2001 (3) TMI 984 - HC - VAT and Sales Tax

Issues Involved:
1. Nature of the work done by the respondent-dealer.
2. Tax liability on the transfer of property in goods involved in the execution of works contract.
3. Applicability of the Rajasthan Sales Tax Act, 1954, including sections 12, 16(1)(i), and 11-B.
4. Distinction between service contracts and works contracts.
5. Applicability of Supreme Court judgments and other high court decisions.

Issue-wise Detailed Analysis:

1. Nature of the Work Done by the Respondent-Dealer:

The respondent-dealer develops films brought by customers, makes positive prints, and returns the negatives along with the prints. They also enlarge photo prints of different sizes. This nature of work was undisputed.

2. Tax Liability on Transfer of Property in Goods:

The Revenue's case was based on a survey revealing that the dealer used chemicals and photographic papers costing Rs. 48,89,613.89 and received Rs. 83,15,927.55 through job-work. The Revenue argued that this included the transfer of property in goods (chemicals and photographic papers) to customers, leading to a reassessment under section 12 of the Rajasthan Sales Tax Act, 1954. Consequently, tax was assessed on Rs. 5,94,912.40 with additional surcharge and penalty under section 16(1)(i), and interest under section 11-B was levied.

3. Applicability of the Rajasthan Sales Tax Act, 1954:

Regular assessments for subsequent periods were also made under section 10(3), raising demands for tax, surcharge, interest, and penalties under section 7-AA. Appeals against these orders were unsuccessful before the Deputy Commissioner (Appeals).

4. Distinction Between Service Contracts and Works Contracts:

The Rajasthan Tax Board partly accepted the dealer's appeals, upholding tax liability on the value of paper but not on the cost of chemicals, which were consumed in processing films and did not pass to the consumer. The Rajasthan Taxation Tribunal, relying on Supreme Court judgments, concluded that the work undertaken by the dealer was a service contract, not a "works contract," hence no tax was exigible on such transactions.

5. Applicability of Supreme Court Judgments and Other High Court Decisions:

The Tribunal relied on several Supreme Court decisions, including:
- Assistant Sales Tax Officer v. B.C. Kame [1977] 39 STC 237: Held that a photographer's work is essentially one of skill and labour, not a contract for the sale of goods.
- Everest Copiers v. State of Tamil Nadu [1996] 103 STC 360: Stated that the primary object of a photocopier's work is to duplicate documents, not to sell paper, making it a contract of work and labour.
- Hindustan Aeronautics Ltd. v. State of Karnataka [1984] 55 STC 314: Emphasized that the dominant intention behind a transaction determines whether it is a sale of goods or a service contract.
- Rainbow Colour Lab v. State of Madhya Pradesh [2000] 118 STC 9; (2000) 2 SCC 385: Reiterated that the work done by photo labs is a service contract, not involving the sale of goods.

The Rajasthan High Court agreed with the Tribunal's conclusion, stating that the distinction drawn by the Kerala High Court in Bavens v. Union of India [1995] 97 STC 161, which differentiated between types of photographic services, was not approved by the Supreme Court in Rainbow Colour Lab's case.

Conclusion:

The Rajasthan High Court dismissed the petitions, concluding that the nature of the work done by the respondent-dealer is a service contract, not a works contract involving the sale of goods. The court upheld the Tribunal's decision, which was consistent with the principles established by the Supreme Court, and found no grounds for interference. The petitions were dismissed with no order as to costs.

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