Printing exam papers held non-taxable works contract; only separately billed paper supply potentially attracts sales tax

SC held that contracts with universities for printing confidential question papers constituted works contracts, not contracts of sale, since the printed papers were not commercial commodities marketable to others and the dominant intention was work and labour, with supply of paper being incidental. Accordingly, no sales tax liability arose on the printing and block-making charges. However, because the assessee's demand notes separately indicated the cost of paper, the supply of paper was treated as a distinct component potentially exigible to tax. SC affirmed the HC's view that, except for materials supplied under such separately treated arrangements, the remaining transaction was a non-taxable works contract.

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Issues Involved:
1. Whether the taxable turnover should include the printing and block-making charges.
2. Nature of the contract: Contract for work and labour vs. contract for sale of goods.
3. The relevance of confidentiality in printing question papers.
4. Applicability of previous judgments and legal principles to the present case.

Issue-wise Detailed Analysis:

1. Whether the taxable turnover should include the printing and block-making charges:
The primary issue was whether the printing and block-making charges should be included in the taxable turnover of the assessee. The High Court found that the printing of question papers involved confidentiality, and apart from the cost of paper, nothing else could be included in the total taxable turnover. The Tribunal had held that only the value of paper was liable to be included in the taxable turnover, which was challenged by the Revenue.

2. Nature of the contract: Contract for work and labour vs. contract for sale of goods:
The High Court concluded that the contract between the assessee and the educational institutions was a composite contract for work and labour, as well as the sale of paper. The High Court relied on the principle that the substance of the contract must be determined, focusing on whether the contract was for work and labour or for the sale of goods. The High Court held that the contract was predominantly for work and labour due to the confidential nature of printing question papers, which could not be entrusted to any press of one's choice. The Supreme Court affirmed this view, emphasizing that the contract involved a high degree of confidentiality and trust, making it a contract for work and labour rather than a sale of goods.

3. The relevance of confidentiality in printing question papers:
The High Court noted that the printing of question papers was a highly confidential matter, requiring trust and confidence in the printer. This confidentiality was a significant aspect of the contract, and the price paid for such printing included the value of this confidentiality and trust. The Supreme Court agreed, stating that the value paid for printing question papers included the price of confidentiality and trust, which could not be measured in terms of money.

4. Applicability of previous judgments and legal principles to the present case:
The High Court and the Supreme Court relied on several previous judgments to determine the nature of the contract. The decision in Government of Andhra Pradesh v. Guntur Tobaccos Ltd. [1965] 16 STC 240 was significant, where it was held that a contract for work in the execution of which goods are used may take one of three forms. The Supreme Court found that the principles laid down in this case were applicable to the present case. The Court also considered other judgments, such as Saraswati Printing Press v. Commissioner of Sales Tax [1959] 10 STC 286 and State of Andhra Pradesh v. Sri Krishna Power Press [1960] 11 STC 498, but distinguished them based on the specific nature of the contracts involved.

The Supreme Court concluded that the contract in the present case was one for work to be done for remuneration, with the supply of paper being incidental. The High Court's view that only the cost of paper should be included in the taxable turnover was upheld. The appeals were dismissed without any order as to costs.

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