting and telecasting including production of programmes for such broadcasting or telecasting; (c) carriage of goods and passengers by any mode of transport other than by railways; (d) catering." test is whether, in substance, contract is one of work or labour or not. Sec. 194C will apply, when payment is made to deductee for carrying on any work or for supplying labour for carrying out any work and will not cover contracts for sale of goods. CBDT recognized this position and issued following guidelines in regard to applicability of provisions of s. 194C vide Circular No. 681, dt. 8th March, 1994 [(1994) 117 CTR (St) 229] wherein : "Para 7 (vi) provisions of this section will not cover contracts for sale of goods. (a) since contracts for construction, repair, renovation or alteration of buildings or dams or laying of roads or airfields or railway lines or erection or installation of plant and machinery are in nature of contracts for work and labour, income-tax will have to be deducted from payments made in respect of such contracts. Similarly, contracts granted for processing of goods supplied by Government or any other specified persons, where ownership of such remains at all times with Government or such person, will also fall within purview of this section. same position will obtain in respect of contracts for fabrication of any article or thing where materials are supplied by Government or any other specified person and fabrication work is done by contractor. (b) Where, however, contract undertakes to supply any article or thing fabricated according to specifications given by Government or any other specified person and property in such article or thing passes to Government or such person only after such article or thing is delivered, contract will be contract for sale and as such outside purview of this section. section. (c) In State of Himachal Pradesh vs. Associated Hotels of India Ltd. (1972) 29 STC 474 (SC), Supreme Court observed that where principal objective of work undertaken by payee of price is not transfer of chattel qua chattel, contract is of work and labour. test is whether or not work and labour bestowed end in anything that can properly become subject of sale; neither ownership of materials nor value of skill and labour as compared with value of materials is conclusive although such matters may be taken into consideration in determining, in circumstances of particular case, whether contract is, in substance, one of work and labour or one for sale of chattel. building contract or contract under which movable is fixed to another chattel or on land, where intention plainly is not to sell article but to improve land or chattel and consideration is not for transfer of chattel but for labour and work done and material furnished, contract will be one of work and labour. In case of doubt, whether particular contract is contract for work and labour or for sale, matter should be decided in light of principles laid down by Supreme Court in abovementioned case. (Emphasis, italicised in print, ours) plain reading of s. 194C along with CBDT circular referred above and applying same to facts of this case, where we find that supplier does not work or process material supplied by purchaser and that seller supplied goods title in which passed on to purchaser/assessee, as chattel, on delivery ex-work dispatch and as assessee has already deducted tax at source from erection portion of contract treating it as separate contract, we have to hold that s. 194C is not applicable to supply contract in question. 6. In result, appeal of assessee is allowed. *** POWER GRID CORPORATION OF INDIA LTD. v. ASSISTANT COMMISSIONER OF INCOME TAX