1997 (4) TMI 476 - AT - VAT and Sales Tax

Photograph development receipts not taxable as works contracts, penalty set aside, refund granted

Spectrum Foto Color Labs Pvt. Ltd. Versus Commercial Taxes Officer, Anti-Evasion, Jodhpur

Spectrum Foto Color Labs Pvt. Ltd. Versus Commercial Taxes Officer, Anti-Evasion, Jodhpur - [1998] 110 STC 145 (Raj[TT]) Issues Involved:1. Taxability of job receipts for developing and printing photographs.2. Applicability of sales tax on photo papers and chemicals.3. Imposition of penalty u/s 16(1)(e) and interest u/s 11B of the Rajasthan Sales Tax Act, 1954.Summary:Issue 1: Taxability of Job Receipts for Developing and Printing PhotographsThe petitioner, engaged in developing exposed photo films and preparing positive prints from negatives, was charged consolidated amounts based on work involved and size/number of prints. The Rajasthan Tax Board held these activities constituted a 'works contract' as defined u/s 2(u) of the Act. However, the Tribunal found that the contracts were purely of labour or service, excluding them from the definition of 'works contract.' The Tribunal emphasized that the primary object was not the transfer of photo papers but obtaining positive prints, making the transfer of paper incidental. Therefore, no sales tax liability arose from these contracts.Issue 2: Applicability of Sales Tax on Photo Papers and ChemicalsThe Tribunal ruled that photo papers and chemicals used in the process were not marketable commodities and did not involve the transfer of property. The Tribunal cited various judgments, including *Assistant Sales Tax Officer v. B.C. Kame* and *Everest Copiers v. State of Tamil Nadu*, supporting the view that contracts for developing photographs are contracts of skill and labour, not sales. Thus, no sales tax was applicable on photo papers and chemicals used in the job work.Issue 3: Imposition of Penalty u/s 16(1)(e) and Interest u/s 11B of the ActThe Tribunal found no deliberate concealment or inaccurate particulars furnished by the petitioner. All job receipts were duly entered in the account books and there was a bona fide dispute regarding the taxability of the transactions. The Tribunal referred to *Commercial Taxes Officer, Special Circle, Pali v. Sojat Lime Co.*, establishing that penalty u/s 16(1)(e) requires a conscious act of concealment or deliberate furnishing of inaccurate particulars. Consequently, the penalty and interest imposed were set aside.Conclusion:The Tribunal allowed the revision applications, holding that the amounts received for developing exposed films and preparing positive prints did not form part of the taxable turnovers. The judgments of the Deputy Commissioner (Appeals) and the Rajasthan Tax Board were set aside. The assessment orders were modified, and the amounts of tax, interest, and penalty were set aside or reduced. The petitioner was entitled to a refund of excess amounts paid, with interest, within three months. Petitions were allowed with no order as to costs.