Work and labour contract test excludes photo-identity card supply from sales tax where service element predominates.

The decisive test was the true nature of the contract, assessed from its terms, the parties' intention and the primary object of the transaction. A supply arrangement for photo-identity cards, made to specified specifications and involving data entry, photographing, storage and processing, was held to be predominantly skilled labour and service. The use of materials was merely incidental, and the cards had no commercial utility in the open market. The transaction was therefore a contract for work and labour, not a sale, and was not exigible to sales tax.

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Issues: Whether supply of photo-identity cards prepared under the electoral authorities' order constituted a sale exigible to sales tax, or a contract for work and labour not liable to tax.

Analysis: The decisive test was the true nature of the contract, judged from its terms, the intention of the parties, and the primary object of the transaction. Mere use of materials or passing of property in articles used in execution does not by itself make the transaction a sale. The order required preparation of photo-identity cards to specified specifications, involving skilled labour, data entry, photographing, storage and processing, with the cards being delivered only to the issuing authority and having no commercial utility in the open market. The material component was incidental, while the labour and service element predominated.

Conclusion: The transaction was a contract for work and labour, not a sale, and was not exigible to sales tax.

Final Conclusion: The reference was answered against the Revenue and in favour of the petitioner-dealer, and the supply of photo-identity cards was held outside the tax net.

Ratio Decidendi: A transaction is not a sale where its primary object is skilled work and service, and any transfer of materials is merely incidental to execution of the contract.

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