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2015 (2) TMI 388 - SUPREME COURTConstitutional validity of Entry 25 of Schedule VI to the Karnataka Sales Tax Act, 1957 - levy of sales tax for processing and supply of photographs, photo prints and photo negatives - competence of State Legislature given in Entry 25 of List II of Schedule VII of the Constitution to impose sales tax on the contract of processing and supplying of photographs, photo frames and photo negatives - Retrospective effect - Held that:- after insertion of clause 29-A in Article 366, the Works Contract which was indivisible one by legal fiction, altered into a contract, is permitted to be bifurcated into two: one for “sale of goods” and other for “services”, thereby making goods component of the contract exigible to sales tax. Further, while going into this exercise of divisibility, dominant intention behind such a contract, namely, whether it was for sale of goods or for services, is rendered otiose or immaterial. It follows, as a sequitur, that by virtue of clause 29-A of Article 366, the State Legislature is now empowered to segregate the goods part of the Works Contract and impose sales tax thereupon. It may be noted that Entry 54, List II of the Constitution of India empowers the State Legislature to enact a law taxing sale of goods. Sales tax, being a subject-matter into the State List, the State Legislature has the competency to legislate over the subject. Entry 25 of Schedule VI to the Act which makes that part of processing and supplying of photographs, photo prints and photo negatives, which have “goods” component exigible to sales tax is constitutionally valid. Mr. Patil and Mr. Salman Khurshid, learned senior counsel who argued for these assessees/respondents, made vehement plea to the effect that the processing of photographs etc. was essentially a service, wherein the cost of paper, chemical or other material used in processing and developing photographs, photo prints etc. was negligible. This argument, however, is founded on dominant intention theory which has been repeatedly rejected by this Court as no more valid in view of 46th Amendment to the Constitution. For being classified as Works Contract the transaction under consideration has to be a composite transaction involving both goods and services. If a transaction involves only service i.e. work and labour then the same cannot be treated as Works Contract. It was contended that processing of photography was a contract for service simplicitor with no elements of goods at all and, therefore, Entry 25 could not be saved by taking shelter under clause 29-A of Article 366 of the Constitution. The first thing in regard to retrospectivity which is to be kept in mind is that Entry 25 was inserted for the first time by amendment of the Act w.e.f. 01.07.1989. This amendment was post 46th Constitutional Amendment. However, the High Court of Karnataka [2005 (8) TMI 633 - KARNATAKA HIGH COURT] declared the said Entry to be unconstitutional and the SLP was also dismissed. Undoubtedly, it was because of the judgment in Rainbow Colour Lab [2000 (2) TMI 2 - SUPREME COURT OF INDIA], which judgment was declared as not a good law in ACC Ltd. [2001 (1) TMI 248 - Supreme court of India] (which position is repeated in BSNL [2006 (3) TMI 1 - Supreme court] as well as M/s Larsen and Toubro cases [2013 (9) TMI 853 - SUPREME COURT]). Thus, the very basis on which Entry 25 of Schedule VI was declared as unconstitutional, has been found to be erroneous. In such circumstances, the legislature will be justified in enacting the law from the date when such a law was passed originally and that date is 01.07.1989 in the instant case. We have to keep in mind the fact that on the basis of this amendment, there have been assessments made by the assessing authorities. This was admitted by the learned counsel for the respondents at bar at the time of the arguments. High Court in the impugned judgment has not dealt with the mater in its correct perspective. The reason given by the High Court in invalidating Entry 25 is that this provision was already held unconstitutional by the said High Court in Keshoram's case [1999 (9) TMI 938 - KARNATAKA HIGH COURT] against which the SLP was also dismissed and in view of that decision, it was not permissible for the legislature to re-enact the said Entry by applying a different legal principle. According to us, this was clearly an erroneous approach to deal with the issue and the judgment of the High Court is clearly unsustainable. The High Court did not even deal with various facets of the issue in their correct perspective, in the light of subsequent judgments of this Court with specific rulings that Rainbow Colour Lab is no longer a good law. - The impugned judgment of the High Court is accordingly set aside - Decided in favour of Revenue.
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