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PETITIONER:

M/S. RAINBOW COLOUR LAB & ANR.

Vs.

RESPONDENT:

THE STATE OF MADHYA PRADESH & ORS.

DATE OF JUDGMENT: 02/02/2000

BENCH:

S.P.Bharucha, N.S.Hegde

JUDGMENT:

SANTOSH HEGDE, J.

Common questions involved in these appeals are whether

the job rendered by a photographer in taking photographs,

developing and printing films would amount to a works

contract as contemplated under Article 366(2A)(b) of the

Constitution read with Section 2(n) of the M.P.General Sales

Tax for the purpose of levy of sales tax on business

turnover of the photographers.

Prior to the 46th Constitutional Amendment, this

question was settled in favour of the assessees by the

judgment of this Court in the case of Assistant Sales Tax

Officer & Ors. vs. B.C. Kame (1977 (39) STC 237). Taking

advantage of the 46th Amendment of the Constitution and the

consequent amendment to the definition of sale in Section

2(n) of the local Sales Tax Act, the Commissioner of Sales

Tax, M.P. issued Circular dated 25.1.1992 opining that the

job done by the photographers amounted to works contract

and turnover from such work would be exigible to the levy of

sales-tax. This Circular prompted the concerned Assessing

Officers to re-assess the turnover of the assessees and to

issue them demand notices. Aggrieved assessees filed writ

petition before the M.P.High Court primarily contending that

the work done by them is only a service contract, out of

their skill and labour and there was no element of sale

involved in their work, hence their turnover was outside the

levy of sales-tax. The High Court, however, relying on the

judgment of this Court in Builders Association of India &

Ors. vs. Union of India & Ors. (1989 (73) STC 370) held

that, to the extent of the photo paper used in the printing

of positive prints by the appellants in their work, there is

a transfer of property in goods. Therefore, to this extent,

the job done by the appellants becomes a works contract as

contemplated under Article 366(2A)(b) of the Constitution

and as incorporated in Section 2(n) of the State Act. This

declaration of law is challenged before us in these appeals.

On facts, there is no dispute before us in regard to the

actual nature of work done by the appellants i.e. in the

course of their business. The appellants take photographs

of the objects desired by their customers, develop the

negatives and supply the prints. They also develop the

films brought by the customers, make positive prints thereof

and supply the positive prints and return the negative films

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back to the customers. In some of the cases, it is possible

that the appellants may undertake the work of enlarging the

photo prints also. It is also of common knowledge that the

photo prints supplied by them to their customers are not

marketable commodities and as goods they have no value. In

this background, we will now examine the question arising in

these appeals. This Court in Kames case (supra) while

considering the facts of a similar case held: When a

photographer like the respondent undertakes to take

photograph, develop the negative, or do other photographic

work and thereafter supply the prints to his client, he

cannot be said to enter into a contract for sale of goods.

The contract on the contrary is for use of skill and labour

by the photographer to bring about a desired result. The

occupation of a photographer, except in so far as he sells

the goods purchased by him, in our opinion, is essentially

one of skill and labour. x x x x x We, therefore, find no

cogent ground to disagree with the High Court in so far as

it has decided against the revenue and has held the contract

to be one for work and labour. Since this was a judgment

rendered prior to the coming into force of the 46th

Constitutional Amendment, we will have to consider whether

the said Amendment has brought about any change so as to

doubt the legal position enunciated in the above case. It

is true that by the 46th Constitutional Amendment by

incorporating Clause 29-A(b) in Article 366, the definition

of the words sale and works contract have been enlarged.

The State of Madhya Pradesh has also brought about a

consequent change in the definition of the word sale in

Section 2(n) of its Sales Tax Act but it is to be noticed

that in the said State Act the expression works contract

has not been specifically defined. Prior to the Amendment

of Article 366, in view of the judgment of this Court in

State of Madras vs. Gannon Dunkerley & Co. (1958 (9) STC

353), the States could not levy sales-tax on sale of goods

involved in a works contract because the contract was

indivisible. All that has happened in law after the 46th

Amendment and the judgment of this Court in Builders case

(supra) is that it is now open to the States to divide the

works contract into two separate contracts by a legal

fiction (i) contract for sale of goods involved in the

said works contract and (ii) for supply of labour and

service. This division of contract under the amended law

can be made only if the works contract involved a dominant

intention to transfer the property in goods and not in

contracts where the transfer in property takes place as an

incident of contract of service. The Amendment, referred to

above, has not empowered the State to indulge in microscopic

division of contracts involving the value of materials used

incidentally in such contracts. What is pertinent to

ascertain in this connection is what was the dominant

intention of the contract. Every contract, be it a service

contract or otherwise, may involve the use of some material

or the other in execution of the said contract. State is

not empowered by the amended law to impose sales-tax on such

incidental materials used in such contracts. This is clear

from the judgment of this Court in Hindustan Aeronautics

Ltd. vs. State of Karnataka (1984 (55) STC 314 at 322)

where it was held thus : ..Mere passing of property in

an article or commodity during the course of performance of

the transaction in question does not render the transaction

to be transaction of sale. Even in a contract purely of

work or service, it is possible that articles may have to be

used by the person executing the work, and property in such

articles or materials may pass to the other party. That

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would not necessarily convert the contract into one of sale

of those materials. In every case, the court would have to

find out what was the primary object of the transaction and

the intention of the parties while entering into it..

