TaxTMI 
TaxTMI 
2010 (4) TMI 969
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....am Viswanathan); (1982) 51 S.T.C. 28 (Deputy Commissioner (CT), Coimbatore Division, Coimbatore vs. Karthikeya Press); (1983) 54 S.T.C. 382 (The Court Press Job Branch, Salem vs. State of Tamil Nadu); (1995) 97 S.T.C. 489 (State of Tamil Nadu vs. Gunasundari Modern Art Printers) and those by the Supreme Court reported in A.I.R. 1958 S.C. 560 (State of Madras vs. Gannon Dunkerley & Co. (Madras) Ltd.; (1965) 16 S.T.C. 240 (Government of Andhra Pradesh vs. Guntur Tobaccos Ltd.); (1972) 29 S.T.C. 438 (The Commissioner of Commercial Taxes, Mysore, Bangalore vs. Hindustan Aeronautics Ltd.); A.I.R. 1972 S.C. 1131 (State of Punjab vs. Associated Hotels of India Ltd.); (1989) 73 S.T.C. 1 (State of Tamil Nadu vs. Anandam Viswanathan) and (1984) 55 S.T.C. 314 (Hindustan Aeronautics Ltd. vs. State of Karnataka). 2. G.O. Ms. No.66, Commercial Taxes (B1) Department, dated 16.2.2001, reads as follows: " TAMIL NADU GENERAL SALES TAX ACT,1959-FIRST SCHEDULE-AMENDMENT Notification G.O.Ms.No.66 CT (B1) dated 16th August, 2001 No.II(1)/CT/45(a)/2001)- In exercise of the powers conferred by sub-section (1) of Section 59 of the Tamil Nadu General Sales Tax Act, 19509(....
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.... Pleader submitted that the Legislature or Parliament has the power to classify 'goods', so that they fall in a particular entry. They have the power to amend the entry as well. The real question is, whether the items mentioned in the entry did not involve a simple sale of goods. According to the learned Special Government Pleader, if it was a transfer of chattel as chattel with an incidental works component, then the Government Order is perfectly valid. 5. We extract the changes that Entry 52 undergone in this regard, to bring home the points urged by the petitioners : "TNGST ACT 1959 FIRST SCHEDULE-ENTRY 52 OF PART -C-8% Entry No.52:- FROM 17-07-1996 to 31-03-1999 (i) Xerox copies (ii) Laser Copies/Printouts (iii) Computer printouts Provided that if the paper used for taking such copies or printouts has suffered tax under Item 53 in part-B, the copies or printouts shall not again be subjected to tax under any of the sub-items mentioned above. (iv) All printed materials other than those specified in sub-items (i) to (iii) above. ENTRY No.52:- FROM 01-04-1999 to 17-08-2001 (i) Xerox copies (ii) Laser copies/prin....
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....ical variations and cognate expressions means every transfer of the property in goods (other than by way of a mortgage, hypothecation, charge or pledge) by one person to another in the course of business for cash, deferred payment or other valuable consideration and includes-- (i) a transfer, otherwise than in pursuance of a contract, of property in any goods for cash, deferred payment or other valuable consideration ; (ii) a transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract ; (iii) a delivery of goods on hire-purchase or any system of payment by instalments ; (iv) a transfer of the right to use any goods for any purpose (whether or not for a specified period) for cash, deferred payment or other valuable consideration ; (v) a supply of goods by any unincorporated association or body of persons to a member thereof for cash, deferred payment or other valuable consideration ; (vi) a supply, by way of or as part of any service or in any other manner whatsoever, of goods, being food or any other article for human consumption or any drink (whether or not intoxicating) where such supply or service is for ....
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.... unascertained or future goods, at the time of their appropriation to the contract of sale or purchase by the seller or by the purchaser, whether the assent of the other party is prior or subsequent to such appropriation. (b) Where there is a single contract of sale or purchase of goods situated at more places than one, the provisions of clause (a) shall apply as if there were separate contracts in respect of the goods at each of such places. Explanation (4)-- Notwithstanding anything to the contrary contained in this Act, two independent sales or purchases shall, for the purposes of this Act, be deemed to have taken place -- (a) when the goods are transferred from a principal to his selling agent and from the selling agent to the purchaser, or (b) when the goods are transferred from the seller to a buying agent and from the buying agent to his principal, if the agent is found in either of the cases aforesaid -- (i) to have sold the goods at one rate and to have passed on the sale proceeds to his principal at another rate, or (ii) to have purchased the goods at one rate and to have passed them on to his principal at another rate, or (iii) not to have acc....
