1984 (9) TMI 262 - HC - VAT and Sales Tax

High Court: Printing Charges = Contract for Works, Not Sale. Parties' Intent Key.

The High Court determined that the printing charges received for bill books constituted a contract of works and labor, not a sale. Emphasizing the Supreme ... Contract of sale - contract for works and labour - primary object and intention of the parties - passing of property during performance not determinative - test whether work and labour ends in a chattel that can properly be the subject of sale - inclusion of receipts in turnoverContract of sale - contract for works and labour - test whether work and labour ends in a chattel that can properly be the subject of sale - Whether receipts from consolidated bills for paper and printing of bill books, where paper was supplied by the printer, are sales proceeds includible in turnover or represent charges for work and labour - HELD THAT: - The Court applied the principle that mere passing of property in materials used during performance does not convert a transaction into a sale; the determinative inquiry is the primary object and intention of the parties. Relying on the Supreme Court's rulings that the test is whether the work and labour bestowed ends in something that can properly become the subject of sale and that where the principal object is not transfer of a chattel qua chattel the contract is one for work and labour, the Court examined the facts and found that at the time of contract no bill book existed. The bill book came into existence only after the assessee applied its labour and skill to plain paper. Consequently the transaction's principal object was the rendition of printing services, and the resultant bill book was the product of work and labour rather than the subject-matter of a pre-existing sale of goods. The authorities relied on by the Revenue were not treated as overruling or distinguishing the Supreme Court authority relied upon by the assessee.Tribunal's conclusion upheld that the receipts represented charges for work and labour and were not includible in turnover as sale proceeds.Final Conclusion: Revision dismissed; Tribunal correctly held the transactions were contracts for work and labour (not contracts of sale) and the printing charges could not be included in turnover; parties to bear their own costs. Issues:Interpretation of contract as sale or contract of works and labor for printing services provided by the assessee.Analysis:The case involved a dispute regarding whether the printing charges received by the assessee for printing bill books constituted a contract of sale or a contract of works and labor. The assessing officer contended that since the assessee used its own paper for printing, it constituted a contract of sale. On the other hand, the Tribunal held that it was a contract of works and labor. The key issue was whether the use of the assessee's paper changed the nature of the transaction.The High Court referred to the decision in the case of State of Himachal Pradesh v. Associated Hotels of India Ltd., where the Supreme Court emphasized that the passing of property during a transaction does not automatically make it a sale. The primary object of the transaction and the intention of the parties must be considered. Additionally, the court cited the principles laid down by the Supreme Court in the case of Assistant Sales Tax Officer v. B.C. Kame, highlighting that the main object of the work determines whether a contract is for sale or for works and labor.Applying the principles established by the Supreme Court, the High Court concluded that in the instant case, there was no contract of sale but a contract of works and labor. The bill books were created through the labor and skill of the assessee, and the end product only came into existence after the printing process. Therefore, the contract was not for the sale of goods but for the provision of services. The court upheld the Tribunal's decision, noting that the authorities relied on by the Revenue did not adequately consider the Supreme Court's precedent in the case of B.C. Kame.Ultimately, the High Court dismissed the revision filed by the Revenue, and each party was directed to bear their own costs. The judgment clarified the distinction between a contract of sale and a contract of works and labor in the context of providing printing services, emphasizing the importance of the primary object of the transaction in determining the nature of the contract.