Works contract characterization for advertising film prints upheld where specialized labour produced non-marketable goods for customer use.

Supply of additional prints of advertising films made from customer-supplied negatives was held to be a contract for work, labour and skill, not a contract of sale. The Court focused on the substance of the arrangement: the prints were prepared for the customer's own advertising use, required specialised skill and labour, and were not marketable commodities capable of sale to third parties. The involvement of a mechanical process did not change the character of the transaction. On that basis, the arrangement was treated as a works contract, and the issue was decided in favour of the assessee.

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Issues: Whether the supply of additional prints of advertising films made from negatives supplied by customers was a contract of sale or a contract for work, labour and skill.

Analysis: The additional prints were produced for the customer's own advertising use and were not marketable commodities capable of sale to third parties. Their preparation required specialised skill and labour, and the use of mechanical process did not alter the true nature of the transaction. The Court applied the principle that where the substance of the undertaking is to produce a result through skill and labour, and the finished product has no independent marketability, the arrangement is not a sale but a works contract.

Conclusion: The supply of additional prints was not a contract for sale but a contract for work, labour and skill, and the issue was decided in favour of the assessee.

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