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....operty in goods, actually incurred in connection with the execution of works contract, or such amounts calculated at the rate specified in column (3) of the Table below, if they are not ascertainable from the books of accounts maintained and produced by a dealer before the assessing authority. THE TABLE Serial number (1) Type of works contract (2) Labour or other charges as a percentage value of the works contract (3) 1. Electrical contracts 15 2. All structural contracts 15 3. Sanitary contracts 25 4. Watch and / or clock repair contracts 50 5. Dyeing contracts 50 6. All other contracts 30 (f) all amounts (including the tax collected from the customer) refunded to the customer or adjusted towards any amount payable by the customer, in respect of unexecuted portion of works contract based on the corrections on account of measurements or check measurements, subject to the conditions that-- (i) the turnover was included in the return and tax paid ; and (ii) the amount (including the tax collected from the customer) is so refunded or adjusted, within a period of six months from the due date for filing of the return in which the said amount was in....
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.... the contracts entered into by the Universities and other educational institutions with the printer for printing question papers are not contracts whose main object is transfer of property in the question papers and dismissed the tax revision filed by the State. (c) In (1982) 51 S.T.C. 28 (supra), this Court held that the orders for printing of ledgers and account books were works contract and the order forms provided separately for the execution of work and held in favour of the assessee. (d) In (1983) 54 S.T.C. 382 (supra), this Court held that the work of printing done by the assessee in that case was in pursuance of a works contract. (e) In (1995) 97 S.T.C. 489 (supra), this Court held that the printing of account books for Indian Bank, the assessee in that case, was a works contract. II. Decisions of the Supreme Court : (a) In A.I.R. 1958 S.C. 560 (supra), the Supreme Court affirmed the decision of the Madras High Court in A.I.R. 1954 S.C. 1130 (supra) and held that in a sale of goods, the essential ingredients was an agreement to sell movables for a price and the property passed pursuant to that agreement and in a building contract, which is entire and indivisi....
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....tor has deduced the principles that would be applicable in deciding the controversy before us. These principles are :- 1. A contract whereby a chattel is to be made and affixed by the workman to land or to another chattel before the property therein is to pass, is not a contract of sale, but a contract for work, labour and materials, for the contract does not contemplate the delivery of a chattel as such. 2. When a chattel is to be made an ultimately delivered by a workman to his employer, the question whether the contract is one of sale or of a bailment for work to be done depends upon whether previously to the completion of the chattel the property in its materials was vested in the workman or in his employer. If the intention and result of the contract is to transfer for a price property in which the transferee had no previous property then the contract is a contract of sale. Where, however the passing of property of merely ancillary to the contract for the performance of work such a contract does not there by become a contract of sale. 3. Accordingly, (i) where the employer delivers to a workman either by the employer and a contract of work and lab....
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....trol or prevail against the express enactment and in case of any inconsistency between the Schedule and the enactment, the enactment is to prevail and if any part of the Schedule cannot be made to correspond, it must yield to the Medicinal and Toilet Preparations (Excise Duties) Act. 11. In (1975) 35 S.T.C. 24 [T.V. Sundaram Iyengar and Sons vs. State of Madras], the Supreme Court held as follows :- "The question with which we are concerned, as would appear from the resume of facts given above, is whether the construction of the bus bodies and the supply of the same by the assessees to their customers was in pursuant of a contract of sale as distinguished from a contract for work and labour The distinction between the two contracts is often a fine one. A contract of sale is a contract whose main object is the transfer of the property in, and the delivery of the possession of, a chattel as a chattel to the buyer. Where the main object of work undertaken by the payee of the price is not the transfer of a chattel qua chattel, the contract is one for work and labour. The test is whether or not the work and labour bestowed end in anything that can property become the subjec....
