CAMERA HOUSE BOMBAY Vs. STATE OF MAHARASHTRA

JUDGEMENT

(1.) THESE are three References under Section 61 of the Bombay Sales Tax Act, 1959, by the applicants who are a sole proprietary concern carrying on business as photographers and photographic dealers in Bombay, which were heard together, and may conveniently be disposed of by a common judgment. These References arise on three specimen bills which are typical of the three types of transactions entered into by the applicants with their customers in the course of their business. The transaction which is the subject matter of 1st bill No. 60293 dated 9th August 1960 is one to prepare enlargements of a certain size for m negatives given by the customer. The second type of transaction which is to be found in specimen Bill No. 95198 dated 18th August 1960 relates to developing the customer's film roll and taking out prints from the same. The third type of transaction which is to be found in specimen Bill No. 196531 dated 23rd August 1960 relates to the taking of a photograph, and supplying the negative thereof with three prints of a certain size to the customer. On an application under Section 52 of the Bombay Sales Tax Act, 1959 by the Applicants, for the determination of the question as to whether any tax was attracted on the transactions which were the subject-matter of the said three bills, and, if so at what rate, the Commissioner of Sales Tax in his Order dated 17th August 1961 took the view that the transactions embodied in all the said bills amount to sales, except that part of the transactions which is the subject matter of Bill No. 95198 which related to the developing of the customer's film roll, which he held would not amount to a sale. The applicants appealed from the decision of the Commissioner of Sales Tax to the Sales Tax Tribunal at Bombay in respect of each of the three specimen bills. The tribunal by its Order dated 28th June 1963, confirmed the decision of the Commissioner of Sales Tax on all points, and dismissed those appeals on the ground that the gist of the business of a photographer is to practice the photographic process commercially in order to produce an article which would be brought ad would yield profit, and that the essence of the contract, therefore, was not work and labour, but was sale of goods. The applicants then applied to the Sales Tax Act, 1959. and the Tribunal by its Order dated 15th January 1964 referred the following question for the determination of this Court which is identical in each of the three References in respect of the three specimen bills referred to above:-"whether having regard to the facts and circumstances of the case the transactions which were the subject matter of determination by the Commissioner amount to sales?" these references were heard together by us, and were argued with characteristic thoroughness by the learned counsel on either side.

