1994 (11) TMI 402 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Whether photography and its allied activities constitute a pure work of art outside the purview of works contract.
2. The impact of the 46th Constitutional Amendment on the exigibility of sales tax for photographic work.
3. The applicability of the definition of "works contract" to the activities carried out by photographers.
4. The validity of the 46th Constitutional Amendment and certain provisions of the Kerala General Sales Tax Act and Rules.

Summary:

Issue 1: Photography as a Work of Art

The petitioners argued that photography is a work of art requiring artistic skill and talent, akin to painting a portrait, and thus should not be classified as a works contract. They cited the Supreme Court decision in Assistant Sales Tax Officer v. B.C. Kame [1977] 39 STC 237, which held that a photographer's work is essentially one of skill and labour, not a sale of goods.

Issue 2: Impact of the 46th Constitutional Amendment

The petitioners contended that the 46th Constitutional Amendment, which introduced clause (29A)(b) to article 366, did not alter the non-exigibility of sales tax on photographic work. They argued that the use of materials in photography is incidental to a service contract and does not constitute a works contract.

Issue 3: Definition of "Works Contract"

The petitioners' activities were categorized into three types: (1) taking photographs, developing negatives, and supplying positive prints; (2) developing exposed film and supplying prints; (3) taking prints from negatives supplied by customers. The Court examined whether these activities fall under the definition of "works contract" u/s 2(xxix)(a) of the Kerala General Sales Tax Act, 1963. It was held that the first category does not constitute a works contract as it involves the photographer's skill and talent, with any transfer of property being incidental. However, the second and third categories were deemed to involve "processing" and thus fall within the definition of works contract, making the value of photographic paper used exigible to sales tax.

Issue 4: Validity of the 46th Constitutional Amendment and Provisions of the Kerala General Sales Tax Act

The challenge against the 46th Constitutional Amendment was dismissed based on the Supreme Court's decision in Builders Association of India v. Union of India [1989] 73 STC 370. The Court also referred to the Full Bench decision in Moidoo v. State of Kerala [1995] 97 STC 1, which directed that rule 8(4) of the Kerala General Sales Tax Rules should not be applied as it stood prior to the amendment by S.R.O. 92 of 1991.

Conclusion:

The Court held that no portion of the turnover related to the first category of photographic work is exigible to sales tax. However, for the second and third categories, the value of the photographic paper used is subject to sales tax as it involves a works contract. The assessment orders were set aside, and the assessing authorities were directed to reassess in light of this judgment and the Full Bench decision in Moidoo's case. The petitioners' claims for exemptions as small-scale industrial units were also to be considered during reassessment.

Petitions partly allowed.