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....sale. In (1994) 247 S.T.C. 387 [Sarvodaya Printing Press Vs. State of Maharashtra], a Full Bench of the Bombay High Court had considered the question whether printed materials in question, viz. the multi-coloured triplicate receipt books specially designed, printed and prepared for the State Electricity Board was sale of good or whether it was works contract. The Full Bench observed as follows :- "If the parties intend to contract for a chattel, then it is a contract of sale even though work or skill and labour may have to be bestowed in bringing into being the chattel. If the parties contract for the rendering of work and labour or skill and labour, it is not a sale, though in the execution of the contract the passing of materials may incidentally be involved." In those circumstances, the Full Bench held that the supply of receipts was not sale and was a works contract and answered the question in favour of the assessee. It further held, "that having regard to the special type of job-work done and other basic circumstances, the supply represented a works contract. The intention of the parties was material and it was obvious. The principal object of the MPEB was to get the....
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....e reverse was supplied by the customer, the specimen signature of the Director of the State Lotteries was to be printed on the tickets, the art work had to be supplied from an agency and the proof of art work had to be approved by the Deputy Director. In the above case, the Full Bench referred to (1965) 16 S.T.C. 240 (supra) and (1989) 73 S.T.C. 1 (supra) and they too observed as follows :- "When stationery is printed and sold as such, the transaction would amount to sale of goods. However, where the end-product is not a commercial commodity and cannot be sold as such to anyone or everyone in the market by the printer, the transaction would not normally amount to sale of goods but would be execution of a works contract. The printing of currency notes at Nasik, of cheque books for a bank, question papers for a university, is not the same thing as printing of letter heads or account books etc., Undoubtedly, paper and ink are necessary inputs in both cases. Still the former would be execution of a works contract while the latter would be sale of goods. The use of paper and ink are only incidental in case of a works contract. The printing of lottery tickets also involves not only sk....
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....t has attempted to secure by introduction of an entry in the Schedule. 17. The power of the legislature to classify goods in the Schedule has already been referred to in the decisions of the Supreme Court. However, it is undeniable that if the order for printing material is only a works contract, then that can never be brought to tax as a sale of goods, merely by inclusion. The State evidently wanted to make it clear that the mere printing of name or logo would not turn what was essentially a sale of goods into a works contract and since the assessees were relying on Anandam Viswanathan's case (supra) to assert their right that it was not taxable, the State wanted to make it clear by this G.O. But this G.O. does not and cannot change the legal position that the question whether a particular contract is one for sale or is a works contract cannot be decided in the abstract. It has to be done by examination of the terms and conditions of the contract. 18. We will explain this further. It is possible that during festival times, a purchaser may place orders for 1000 diaries or 1000 address books which are readily available with the supplier. Since these address books or diarie....
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....S.T.C. 9 [Rainbow Colour Lab vs. State of Madhya Pradesh], the Supreme Court considered whether the job rendered by a photographer in taking photographs, developing and printing the films amounted to a works contract and observed as follows :- "Thus, it is clear that unless there is sale and purchase of goods, either in fact or deemed, and which sale is primarily intended and not incidental to the contract, the State cannot impose sales tax on a works contract simpliciter in the guise of the expanded definition found in Article 366(29A)(b) read with Section 2(n) of the State Act. On facts, as we have noticed that the work done by the photographer which, as held by this Court in (1977) 39 S.T.C. 237 (SC) [Assistant Sales Tax Officer vs. B.C. Kame], is only in the nature of a service contract not involving any sale of goods, we are of the opinion that the stand taken by the respondent-State cannot be sustained." They explained the accretion factor : "However modernised the camera be, the skill of the photographer is still important for getting the best results. It cannot also be treated as a sale of the photograph for the reason that it is not the intention of the customer t....
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.... contract for work and sale of goods : where it is of the second category, it is a contract for execution of work not involving sale of goods. It is true that in business transactions the work contracts are frequently not recorded in writing setting out all the covenants and conditions thereof, and the terms and incidents of the contract have to be gathered form the evidence and attendant circumstances. The question in each case is one about the true agreement between the parties and the terms of the agreement must be deduced from a review of all the attendant circumstances. ..." 22. The works contract could be indivisible as it is in the case of a buildings construction contract or there can be cases where the price of the inputs and the labour charges are separately fixed. The divergent judicial opinion in this regard was settled by the Supreme Court in (1958) 9 S.T.C. 353 [State of Madras Vs. Gannon Dunkerley & Co. (Madras)], where the Supreme Court held that in the case of a building contract, no sale of materials was involved in the construction of the building and therefore, they held the State Legislature was not competent to levy tax on the supply of materials involve....