TASVEER KENDRA Vs. STATE OF GUJARAT

JUDGEMENT

(1.) THE Tribunal has posed the following three questions in this reference : " (1) Whether, having regard to the facts and circumstances of the case, the Tribunal was right in holding that the transactions which were subject-matters for determination in Second Appeal No. 25 of 1972 amounted to sales liable to tax ? (2) Whether, having regard to the facts and circumstances of the case, the transactions which were subject-matters for consideration in Second Appeal No. 25 of 1972 amounted to works contract not liable to tax at all ? (3) In the alternative, whether the transactions which were subject-matters for consideration in Second Appeal No. 25 of 1972 were divisible partly amounting to sales liable to tax in so far as the value of photographic materials used in preparing photo prints and developing negatives is concerned, and partly amounting to works contract in so far as art and labour in taking photo print and developing its negative are concerned ?"

(2.) THE assessee-dealer was running a studio known as Tasveer Kendra during the relevant assessment period and his business was to take photos of the customers and to supply prints thereof. He dealt in photographic materials, besides taking photo and supplied photo prints to the customers. Before the decision of this court in Chelaram Hasomal v. State of Gujarat [[1965] 16 S. T. C. 1021], there is no dispute that the department was till 31st March, 1966, severing the contract so far as the job-work realisation and the photo copy realisation work were concerned in the ratio of 60 : 40. But after the aforesaid decision of this court it has now been held that the entire work of producing these photo copies being by way of commercial practice of photography by supplying as many copies as the customers needed with a view to make a profit, the transaction was clearly one of indivisible sale of the photographic materials, in the end-product as a whole, and the assessee having been taxed as such, he has sought the present reference, especially, as the Tribunal did not even follow the course adopted by the Maharashtra High Court in Camera House, Bombay v. State of Maharashtra [[1970] 25 S. T. C. 354], where the two contracts had been severed, and one of photographic services, viz. , of taking photo, and developing the negative for taking out the first finished copy had been held to be a contract of services, while only the further bargin was held to be a commercial bargain of the sale of the other copies.

(3.) APPLYING these principles in that case to a contract to fix windows as stipulated, which required special technical skill, their Lordships held that the primary undertaking of the dealer was not merely to supply the windows but to fix windows. This service was not rendered under a separate contract nor was it shown to be rendered customarily or normally as incidental to the sale by the person who supplied windows. In such work, which required such technical skill, if the windows were not properly fixed the contract would not be completed. The dealer could not claim the amount agreed to be paid. Therefore, it was held to be a works contract and not a sale by applying the relevant test in such cases as to whether the object of the party sought to be taxed was that the chattel as chattel passes to the other party and the services rendered in connection with installation were under a separate contract or were incidental to the execution of the contract of sale. We will also consider at this stage the decision in State of Himachal Pradesh v. Associated Hotels of India Ltd. [[1972] 29 S. T. C. 474 at 483 (S. C.)], where the transaction between a hotelier and its resident-visitor was held to be one of essential service, in the performance of which and as part of which, by way of only the amenities incidental to that service, the hotelier served meals at stated hours. The revenue was, therefore, not entitled to split up the transaction into two parts, one of service and the other of sale of food-stuffs and to split up also the bills charged by the hotelier as consisting of charges for lodging and charges for food-stuffs served to his with a view to bring the latter under the Act. It may be noted that their Lordships at page 477 had an occasion to consider one of the earliest decisions in D. Masanda and Co. v. Commissioner of Sales Tax [[1957] 8 S. T. C. 370] of the Madhya Pradesh High Court, where the question was whether supply of photographic materials imported and used in the process of manufacturing photographic work, copies of which were supplied by the assessee to a customer, was a transaction involving sale of those materials. The Madhya Pradesh High Court held that such a transaction did not cease to be a sale merely because the materials were not sold directly in their original form but in another form, forming the components of the finished product, namely, the copies of the photograph, and that the transaction was not merely the performance of skilled services but the supply of finished goods. Their Lordships in terms held that that was, however, a border-line case and the transaction might well be considered as one of service, during the performance of which, a transfer of certain materials in respect of which there was no contract for sale, either express or implied, might be said to have taken place. Their Lordships in that context considered the illustrations furnished by the case of United Bleachers Ltd. v. State of Madras [[1960] 11 S. T. C. 278] and the decision in Krishna and Co. Ltd. v. Andhra Pradesh [[1956] 7 S. T. C. 26], and pointed out that in all such cases, where there would be possible sale of printing and packing materials quite apart from the contract of service, the question would be one of evidence whether there was such a contract besides the one of service. Where, however, there were no such distinct contracts and the contract was one and indivisible, the essential part of which was one of service, unless an intention to charge for the materials used in the packing could be spelt out, the revenue would not be entitled to spilt up the contract, estimate approximately the charges for such materials and treat them as chargeable on the mere ground that the transaction involved transfer of packing materials, whose value must have been taken into consideration while fixing charges for the service. Even when the contract was implied or inferred in such a contract of service for supply of packing materials, the decision could not be rested on there being transfer of the materials to the customers but on the evidence that such a transfer was for consideration, inasmuch as the amount charged as remuneration for service also contained charges for such materials, though such charges were not separately shown in the accounts of the assessee. Their Lordships pointed out that in such a state of evidence, it would be possible for the court to infer separate implied contract of sale of materials and not as part of service. That is why their Lordships pointed out categorically that in spite of difficulties in the construction of such contracts of work and labour on the one hand and contracts for sale, their fine distinction must be recognised. That was particularly so, when the contract was a composite one involving both the contract of labour and contract of sale, and that distinction rested on a clear principle. The contract of sale was one whose main object was the transfer of property in, and the delivery of possession of, a chattel as a chattel to the buyer. Where the principal object of work undertaken by the payee of the price was not the transfer of a chattel qua chattel, the contract was one of work and labour. Their Lordships pointed out that the test was 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, was conclusive, although such matters might be taken into consideration in determining, in the circumstances of a particular case, whether the contract was in substance one for work and labour or one for the sale of a chattel. These principles have been succinctly summarised by this court by my learned brother's decision in Variety Body Builders v. Commissioner of Sales Tax, Gujarat [[1971] 28 S. T. C. 339].