Photographic processing becomes a works contract when customer-owned film or negatives are worked upon and property in goods passes.

Photographic activity is taxable as a works contract only when the photographer works upon customer-owned film or negatives and thereby transfers property in goods involved in the processing. Where the photographer uses his own camera, film and materials and supplies the finished print, the transaction is a service of skill and labour, not a works contract, and no sales tax is exigible. Processing exposed film or negatives supplied by customers and supplying prints, however, falls within the deemed sale concept and the statutory definition of works contract. The first category escaped tax, while the customer-supplied film and negative processing categories were held taxable.

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Issues: (i) Whether the first category of photographic activity, where the photographer takes the photograph using his own materials and supplies the finished print, constitutes a works contract liable to sales tax. (ii) Whether the second and third categories, namely processing exposed film or negatives supplied by customers and supplying prints, constitute works contract exigible to tax.

Issue (i): Whether the first category of photographic activity, where the photographer takes the photograph using his own materials and supplies the finished print, constitutes a works contract liable to sales tax.

Analysis: The relevant test was whether there was any processing or work upon goods belonging to the customer so as to amount to a works contract and involve transfer of property in goods. In the first category, the photographer used his own camera and film, and the negative subjected to further processing belonged to the photographer, not to the customer. There was no customer-owned property that was improved, processed, or worked upon. The transaction was treated as one of skill and labour, and the passing of photographic paper was only incidental.

Conclusion: The first category was held not to be a works contract and was not exigible to sales tax.

Issue (ii): Whether the second and third categories, namely processing exposed film or negatives supplied by customers and supplying prints, constitute works contract exigible to tax.

Analysis: In these categories, the photographer worked upon exposed film or negatives belonging to the customer and produced positive prints. The Court applied the constitutional concept of deemed sale in Article 366(29A)(b) and the statutory definition of works contract, holding that the essential element was the transfer of property in goods involved in the execution of the work. The activity was found to be processing of customer-owned material and not a pure artistic service. The decisions in B.C. Kame and Everest Copiers were distinguished on facts, and the earlier view in Jacob Cherian was followed only to the extent it drew the same distinction between the different categories of photographic work.

Conclusion: The second and third categories were held to fall within works contract and were exigible to sales tax.

Final Conclusion: The appeals failed because only the first category escaped tax, while the processing of customer-supplied exposed film and negatives was taxable as works contract.

Ratio Decidendi: Photographic activity is taxable as a works contract only when the photographer works upon customer-owned film or negatives and transfers property in goods involved in that processing; where the photographer uses his own materials and merely renders a skilled service, the transaction is not a works contract.

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