👉🏻Work Contract is a separate species of contract distinct from contracts for services simpliciter recognized by the world of commerce and law. Simply put, a works contract is essentially a contract of service which may also involve supply of goods in the execution of the contract. In a general sense, a contract of works, may relate to both immovable and movable property.

👉🏻Example- if a subcontractor, undertakes a sub-contract for the building work, it would be a works contract in relation to immovable property. Similarly, if a composite supply in relation to movable property such as fabrication/painting/annual maintenance contracts etc. is undertaken, the same would come within the ambit of the broad definition of a works contract.

👉🏻The term “works contract” cannot be confined to a contract to provide labour and services but is a contract for undertaking or bringing into existence some “works”.
The basic characteristics of works contract that clearly emerge out of the various decision of Apex Court are –

(a) the works contract is an indivisible contract but, by legal fiction, is divided into two parts, one for sale of goods, and the other for supply of labour and service;

(b) the term “works contract” as used in Clause (29A) of Article 366 of the Constitution takes in its sweep all genre of works contract and is not to be narrowly construed to cover one species of contract to provide for labour and service alone;

👉🏻EXCLUSION OF WORKS CONTRACT FROM THE AMBIT OF MSMED ACT: Works contract are excluded from the ambit of MSMED Act and there are various judicial pronouncements by several High Courts regarding the same.

👉🏻The Bombay High Court in case of Sterling Wilson Pvt Limited v. Union of India & Ors. AIR 2017 Bom 242, 25.07.2017 held that the contract under tender is a composite contract for supply of goods as well as installation of fire water spray system, which is a permanent fixture.

👉🏻The goods supplied under the contract are eventually assembled and installed at site and become part of the permanent fixture. The said contract satisfies fundamental characteristics of work contract and hence cannot be considered as a contract simplicitor for sale of goods and services.

👉🏻There was no separate contract entered into for installation and for labour and service and for products. It was not a sale of goods. Traders were excluded from purview of Public Procurement Policy.

👉🏻As stated earlier, the MSMED Act and the Public Procurement Policy is applicable only to procurement of goods and services. The contract under tender not being a contract for sale of goods and predominantly a work contract, the benefits of the Act and the Policy could not be extended to this contractor.