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

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 aside the impugned orders. The Tribunal erred in rejecting review on procedural grounds and improperly relied on Single Bench jurisdictional objections; procedural deficiencies (e.g., court fee) should not bar merits adjudication once an appeal is admitted. The HC directed that the Tribunal should have decided the appeal for the relevant year on merits, but declined to remand the second year's matter.

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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 Contract
The 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 Bench
The 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 1996-97
The 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.

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