1984 (11) TMI 307 - HC - VAT and Sales Tax

Issues Involved:
1. Nature of transactions involving printing and supply of materials.
2. Applicability of sales tax on such transactions.
3. Distinction between works contracts and contracts for sale.
4. Marketability as a test for determining the nature of the contract.
5. The role of bifurcation in composite contracts.
6. Precedents and their applicability to the case at hand.

Detailed Analysis:

1. Nature of Transactions Involving Printing and Supply of Materials:
The primary issue addressed is whether the supply of printed materials such as letter heads, visiting cards, bill books, account books, and balance sheets constitutes a sale of finished goods or printed material. The Tribunal, based on material on record and previous decisions, held that most transactions were in the nature of works contracts. However, the Tribunal indicated that marginal instances would require closer scrutiny with reference to the facts and circumstances of each transaction, using the test of marketability as a useful guide.

2. Applicability of Sales Tax on Such Transactions:
The Revenue contended that all transactions should be treated as out-and-out sales of printed material or paper, and thus subject to sales tax. They argued that for certain items like bill books, vouchers, receipt books, and letter heads, the Tribunal should have followed the clear pronouncement in P.T. Varghese [1976] 37 STC 171, which regarded them as sales of finished products.

3. Distinction Between Works Contracts and Contracts for Sale:
The judgment delved into various precedents to distinguish between works contracts and contracts for sale. In Srinivasa Printing Works v. Sales Tax Officer [1966 KLT 1139], it was held that printing and binding services were contracts for sale. However, in subsequent cases like Sales Tax Officer v. Somasundaran [1974] 33 STC 68, the Court emphasized examining the nature of the contract as a whole rather than bifurcating it into artificial components.

4. Marketability as a Test for Determining the Nature of the Contract:
The Supreme Court's decision in Assistant Sales Tax Officer v. B.C. Kame [1977] 39 STC 237 (SC) was pivotal, where it was held that the primary object and intention of the parties should be examined to determine whether a contract is one of work and labour or a contract for sale. The Court explained that the distinction rests on whether the work and labour bestowed end in something that can properly become the subject of sale.

5. The Role of Bifurcation in Composite Contracts:
The Court discussed the possibility of bifurcating composite contracts into two separate agreements-one for work and another for sale. However, it was noted that merely bifurcating a contract was insufficient. It was for the authorities and the Court to decide whether the parties had consciously entered into two agreements.

6. Precedents and Their Applicability to the Case at Hand:
The judgment reviewed several precedents, including Hindustan Aeronautics Ltd. v. State of Karnataka [1984] 55 STC 314 (SC) and Hindustan Aeronautics Ltd. v. State of Orissa [1984] 55 STC 327 (SC), which emphasized that whether a transaction is a works contract or involves a sale of goods is a mixed question of law and fact. The Court also referred to Corpus Juris Secundum, which highlighted that if the property is made specially for the buyer and has no independent commercial value, the contract is one of work and labour rather than a sale.

Conclusion:
The Court concluded that the Tribunal had correctly applied the principles deducible from the case law to the facts presented before it. The Tribunal's conclusions were not to be treated as inflexible rules applicable to all similar transactions, as the facts and circumstances of each transaction could differ. The revisions were dismissed without any order as to costs.

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