The Supreme Court of India, in its various landmark judgments has explained the difference between a normal sale and an indivisible / composite works contract;
“In a contract of sale, the main object is the transfer of Property and delivery of the possession of Chattel as a Chattel to the buyer, where it is not so, it is a contract of Works & Labour” (Hindustan Aeronautics Ltd. 55-STC 314-SC).
Further, if WCT is applicable on contract, No separate service tax or VAT need to be computed on the same.
However, if the contractor chooses to maintain proper books of accounts & opt to pay VAT on the material value & service tax on the labour & other service portion, WCT would not be applicable, even in the case of indivisible contracts.
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