1968 (5) TMI 53 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Whether the transactions in the specimen bills amount to sales.
2. Determination of the nature of the transactions in terms of contracts for work and labour versus contracts for sale of goods.
3. Applicability of severability in mixed contracts involving both work and labour and sale of goods.
4. Taxability of different components of the transactions.

Detailed Analysis:

1. Whether the transactions in the specimen bills amount to sales:
The core issue was whether the transactions in the three specimen bills (No. 60293, No. 95198, and No. 16531) amounted to sales under the Bombay Sales Tax Act, 1959. The Commissioner of Sales Tax held that all transactions except the developing of the customer's film roll in bill No. 95198 amounted to sales. This decision was upheld by the Sales Tax Tribunal, which emphasized that the essence of the photographer's business was the sale of goods rather than work and labour. The applicants contended that the transactions were primarily for rendering services involving artistic skill.

2. Determination of the nature of the transactions in terms of contracts for work and labour versus contracts for sale of goods:
The judgment referenced the classic distinction made in Halsbury's Laws of England, which states that a contract of sale is primarily for the transfer of property in goods, whereas a contract for work and labour does not result in a sale even if some property passes incidentally. The Supreme Court's decision in the State of Madras v. Gannon Dunkerley & Co. (Madras) Ltd. was pivotal, establishing that for a transaction to be a sale, there must be an agreement to sell the very goods in which property eventually passes. The judgment also noted that the essence of a contract involving both work and labour and the transfer of property must be examined to determine its true nature.

3. Applicability of severability in mixed contracts involving both work and labour and sale of goods:
The judgment emphasized the need to determine whether the transactions were "entire and indivisible" or severable into distinct contracts for work and labour and for the sale of goods. It criticized previous decisions for not considering severability and applied the principles laid down in Sundaram Motors (Private) Ltd. v. The State of Madras and A.A. Jariwala and Brothers v. State of Gujarat. These principles state that the intention of the parties and the existence of an agreement to sell materials as such are crucial in determining severability.

4. Taxability of different components of the transactions:
The court analyzed each type of transaction separately:

- Bill No. 60293 (Enlargements from Negatives): The transaction was deemed severable into two contracts: one for the work of preparing the enlargements, which is a contract for skill and labour, and the other for the sale of the enlarged photographs. Only the latter was taxable.

- Bill No. 95198 (Developing Film Roll and Taking Prints): This transaction involved two contracts: one for developing the film roll, which was a contract for skill and labour, and the other for taking prints, which was a sale. Only the sale of prints was taxable.

- Bill No. 16531 (Taking Photograph and Supplying Prints): This comprehensive transaction was severable into three contracts: one for taking the photograph (skill and labour), one for developing the film (skill and labour), and one for supplying the prints (sale). Only the supply of prints was taxable.

The judgment concluded that the transactions embodied in the three bills were severable, and only the parts involving the sale of goods were liable to sales tax. The court ordered the department to pay the applicants' costs of the references, fixed at Rs. 250 for all three references.

Conclusion:
The transactions in the specimen bills involved distinct and severable contracts for work and labour and for the sale of goods. Only the sale components of these transactions were liable to sales tax. The judgment highlighted the importance of examining the intention of the parties and the nature of the contracts to determine tax liability accurately.