(2.) IN Benjamin on Sale (8th Edition), the observations of Martin B. in the English case of Clay v. Yates, (1856) 156 ER 1123 at p. 1125 = 108 RR 461 at p. 464 have been quoted (at p. 160) in which contracts have been divided into three broad classes: (1) contracts "for labour simply", (2) contracts for work and materials; and (3) contracts for goods sold and delivered. In another passage in the same book (at. p. 168), it has been stated that where the passing of property is merely ancillary to the contract for the performance of work, such a contract does not thereby become a contract of sale. In a classic passage in Halsbury's Laws of England 3. which has been quoted in most of the leading decisions on the subject, it has been laid down as follows:-"a contract of sale of goods must be distinguished from a contract for work and labour. The distinction 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 properly become the subject of sale; neither the ownership of the 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 for the sale of a chattel. " the leading case on the subject of contracts which involve both the transfer of property in some material, as well as the performance of work and labour, is the case of State of Madras v. Gannon Dunkerley and Co. (Madras) Ltd. . (1958) 9 STC 353 = (AIR 1958 SC 560 ). The Respondents in that case were doing the business of construction of buildings, roads and other works, and one of he items to which the reference in the said items to which the reference in the said case related was the value of the material used by the respondents in the execution of their contracts. The Madras General Sales Tax Act, 1939. contained certain provisions, whereby tax was imposed on the supply of materials in the execution of works contracts. The sole question which arose before the Supreme Court in that case was whether there was a transaction of sale in respect of those goods and the power of the Madras Legislature to impose a tax on sales under Entry 48 in List II of Schedule VII of the Government of India Act, 1935 extended to imposing a tax on the value of the materials used in works. After an exclusive review of the relevant case law, the Supreme Court held (at pp. 337-78 of STC) = (at p. 573 of AIR) :-It has been already stated that, both under the common law and the statute law relating to the sale of goods in England and in India to constitute a transaction of sale there should be an agreement express or implied, relating to goods to be completed by passing of title in those goods. It is of the essence of this concept that both the agreement and the sale should relate to the same subject matter. Where the goods delivered under the contract are not the goods contracted for the purchaser has got a right to reject them, or to accept them and claim damages for breach of warranty. Under the law, therefore, there cannot be an agreement relating to one kind of property and a sale as regards another, We are accordingly of opinion that on the true interpretation of the expression "sale of goods" there must be an agreement between the parties for the sale of the very goods in which eventually property passes. In a building contract, the agreement between the parties is that the contractor should construct a building according to the specifications contained in the agreement, and in consideration therefor receive payment as provided therein, and as will presently be shown there is in such an agreement neither a contract to sell the materials used in the construction, nor does property pass therein as movables. It is therefore impossible to maintain that there is implicit in a building contract a sale of materials as understood in law. " the Supreme Court held that the expression "sale of goods" in Entry 48 is a nomen juris, its essential ingredients being an agreement to sell movables for a price, and property passing therein pursuant to that agreement. The Supreme Court further held that, in a building contract which was, as in that case, one, entire and indivisible - and that was its norm, - there was no sale of goods, and it was not within in competence of the Provincial Legislature under Entry 48 to impose a tax on the supply of the materials used in such a control, treating it as a sale. The Supreme Court, therefore, came to the conclusion that there was no sale, as such, of materials used in a building contract and that the Provincial Legislature had no competence to impose a tax thereon under Entry 48. In arriving at that conclusion , the Supreme Court rested its decision also on the principle of accretion (at pp. 385-86 of STC) = (at p. 577 of AIR), holding that the property in the materials used in a building contract does not pass to the other party to the contract as movable property, but the construction embedded on the land becomes an accretion to it, and it vests in other party, not as a result of the contract, but as the owner of the land. The Supreme Court observed (at p. 386 of STC) = (at p. 577 of AIR) that the theory that a building contract can be broken up into its component parts, and as regards one of them it can be said that there was a sale must fail on the ground that there was no agreement to sell materials as such, and that property in them does not pass as movables. In order to avoid misconception, the Supreme Court has made it clear (at pp. 387-88 of STC) = (at p. 578 of AIR) that their conclusion in the said case had reference to works contracts which were "entire and indivisible" as in the case before them. The Supreme Court then proceeded to observe that contracts could, however, take several forms and further stated (at p. 388 of STC) = (at p. 578 of AIR) as follows:-"it is possible that the parties might enter into distinct and separate contracts, one for the transfer of materials for money consideration and the other for payment of remuneration for services and for work done. In such a case, there are really two agreements, though there is a single instrument embodying them, and the power of the State of separate the agreement to sell from the agreement to do work and render service and to impose a tax thereon cannot be questioned, and will stand untouched by the present judgment. " in the case of transaction for work and labour done, and materials furnished, the first question that has, therefore, to be considered is the contract in question "entire and indivisible", or does the transaction embody two distinct and separate contracts, one for the sale for goods as such, and the other for work and labour that is precisely what has not been considered at all in the cases reported in (1957) 8 STC 370 at p. 375 = (AIR 1957 Madh Pra 76 at p. 78), (1961) 12 STC 154 at p. 156 = (AIR 1961 Pat 272 at p. 273), (1965) 16 STC 441 at p. 445 (Mad) (second point) and (1965) 16 STC 1021 at pp. 1028-1030 (Guj), or in the Australian case reported in 53 Com WLR 69, which have been strongly relied upon by the taxing authorities in the present case, which I will presently discuss. In the first of those cases, severability was assumed whilst the learned Judges who decided each of the remaining cases appear to have assumed that the transactions which they were considering were entire and indivisible, which is the primary question that must be decided in all such case. I am, therefore, unable to follow the decisions in those cases. It is only in the case of contracts that are "entire and indivisible" that the tests laid down in the passage from Halsbury quoted above and by the Supreme Court in Gannon Dunkerley and Co. (Madras) Ltd. 's case, 1958-9 STC 353 = (AIR 1958 SC 560) have to be applied for the purpose of determining the real nature of the transaction. In the case of transactions that are distinct and severable, on the other hand, as the Supreme Court itself has indicated at the end of its judgment (at p. 388 of STC) = (at p. 578 of AIR) in Gannon Dunkerley's case, 1958-9 STC 353 = (AIR 1958 SC 560) it is only the activity which results in a sale that can be taxed to sales tax.

(3.) IT is the contention of Mr. Mehta on behalf of the applicants that, in the case of the transactions embodied in all the three specimen bills in the present case, the intention of the parties is not to effect a sale of goods, but to enter into a bargain for rendering service which involves the exercise of the artistic skill of the photographer concerned. In support of his contention that the assessee's work involves skill and labour, he has relied upon certain photographic publications which show the highly technical nature of the operations of a photographer in the matter of taking a photograph, developing the film and preparing the prints and/or enlargements. It is, on the other hand, contended by Mr. Khambatta on behalf of the Department that the essential feature of the business of a photographer is the production of goods for sale, and that, with the advance that has been made in the manufacture of cameras, and even in the matter of the subsequent process of developing, printing and enlarging in the studio, there is very little scope for the exercise by the photographer of skill of any nature, everything being regulated by mechanical gadgets in the camera itself, or by other scientific precision processes. In support of that contention, Mr. Khambatta has relied strongly on four reported decisions of various on four reported decisions of various High Courts in the country, and also on a reported decision of the High Courts in the country, and also on a reported decision of the High Court of Australia, which, he has contended, are directly in point. I must, therefore, proceed to deal with each of those decisions.