2004 (3) TMI 11 - HC - Income Tax

Supply of printed packing labels is a contract of sale, not works contract; appeals allowed, limited remand

BDA Limited Versus Income-tax Officer (Tds).

HC held that the supply of printed packing labels amounted to a contract of sale, not a works contract, and allowed the appeals, quashing and setting ... Supply of printed labels - Contract for sale Or Works contract - TDS Setoff - Jurisdiction of the Single Bench - HELD THAT:- In the instant case, the appellant had not taken objection to the jurisdiction of the Tribunal, and on the other hand, it had in its review application contended that, the appeal would not have been listed before the single Bench, as its assessed income for the relevant year exceeded rupees five lakhs. The objection was more on procedural requirements, and more particularly on the single Bench's powers. Along with the review application, a photocopy of the assessment order for the relevant year was brought on record by the assessee, and it was necessary to take cognizance of the same, while deciding the review application. The reasoning given by the Tribunal in rejecting the review application does not impress us. Under the circumstances, we answer the second issue in the affirmative. A remedy of appeal is a statutory remedy, and it could not be defeated on account of procedural deficiencies unless the litigant is negligent or adamant in not removing such deficiencies. Such deficiencies could be removed even after the appeal is decided and within the period specified. The procedural requirements for payment of court fees should not come in the way of deciding the appeal on the merits, once such appeals have been admitted. It was, therefore, necessary for the Tribunal to decide the appeal for the financial year 1996-97 on its own merits. However, that itself will not be a reason for us to remand the appeal for the second year, i.e., 1996-97, for deciding on the merits by the Tribunal, more so, when we have already decided the main issue and held that the supply of printed packing labels by M/s. Mudranika to the assessee amounted to 'contract for sale' and not a 'works contract'. In the result, we allow these appeals, and quash and set aside the orders. Issues Involved:(a) Whether the supply of printed labels by M/s. Mudranika to the assessee amounted to a contract for sale or works contractRs.(b) Whether the single Bench of the Tribunal had jurisdiction to hear and decide the appeal for the financial year 1995-96Rs.(c) Whether the Tribunal was right in ignoring the appeal for the financial year 1996-97 on the ground that no separate appeal was filed and fees were not paid for the said yearRs.Detailed Analysis:Issue (a): Contract for Sale vs. Works ContractThe primary issue was whether the supply of printed labels by M/s. Mudranika to the assessee was a contract for sale or a works contract. The assessee argued that the transaction was a contract for sale, as M/s. Mudranika used its own materials, machinery, and labor to print the labels as per the specifications provided by the assessee. The Tribunal, however, had previously held that the transaction was a works contract based on departmental circulars.The court referenced several precedents, including the case of Wadilal Dairy International Limited v. Asst. CIT, where it was held that if a manufacturer purchases materials and manufactures a product as per a customer's specifications, it is a case of sale, not a works contract. The court also cited the Supreme Court's decisions in State of Himachal Pradesh v. Associated Hotels of India Ltd. and State of Tamil Nadu v. Anandam Viswanathan, which emphasized the importance of the primary object of the transaction and the intentions of the parties.The court concluded that the supply of printed labels by M/s. Mudranika to the assessee was a contract of sale and not a works contract, as the labels were manufactured and supplied as per the purchase order specifications, and M/s. Mudranika was not a captive unit of the assessee.Issue (b): Jurisdiction of the Single BenchThe second issue was whether the single Bench of the Tribunal had jurisdiction to hear and decide the appeal for the financial year 1995-96. The assessee did not initially raise the jurisdiction issue but later contended in a review application that the single Bench lacked jurisdiction as the assessed income exceeded rupees five lakhs.The court noted that the jurisdiction of the single Bench is governed by statutory provisions, specifically section 252(2) and (3) of the Act. The Tribunal's office should have verified procedural compliances, including the assessed income, before placing the appeal before the single Bench. However, since the assessee had not objected to the jurisdiction initially and had surrendered to the single Bench's jurisdiction, the court found that the Tribunal should have considered the jurisdictional issue raised in the review application.The court concluded that the single Bench lacked jurisdiction to decide the appeal for the financial year 1995-96, as the assessed income exceeded rupees five lakhs.Issue (c): Ignoring the Appeal for Financial Year 1996-97The third issue was whether the Tribunal was right in ignoring the appeal for the financial year 1996-97 due to non-payment of separate fees and filing separate sets of copies. The court found that the Tribunal's approach was too technical and that procedural deficiencies should not defeat a statutory remedy of appeal.The court emphasized that the Tribunal's registry should have notified the appellant of any deficiencies, including the requirement for separate fees, and provided a period for compliance. The procedural requirements should not prevent the appeal from being decided on its merits once admitted.The court concluded that the Tribunal should have decided the appeal for the financial year 1996-97 on its merits and that procedural deficiencies should not have been a barrier.Judgment:The court allowed the appeals, quashing and setting aside the orders passed by the Tribunal, the Commissioner of Income-tax (Appeals), and the Income-tax Officer (TDS). The court held that the supply of printed labels by M/s. Mudranika to the assessee amounted to a contract for sale and not a works contract. If the assessee had already remitted the TDS amount, it should be set off in future returns. Costs were to be in cause.