I also think so however read the following:
High court of Madras in case of Mani Muthusamy v. Personal assistant to the Collector (Mad):
Facts:
The assessee was a supplier of eggs. He entered into a contract with the competent authority of State Government for the supply of eggs to certain Noon Meal Centers in the State and the supply of eggs had been made in accordance with the specifications contained in the contract.
According to the assessing officer the tax is required to be deducted at source U/S 194 C by contending the present contract is an indivisible contract for supply of a tailor-made product involving not only cost of goods but also value of service, transportation, handling / breakage, inventory management etc. Therefore, it is submitted that composite contract involving supply of goods and labour, is definitely a works contract.
Held:
Yes, Tax is required to be deducted under section 194C.
Some highlights of cases referred relating to Section 194C about Law laid down by the Hon’ble Supreme Court on Subject “Contract for Sale or For Work and Labour”
In the case of Sentine Rolling Shutter & Engg. co. (P.) Ltd:
The distinction between a contract for sale or contract for work and labour has been pointed out by this court in a number of decisions and some tests have also been indicated, but it is necessary to point out that these tests are not exhaustive and do not lay down any rigid or inflexible rule applicable alike to all transactions. They merely focus on one or the other aspect of the transaction and afford some guidance in determining the question, but basically and primarily, whether a particular contract is one for sale of goods or for work and labour depends upon the main object of the parties gathered from the terms of the contract, the circumstances of the transaction and the custom of the trade.
In the case of Anandam Viswanathan:
The primary difference between a contact for work or service and a contract for sale is that in the former there is in a person performing or rendering service, no property in the thing produced as a whole, notwithstanding that a part or even the whole of the material used by him may have been his property. Where the finished product supplied to a particular customer is not a commercial commodity in the sense that it cannot be sold in the market to any other person, the transaction is only a work contract.
In the case of Hindustan Aeronautics Ltd:
It is well settled that the difference between contract of service and contract for sale of goods, is that in the former, there is in the person performing work or rendering service no property in the thing produced as a whole notwithstanding that a part or even the whole of materials used by him had been his property. In the case of contract for sale, the thing produced as a whole has individual existence as the sole property of the party who produced it some time before delivery and the property therein passed only under the contract relating thereto to the other party for price. It is necessary, therefore, in every case for the courts to find out whether in essence there was any agreement to work for a stipulated consideration. If that was so, it would not be a sale because even if some sale may be extracted that would not affect the true position. Merely showing in the bill or invoices, it was contended on behalf of the appellant, the value of materials used in the job would not render the contract as one of sale. The nature and type of the transactions are important and determinative factors. What is necessary to find out, in our opinion, is the dominant object.
Therefore, based on the law laid down by Hon’ble Supreme Court, what is required to be seen is the nature and type of transaction, which are determinative factors and it is necessary to find out what is the dominant object of the said contract.
In the case of Anandam Viswanathan:
Where the finished product supplied to a particular customer is not a commercial commodity in the sense that it cannot be sold in the market to any other person, the transaction is only a works contract.
Kone Elevators (India) Ltd:
It can be treated as well settled that there is no standard Formula by which one can distinguish a contract for sale from a works contract. The question is largely one of fact depending upon the terms of the contract including the nature of the obligations to be discharged there under and the surrounding circumstances. If the intention is to transfer for a price in which the transferee had no previous property, then the contract is a contract for sale. Ultimately, the true effect of an accretion made pursuant to a contract has to be judge not by artificial rule but from the intention of parties to the contract. In a contract of sale, the main object is the transfer of property and delivery of possession of the property, whereas the main object in a contract for work is not the transfer of the property but it is one for work and labour. Another test often to be applied is: when and how the property of the dealer in such a transaction passes to the customer: is it by transfer at the time of delivery of the finished article or by accession during the procession of work on fusion to the movable property of the customer. If it is the former, it is sale; if it is the latter, it is a works contract.
The predominant object of the contract, the circumstances of the case and the custom of the trade provide a guide in deciding whether transaction is a sale or a works contract. Essentially, the question is of interpretation of the contract. It is settled law that substance and not the form of the contract is material in determining the question as to whether a particular given contract is a contract for sale of goods or is a works contract.
In the case of Hindustan Shipyard Ltd v. State of A.P. :
If the thing to be delivered has any individual existence before the delivery as the sole property of the party who is to deliver it, then it is a sale. If the bulk of material used in construction belongs to manufacturer who sells the end products for a price, then it is a strong pointer to the conclusion that the contract is in the substance one for the sale of goods and not one for labour. However, the test is not decisive. It is not the bulk of the material alone but the relative importance of the material qua the work, skill and labour of the payee which also has to seen. If the major component of the end product is the material consumed in producing the chattel to be delivered and skill and labour are employed for converting the main components into the end products, the skill and labour are only incidentally used; the delivery of the end product by the seller to the buyer would constitute a sale. On the other hand, if the main object of the contract is to avail the skill and labour of the seller though some material or components may be incidentally used during the process of the end product being brought into existence by the investment of skill and labour of the supplier, the transaction would be a contract for work and labour.
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