1975 (8) TMI 111 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Whether the transactions amounted to sales liable to tax.
2. Whether the transactions amounted to works contract not liable to tax.
3. Whether the transactions were divisible into sales and works contract.

Detailed Analysis:

Issue 1: Whether the transactions amounted to sales liable to tax

The Tribunal held that the transactions in question amounted to sales liable to tax. The court referred to the decision in *Chelaram Hasomal v. State of Gujarat* where the entire work of producing photo copies was considered a commercial practice of photography, thus constituting an indivisible sale of photographic materials. However, the court emphasized that the term "sale of goods" has a specific legal meaning as defined in the Sale of Goods Act, 1930, and cannot be construed in a popular sense. The essential ingredients of a sale include an agreement to sell movables for a price and the property passing therein pursuant to that agreement. The court concluded that the transactions in question did not amount to sales but were primarily contracts of service.

Issue 2: Whether the transactions amounted to works contract not liable to tax

The court examined the nature of the transactions and concluded that the primary object of the contract was the provision of professional photographic services, which involved individual subjective considerations such as arranging the pose, lighting, and retouching the photograph. The materials used were incidental to the service provided. The court referred to various precedents, including *State of Madras v. Gannon Dunkerley & Co.*, which established that a works contract is one where the property in the materials does not pass as movable property under the contract but only on the principle of accretion. Therefore, the transactions were considered works contracts not liable to tax.

Issue 3: Whether the transactions were divisible into sales and works contract

The court considered the possibility of severing the contract into two distinct parts: one for the provision of photographic services and the other for the sale of photographic prints. The court referred to the decision in *Camera House, Bombay v. State of Maharashtra*, where the contracts were severed into a contract of service for taking the photo and developing the negative, and a commercial bargain for the sale of additional copies. The court concluded that the transactions in question were divisible, with the initial service of taking the photograph and developing the first print being a works contract, and the subsequent sale of additional prints being a commercial transaction subject to sales tax.

Conclusion:

The court held that the Tribunal was incorrect in treating the entire transaction as a sale. Instead, the transactions should be severed into two distinct contracts: one for the professional photographic services, which is a works contract not liable to tax, and the other for the sale of additional photographic prints, which is subject to sales tax. The reference was answered accordingly, with no order as to costs.