1991 (11) TMI 224 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Whether taking photostat copies using a xerox machine and delivering them to customers for a charge amounts to a sale of goods exigible to tax under the Tamil Nadu General Sales Tax Act, 1959.

Detailed Analysis:

1. Nature of the Transaction: Sale or Service
The primary issue in the case was to determine if the act of taking xerox copies and delivering them to customers for a fee constitutes a sale of goods subject to tax. The assessee argued that the charges were for labor and skill, not for the sale of goods, and hence claimed exemption from tax on the entire turnover. The assessing authority, however, viewed the transaction as a sale of the xerox copies, thereby subjecting it to tax.

2. Tribunal's Decision
The Sales Tax Appellate Tribunal ruled in favor of the assessee, stating that the transaction involved labor and skill similar to photography, which requires trained personnel and skill to operate the xerox machine. Thus, the charges were considered as labor costs and not as a sale of goods.

3. Revenue's Contention
The Revenue contended that the Tribunal erred in its judgment by not recognizing the transaction as a sale. They argued that delivering xerox copies for a charge satisfies the requirements of a sale and should be taxable. They also claimed that the Tribunal failed to properly apply relevant case law.

4. Case Law and Precedents
The judgment referenced several precedents, including:
- Assistant Sales Tax Officer v. B.C. Kame: The Supreme Court held that a photographer's work, which involves skill and labor to produce a photograph, is not a sale.
- Girija v. State of Karnataka: The Karnataka High Court held that using a xerox machine to produce copies was a service, not a sale.
- State of Tamil Nadu v. Anandam Viswanathan: The Supreme Court ruled that printing question papers for educational institutions was a contract for work and labor, not a sale.
- Hindustan Aeronautics Ltd. v. State of Karnataka: The Supreme Court held that servicing and repairing contracts, which may involve the supply of materials, are primarily contracts for work and labor.

5. Distinction Between Sale and Service
The Court noted the subtle and often overlapping distinction between a contract for sale and a contract for work and labor. The primary test is whether the main object of the contract is the transfer of property in goods or the provision of labor and skill.

6. Analysis and Conclusion
The Court concluded that the Tribunal had misconstrued the nature of the contract. It emphasized that duplication work using a xerox machine does not equate to the skill and labor involved in photography or printing confidential documents like question papers. The Court held that the supply of xerox copies for a price is an indivisible contract of sale, making the turnover subject to tax.

7. Final Judgment
The Court set aside the Tribunal's order and restored the decision of the assessing authority, thereby subjecting the turnover from the xerox copying business to tax. The petition was allowed, and no order as to costs was made.

Summary:
The Madras High Court ruled that taking photostat copies using a xerox machine and delivering them to customers for a fee constitutes a sale of goods subject to tax under the Tamil Nadu General Sales Tax Act, 1959. The Court distinguished this from contracts involving significant labor and skill, such as photography or printing question papers, and emphasized that the primary object of the transaction was the transfer of property in the xerox copies, making it taxable. The Tribunal's decision was set aside, and the assessing authority's view was restored.