Constitution (five-Judge) Bench of Supreme Court overrules the decision of its earlier three-Judge Bench decision in case of Kone Elevator India Pvt Ltd. by holding that a contract for supply and installation of Lifts is a “Works Contract” and not a contract of “Sale”.
This Tax Alert gives an update on the recent decision of the five-Judge Constitution Bench of the Supreme Court in the case of Kone Elevator India Pvt. Ltd. vs. State of Tamil Nadu& Ors. which has reversed the earlier judgment passed by the three-Judge Bench on the characterization of transaction of supply and installation of lifts by elevator companies.
The three-Judge Bench had earlier held that the transaction of supply and installation of lifts constituted contract for sale of goods.
By way of a majority view, the Constitution Bench has overruled the said judgment now and held that composite contract for supply and installation of lifts has to be treated as a works contract and not as a sale of goods / chattel simpliciter.
While deciding the subject issue, Constitution Bench also referred to several landmark judgements such as Gannon Dunkerley, Larsen and Toubro and Bharat Sanchar Nigam Ltd. and others.
With the pronouncement of the order by the Constitution Bench of the Supreme Court - that the contract for supply and installation of lifts is a works contract and not a sale contract– the controversial issue seems to have been set at rest.
This judgement will provide some relief to the elevator companies as the net tax cost is likely to be reduced.
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