1981 (1) TMI 225 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Taxability of block-making contracts as contracts for skill and labour.
2. Taxability of the price of materials used in block-making.
3. Taxability of the sale of an offset printing machine upon business closure.

Detailed Analysis:

Issue 1: Taxability of Block-Making Contracts
The primary question was whether the contract for the preparation of blocks was a contract for skill and labour, thus not involving the sale of materials and not subject to sales tax. The Board of Revenue held that block-making involved significant skill and labour, making it a works contract rather than a sale of goods. This decision was based on the precedent set by the Supreme Court in *Assistant Sales Tax Officer v. B.C. Kame*, which established that contracts where the primary objective is the exercise of skill and labour are not subject to sales tax, even if materials are transferred incidentally. The Board found that the value of materials in block-making was only about 20% of the total price, reinforcing that the essence of the contract was skill and labour. Therefore, the turnover from block-making was not liable to sales tax.

Issue 2: Taxability of the Price of Materials in Block-Making
Given the affirmative answer to the first issue, the second question regarding the taxability of the price of materials used in block-making did not arise. The court did not need to address this issue separately as the primary contract was deemed a contract for skill and labour.

Issue 3: Taxability of the Sale of an Offset Printing Machine
The third issue concerned whether the sale of an offset printing machine, following the closure of that business branch, was subject to sales tax. The Board of Revenue ruled that the sale was not taxable as it was a sale of a fixed asset upon business closure, not part of the regular business activity. This decision was supported by the Supreme Court ruling in *State of Gujarat v. Raipur Manufacturing Co. Ltd.*, which held that sales of old and discarded items not intended for business purposes are not taxable. The court also considered the amended definition of "business" under the M.P. General Sales Tax Act, which includes transactions incidental to the main business. However, it concluded that the sale of the printing machine was not part of the business activity but a liquidation of fixed assets due to business closure. Thus, the sale was not exigible to sales tax.

Conclusion:
The court affirmed that the turnover from block-making was not subject to sales tax as it constituted a contract for skill and labour. Consequently, the question of taxing the materials used in block-making did not arise. Additionally, the sale of the offset printing machine was not taxable as it was a sale of a fixed asset upon business closure, not part of the business activity. The reference was answered accordingly, with each party bearing its own costs.