1984 (3) TMI 358 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Taxability of sale proceeds of printed materials under the U.P. Sales Tax Act.
2. Whether the sale of printed materials constitutes a sale of paper or a sale of finished goods.
3. Determination of the nature of the contract (sale of goods vs. works contract).

Detailed Analysis:

1. Taxability of Sale Proceeds of Printed Materials:
The central issue was whether the sale proceeds from printed letter pads, vouchers, and bills supplied by the opposite party (a printing press) were taxable under the U.P. Sales Tax Act. The Sales Tax Officer initially assessed these proceeds as taxable under the category of unspecified goods, arguing that the printed materials constituted a commodity other than paper. The opposite party contended that the paper used was locally purchased and not imported, thus not liable for tax as per Notification No. ST-II-332/X-1012-1971 dated 15th November 1971.

2. Sale of Printed Materials: Paper or Finished Goods:
The Tribunal, relying on the case of Shikshak Bandhu Karyalaya v. Commissioner of Sales Tax, held that the opposite party was not liable to be taxed for the year 1973-74 as the paper used was locally purchased. However, for the year 1974-75, due to the absence of evidence proving local purchase, the matter was remanded for re-examination. The Tribunal's reliance on Shikshak Bandhu Karyalaya was contested by the standing counsel, who argued that the decision was distinguishable and that the printed materials should be considered finished goods, thus taxable.

3. Nature of the Contract:
The judgment extensively discussed various precedents to determine whether the transactions were contracts of sale or works contracts. Key cases included:
- Kanpur Journals Ltd. v. Commissioner of Sales Tax: It was held that the sale of printed items like receipt books, registers, and forms constituted a sale of finished goods, not paper.
- Sardar Printing Works v. Sales Tax Commissioner: The court ruled that the supply of printed stationery by a printer was a sale of finished goods.
- Saraswati Printing Press v. Commissioner of Sales Tax: Similar to the above, the court held that the supply of printed stationery was a sale of goods.
- Government of Andhra Pradesh v. Guntur Tobacco Ltd.: The Supreme Court held that the nature of the contract must be determined based on whether it is a composite contract for work and sale of goods or merely a works contract.

The judgment concluded that the printed materials supplied by the opposite party were taxable if they were sold as finished goods. However, if the contract was for printing on paper supplied by the customer or if it was a composite contract where the paper was merely incidental to the printing, it would be considered a works contract and not taxable.

Conclusion:
The High Court set aside the Tribunal's order and directed it to re-examine the second appeals in light of the principles laid down in the judgment. The court provided a detailed framework for determining the nature of the contract and the taxability of the turnover, emphasizing the need to consider the specific circumstances and evidence in each case. The judgment reinforced the importance of distinguishing between contracts for the sale of goods and works contracts in determining tax liability under the U.P. Sales Tax Act.