DINAKAR PROCESS Vs. COMMISSIONER OF COMMERCIAL TAXES

JUDGEMENT

(1.) THESE appeals are preferred, under Section 23(1) of the APGST Act against the order passed by the Commissioner of Commercial Taxes dated 23.07.2003, setting aside the orders of the Appellate Deputy Commissioner, Guntur and Vijayawada, and restoring the orders of the assessing authority.

(2.) IT would suffice, for the purpose of adjudicating this batch of special appeals, if the facts in Special Appeal No. 49 of 2003 are noted. The appellants herein, manufacturers of cine -wall posters, were finally assessed to tax, both under the APGST Act and the CST Act, from the assessment year 1985 -1986 upto the year 1990 -91, on the turnover relating to cine wall posters treating them as sales exigible to tax under the APGST and the CST Acts. Aggrieved thereby, the appellants carried the matter in appeal, before the Appellate Deputy Commissioner, contending that their business related purely to skill and labour, and not to sale of goods or material; the entire process of litho -printing involved high skill, at several stages, before the cinema wall posters came into existence; the following steps were involved in the process of manufacture of cine wall posters (1) preparing the design; (2) taking photographs of the design; (3) developing negatives, of the design, of the required size; (4) taking as many negatives as there were colours i.e., one negative for each colour; (5) giving touches to each negative; (6) exposing the negative on zinc or aluminium sheets; (7) attaching the zinc or aluminium sheets to the printing machines; and (8) printing on paper as many times as there were plates; when a customer approached them, they prepared 3 to 4 designs keeping in view the size of the picture, the colour scheme, and placement of the pictures; emphasis was placed on the central idea in consultation with the customer and a final design, to the satisfaction of the customer, was set apart for further processing; if the approved design had four colours, then four negatives were taken; each negative absorbed a particular colour content of the design; in taking the negatives, a high degree of skill was exercised by blacking out the unnecessary colour, and absorbing only the desired colours by the use of filters; maximum care was taken, in fixing the timing of taking the photographs, as it involved different types of work, such as line work, solid work, figure work, screen work etc; any mis -adjustment of timing would have lead to loss of the costly negative; depending upon the size of the poster, required by the customer, the developed negative was enlarged by adjusting the camera with utmost skill; the same process was repeated for each and every negative; necessary touch -ups were given to achieve the desired results; these enlarged negatives were then exposed on zinc or aluminium sheets by an elaborate process, and thereafter the colour posters were prepared; the work was executed only after the customer approached them, and placed an order; the order was placed by the customer on the basis of the skill of the manufacturer; and these transactions would not come under the purview of sale of goods, or sale of any material, as it involved a high degree of skill and labour.

(3.) THE Commissioner, Commercial Taxes issued notice dated 10.01.1996, calling upon the appellants to show cause why the order of the Appellate Deputy Commissioner should not be set aside, and the order passed by the assessing authority not be restored. The Commissioner observed that the dominant element, in the supply of wall posters, was not skill and labour; different materials namely paper, colours, and ink were involved; photographs, taken for private use, could be considered as works of art and skill; wall posters, which were printed on a large scale for the purpose of advertisement, had commercial value; they did not involve skill and labour; what was required to be examined was not the complicated process of making a commodity, but the basic object of the transaction; in the present case, it was a sale of wall posters that was the subject matter of the contract between the assessee and the purchaser; it was not a case of supply of skill and labour; to determine the taxability of publicity materials, the test to be adopted was the test of predominance of whether, in the end product, the value of material was more or the value of service was more; a random analysis of the cost of expenditure, involved in the manufacture and printing of cine -wall posters, revealed that the assessee was spending roughly 10% of the total cost on workers salaries, 2% on artists charges, and 80% on printing and processing; the predominant element, in the supply of wall posters, was not skill and labour, but material i.e. paper, ink and different colours; wall posters should not be compared to photographs, as photographs were of a private nature, and were personal belongings which were printed in a limited number; wall posters were meant for publicity, and the exhibitors had necessarily to advertise them on walls or on boards in large numbers; in printing copies of the wall posters, no artistic skill was involved; the order of the Appellate Deputy Commissioner was illegal and improper; and the order was, consequently, prejudicial to the interests of the revenue warranting revision under Section 20(1) of the APGST Act.