Contract Law

T.V. Sundaram Iyengar & Sons v. State of Madras

AIR 1975 SC 996; (1975) 3 SCC 424

Facts

Customers supplied motor-vehicle chassis to T.V. Sundaram Iyengar & Sons.
The company constructed bus bodies according to customer specifications and fitted them onto the chassis.
It used its own materials, labour and manufacturing skill.
Sales-tax authorities treated the transaction as a sale of bus bodies.
The company argued that it merely performed work and labour on the customer’s chassis.
The question depended on whether the main object was:
transfer of a movable bus body as a chattel; or
performance of labour resulting in accession to the customer’s property.

Whether construction and fitting of a bus body on a customer-supplied chassis amounted to a sale or a works contract.

In a contract of sale, the main object is transfer of property in and delivery of a chattel as a chattel.
In a contract for work and labour, the main object is performance of skill or labour, while transfer of materials is incidental.
Relevant considerations include:
the substance of the transaction;
when and how property passes;
whether a distinct movable article is created;
the parties’ intention;
trade practice.
The fact that an article is custom-made does not by itself prevent the transaction from being a sale.

The company did not merely repair or modify an existing bus body.
It manufactured a distinct bus body using its own materials.
The customer’s chassis served as the base upon which that newly manufactured body was fitted.
The bus body was an identifiable movable product before or in the course of fitting.
Its construction according to customer specifications did not change its commercial character as an article manufactured for transfer.
Many sales involve goods made to order; customised manufacture does not automatically transform a sale into a service contract.
The Court focused on the main objective:
the customer wanted to acquire a completed bus body;
the labour was the means by which the seller produced that article.
The transfer of property in the bus body was therefore central rather than incidental.
In the absence of contractual material establishing a different arrangement, the transaction was properly treated as a sale.

The Supreme Court held that the supply and fitting of the bus bodies amounted to sales liable to sales tax.
Use this case for: a custom-made article may still be sold as a chattel where transfer of the completed article is the transaction’s main object.