2007 (8) TMI 631 - HC - VAT and Sales Tax

Photographic activities deemed works contract taxable under Kerala Sales Tax Act

Johny Joseph Versus State of Kerala

The High Court upheld the Sales Tax Appellate Tribunal's decision that the photographic activities of the assessee constituted a works contract taxable ... SALES TAX — WORKS CONTRACT — PHOTOGRAPHER — ACTIVITY OF TAKING PHOTOGRAPHS, DEVELOPING AND PRINTING FILMS CONSTITUTES WORKS CONTRACT — TRANSFER OF GOODS INVOLVED IN EXECUTION THEREOF LIABLE TO TAX. Issues Involved:1. Taxability of photographic work under the Kerala General Sales Tax Act.2. Limitation on the order of assessment.3. Levy of interest under section 23(3) of the Kerala General Sales Tax Act.Detailed Analysis:1. Taxability of Photographic Work:The core issue revolves around whether the activity of taking photographs, developing, and printing films by the assessee constitutes a 'works contract' and is thus taxable under the Kerala General Sales Tax Act, 1963.- Assessee's Argument: The assessee contended that their activity is purely skilled labor, not subject to tax, as it involves taking photographs and delivering them to customers without selling any goods. They relied on the Supreme Court's decision in *Assistant Sales Tax Officer v. B.C. Kame* and *Rainbow Colour Lab v. State of Madhya Pradesh* which held that such activities are service contracts not involving the sale of goods.- Assessing Authority's View: The assessing authority rejected the assessee's annual returns and issued a pre-assessment notice, treating the activity as a 'works contract' and levying tax accordingly. This decision was initially overturned by the first appellate authority, which directed a reassessment.- Tribunal's Decision: The Sales Tax Appellate Tribunal reversed the first appellate authority's decision, relying on the Supreme Court's ruling in *Associated Cement Companies Ltd. v. Commissioner of Customs*. The Tribunal concluded that after the 46th Amendment to the Constitution, states could levy sales tax on the value of materials involved in works contracts, even if the dominant intention was to render a service.- High Court's Judgment: The High Court upheld the Tribunal's decision, stating that the Tribunal correctly applied the law as declared by the Supreme Court in *Associated Cement Companies Ltd.* and further confirmed by *Bharat Sanchar Nigam Ltd. v. Union of India*. The court emphasized that the decision in *Rainbow Colour Lab* had been implicitly overruled by the Supreme Court in *Associated Cement Companies Ltd.*, making the assessee's activity taxable as a works contract.2. Limitation on the Order of Assessment:The assessee argued that the order of assessment was barred by limitation.- High Court's View: The court noted that this issue was not raised or argued before the assessing authority or the Tribunal. Therefore, it declined to express any opinion on this matter, stating that under section 41 of the Act, it could only exercise its revisional powers if the Tribunal had erroneously decided or failed to decide any questions of law.3. Levy of Interest under Section 23(3):The assessee contended that the levy of interest from the end of the assessment year was unjust and should only apply from the date of the Tribunal's order.- High Court's View: Similar to the limitation issue, the court observed that this argument was not presented before the Tribunal. Consequently, it did not address this question, reiterating its limited revisional jurisdiction under section 41 of the Act.Conclusion:The High Court dismissed the revision petition, affirming the Tribunal's decision that the assessee's photographic activities constituted a works contract liable to tax under the Kerala General Sales Tax Act. The court ruled that the Tribunal's application of the law was consistent with the Supreme Court's judgments in *Associated Cement Companies Ltd.* and *Bharat Sanchar Nigam Ltd.*. The issues of limitation and interest levy were not considered due to their absence in prior proceedings. The parties were directed to bear their own costs, and the accompanying I.A. No. 2227 of 2003 was also dismissed.