Sale and installation of lift work is a Works Contract #indianlaws

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 question arose before the Supreme Court as to 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 Court by 4:1 majority overruled the 2005 judgment namely State of A.P. v. Kone Elevators (India) Ltd. (2005) 3 SCC 389) by ruling that the installation requires considerable skill and experience and thus the labour and service element is obvious; a preparatory work has to be done taking into consideration as to how the lift is going to be attached to the building. The nature of the contracts clearly shows that they are contracts for supply and installation of the lift where labour and service element is involved. Individually manufactured goods such as lift car, motors, ropes, rails, etc. are the components of the lift which are eventually installed at the site for the lift to operate in the building. In constitutional terms, it is transfer either in goods or some other form. In fact, after the goods are assembled and installed with skill and labour at the site, it becomes a permanent fixture of the building.

It was stated to be a composite contract which requires the contractor to install a lift in a building. If there are two contracts, namely, purchase of the components of the lift from a dealer, it would be a contract for sale and similarly, if separate contract is entered into for installation, that would be a contract for labour and service. As held, a pregnant one, 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. Therefore, it would not be a contract for sale on the bedrock that the components are brought to the site, i.e., building, and prepared for delivery. 

M/S. Kone Elevator India Pvt. Ltd. vs. State of Tamil Nadu and Ors.
(SC, 06.05.2014)