1973 (7) TMI 86 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Nature of the contract between the assessees and the advertiser.
2. Applicability of the Madras General Sales Tax Act, 1959.
3. Ownership and exploitation rights under the Copyright Act, 1957.

Issue-wise Detailed Analysis:

1. Nature of the Contract:
The core issue is whether the contract between the assessees (producers) and Messrs. Lintas Limited (advertiser) is a works contract or a contract of sale. The Tribunal found that the transactions were works contracts, not sales. The assessees produced four advertisement films in colour, including dubbed versions, for the advertiser. The contract stipulated that the assessees would handle all aspects of production, including purchasing raw films, engaging actors, shooting the film, and obtaining Censor Board certification. The advertiser had the right to reject or demand reshooting if the product did not meet their specifications. The Tribunal concluded that the assessees charged only for their services, indicating a works contract.

2. Applicability of the Madras General Sales Tax Act, 1959:
The assessing authority treated the transactions as sales, subjecting them to tax under the Madras General Sales Tax Act, 1959, and levied penalties. The Appellate Assistant Commissioner upheld this view. However, the Tribunal, by a majority, found that the transactions were works contracts and not sales, thus not liable under the Sales Tax Act. The State contended that the assessees charged a lump sum for the production and supply of the films, arguing that separating service costs from raw material costs did not change the transaction's nature as a sale. The Tribunal's view was that the raw films were purchased by the assessees for the advertiser, and the charges were for services, not sales.

3. Ownership and Exploitation Rights under the Copyright Act, 1957:
The court examined the Copyright Act, 1957, specifically Sections 2(f), 14, and 17, to determine ownership and exploitation rights. Section 2(f) defines "cinematograph films," and Section 14 outlines the exclusive rights included in copyright. Section 17(b) states that the person commissioning a film for valuable consideration is the first owner of the copyright, unless otherwise agreed. The court found that the advertiser, who commissioned the films, was the owner of the copyright and had the right to exploit the films. The assessees, therefore, did not have ownership or exploitation rights in the finished product, reinforcing the view that the transactions were works contracts.

Conclusion:
The court upheld the Tribunal's view that the transactions were works contracts, not sales, and thus not liable under the Sales Tax Act. The ownership and exploitation rights under the Copyright Act confirmed that the advertiser, not the assessees, owned the finished films. The tax cases were dismissed, with costs awarded in T.C. No. 357 of 1969 and no order as to costs in T.C. No. 441 of 1969. Petitions dismissed.