TaxTMI 
TaxTMI 
2009 (2) TMI 754
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....photo-identity cards for voters as per the orders of the Chief Electoral Officer of Home Department, Government of Orissa (hereinafter referred to as, "the CEO"). The petitioner received Rs. 12.70 per photoidentity card. During the year under consideration, it received Rs. 6,56,06,424 for supply of photo identity cards. This amount has been shown as gross turnover by the petitioner for supply of such photo identity cards. Out of the said total receipt, the petitioner claimed expenditure amounting to Rs. 6,13,12,696 towards labour and service charges. The petitioner did not pay any tax on supply of photo identity card on the ground that the work undertaken by it was a job contract involving labour and service. The assessing officer rejected such claim of the petitioner holding that the work undertaken by the petitioner as one in the nature of works contracts. Since the details of the expenditure incurred by the petitioner was not filed before the assessing officer, he allowed 30 per cent of the gross turnover towards labour charges and treated the balance as taxable turnover and levied four per cent tax thereon. Being aggrieved by the said order, the petitioner went in appeal befor....
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....itable place nearby and prepare photo-identity cards using the data stored in the magnetic media. The photo-identity cards so prepared are delivered to the CEO only. The use of materials in photo-identity card was incidental and insignificant and tax has been paid on such goods at the time of purchase. The work undertaken by the petitioner was a special kind of job entrusted for confidence reposed and for the delicate nature of the job performed, the work in connection with the aforesaid order was predominant in the transaction and not the value of the materials which were used in executing the job. The transaction relating to supply of photo-identity card cannot constitute the works contract or sale and, therefore, no tax is leviable on such transaction. Per contra, strongly opposing to the submissions of the petitioner, Mr. R.P. Kar, learned Standing Counsel for the Revenue strenuously argued that after analyzing the terms and conditions of the order placed by the CEO, the learned Tribunal had correctly come to the conclusion that the transaction undertaken by the petitioner is in the nature of sale for cash or deferred payment. Mr. Kar relied upon the judgment of the honourable....
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....at page 239) "The question as to whether a contract is a contract of work and labour or a contract for sale is not one free from difficulty. The reason for that is that in borderline cases the distinction between the two types of contract is very fine. This is particularly so when the contract is a composite one involving both a contract of work and labour and a contract of sale. Nevertheless, the distinction between the two rests on a clear principle. A contract of sale is one whose main object is the transfer of property in, and the delivery of the possession of, a chattel as a chattel to the buyer. Where the principal object of work undertaken by the payee of the price is not the transfer of a chattel qua chattel, the contract is one of work and labour. The test is whether or not the work and labour bestowed end in anything that can properly become the subject of sale; neither the ownership of materials, nor the value of the skill and labour as compared with the value of the materials, is conclusive, although such matters may be taken into consideration in determining, in the circumstances of a particular case, whether the contract is in substance one for work and labour or one....
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....an indicate distinction between a contract for sale and a contract for work and labour. But the tests indicated in the several decisions of the court merely focused on one or the other aspect of the transaction and afforded some guidance in determining the question, but basically and primarily, whether a particular contract was one of sale or for work and labour depended upon the main object of the parties in the circumstances of the transactions. In a contract for sale, the main object of the parties is to transfer property in and delivery of possession of a chattel as a chattel to the buyer..." In the said case, the honourable apex court further held as follows: (page 334) "...As had been emphasized by this court, that the primary difference between a contract for work or service and a contract for sale of goods is that in the former there is in the person performing or rendering service no property in the thing produced as a whole notwithstanding that a part or even the whole of materials used by him may have been his property. In the case of a contract for sale, the thing produced as whole has individual existence as the sole property of the party who produced it some time be....
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.... for taking photographs will have to be visited twice to give adequate opportunity to the elector to be photographed as directed by the Election Commission of India. The Corporation will have to make arrangements for taking the photographs of each elector and preparing the photo identity card using data from the electoral rolls already entered in the computer or magnetic media and the pictures as taken. 2(ii) The photo identity card should conform to the following specifications: (i) A frontal photograph of voters 2.5 Cms. (horizontal) x 3 Cms. (vertical) in size with 10 per cent permissible variations shall be printed on the front side of the card. (ii) A unique code number will have to be assigned to each elector in the manner prescribed by the Election Commission. The Code number for the electors will have to be generated by the computer on the basis of the electoral roll and will have to be printed on the identity card at the appropriate place. (iii) The photo-identity card shall be of 7 Cms. (horizontal) x 9 Cms. (vertical) with variations up to 10 per cent permitted. The thickness of the paper used shall not be less than 165 GSM. The photograph and printing on the card sha....
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....th or at a suitable place nearby and prepare photo-identity cards using the data stored in the magnetic media. The photo identity cards so prepared were delivered to the CEO but none else. The photo-identity cards supplied to the CEO are not commercial commodities. The same cannot be sold to any other person. The photo identity cards, which are produced by the petitioner, have no utility or value to any other person than the CEO who paid for the service rendered by the petitioner. The material purchased and utilized in preparation of photo-identity cards is very negligible and incidental. Another important aspect is that the very moment the floppies are used for storing the matter and the paper, pouches, holograms are used for preparation of identity cards, the same cannot be used or sold by the petitioner to any other person, save and except, the CEO. As such, it was a special kind of job and delicate in nature which is predominant in the transaction and not the value of the materials which are used in executing the job. Photo-identity cards prepared for voters had no existence as the sole property of the petitioner before its delivery to the CEO even though materials like flop....