The Judgment in the above case was quoted with

approval by this Court in the case of Everest Copiers vs.

State of Tamil Nadu (1996 (103) STC 360) (to which judgment

one of us - Hon. Bharucha, J. - was a party) wherein it

was stated: Where the main object of the work undertaken

by the person to whom the price is paid is not the transfer

of a chattel as a chattel, the contract is one of work and

labour.

The main object of the work undertaken by the operator

of a photocopier or xerox machine is not the transfer of the

paper upon which the copy is produced; it is to duplicate

or make a xerox copy of the document which the payer of the

price wants duplicated. The paper upon which the

duplication takes place is only incidental to this

transaction. The object of the payment of the price is to

get the document duplicated, not to receive the paper. The

payer of the price has no interest in the bare paper upon

which his document is duplicated. He is interested in it

only if it bears such duplication. What is involved is not

a sale but a contract of work or labour.

In Bavens v. Union of India & Ors. (1995 (97) STC

161), a Division Bench of the Kerala High Court had taken

the view that Where a photographer takes a photograph of

his customer, develops the negative and supplies positive

prints in the desired size to the customer, the photographer

uses his own camera and his own film. The negative which is

subjected to further processing belongs to the photographer

and not to the customer. No basic goods are provided by the

customer which are subjected to processing, etc., by the

photographer so as to make the contract a works contract.

There is no accretion to goods or property or the nucleus of

a property which originally belonged to the customer. There

is no works contract involved in this category of a

photographers activity. 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 to buy a photograph from the photographer.

The photograph has no marketable value. What is expected

from the photographer is his service, artistic skill and

talent. If any property passes to the customer in the form

of photographic paper, it is only incidental to the service

contract. No portion of the turnover of a photographer

relating to this category of work would be exigible to sales

tax. We are in agreement with the view taken by the Kerala

High Court in the above case. The reliance placed by the

High Court in Builders case (supra) is misplaced. Though

this Court in the said case held that by the 46th Amendment

to the Constitution, the definition of the expression tax

on the sale or purchase of goods stood enlarged, it also

held that the 46th Amendment does no more than making it

possible for the States to levy sales-tax on the price of

goods and materials used in the works contract as if there

was a sale of such goods and materials. The Court also

observed : We are surprised at the attitude of the States

which have put forward the plea that on the passing of the

46th Amendment the Constitution had conferred on the States

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a larger freedom than what they had before in regard to

their power to levy sales tax under entry 54 of the State

List. The 46th Amendment does no more than making it

possible for the States to levy sales tax on the price of

goods and materials used in works contracts as if there was

a sale of such goods and materials. We do not accept the

argument that sub-clause (b) of article 366(29-A) should be

read as being equivalent to a separate entry in List II of

the Seventh Schedule to the Constitution enabling the States

to levy tax on sales and purchases independent of entry 54

thereof. As the Constitution exists today the power of the

States to levy taxes on sales and purchases of goods

including the deemed sales and purchases of goods under

clause (29- A) of article 366 is to be found only in entry

54 and not outside it. We may recapitulate here the

observations of the Constitution Bench in the case of Bengal

Immunity Co. Ltd. (1955) 6 STC 446; (1955) 2 SCR 603 in

which this Court has held that the operative provisions of

the several parts of article 286 which imposes restrictions

on the levy of sales tax by the States are intended to deal

with different topics, and one could not be projected or

read into another and each one of them has to be obeyed

while any sale or purchase is taxed under entry 54 of the

State List. 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(29-A)(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 Kames case

(supra), 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.

For the reasons stated above, we are of the opinion

that the view taken by the Division Bench of the Madhya

Pradesh High Court in the impugned judgment cannot be

sustained. Hence, we allow these appeals, setting aside the

judgment under appeal and grant the prayer of the appellants

by quashing the assessment orders and the demand notices

impugned in the writ petitions before the High Court. No

costs. SLP © Nos.18089-90/97 :

Leave granted.

Following the judgment of this Court in CA

Nos.5350-51/97 etc. these appeals are also allowed. No

costs.