Divisible film-production contracts treated production work as works contract, while supply of prints remained a separate taxable sale.

Contracts for production and supply of advertisement films were held to be divisible where the agreement separately stipulated production work, language versions and supply of prints. The production element was treated as a contract for work and labour, involving skill and labour on the analogy of photographic work, and therefore not a sale liable to tax under the Bombay Sales Tax Act, 1959. The supply of prints was recognised as a separate taxable element. The court rejected the view that film production necessarily amounted to manufacture of a chattel, holding instead that the character of the production contract itself was determinative. The assessee succeeded.

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Issues: Whether the contracts for production and supply of advertisement films were divisible contracts comprising distinct components for production of processed films and for supply of prints, and whether the production component was a sale liable to tax under the Bombay Sales Tax Act, 1959.

Analysis: The contract materials showed separate stipulations for production cost, language versions, and supply of prints. The production of a film was treated as involving skill and labour and, on the analogy of photographic work, as a contract for work and labour rather than a sale. The supply of prints was a separate taxable element. The earlier reasoning that a film producer merely manufactures a chattel was not accepted as governing the present dispute, because the real question was the character of the production contract itself. The contract was therefore capable of being divided into distinct obligations, one non-taxable and the other taxable.

Conclusion: The Tribunal was right in holding that the contracts were divisible and that the production component was not a sale liable to tax. The answer was in favour of the assessee.

Ratio Decidendi: Where a film-production agreement separately provides for production work and for supply of prints, the production element is a works contract involving skill and labour, while the supply of prints is a distinct sale of goods.

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