1999 (9) TMI 938 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Nature of the contract for processing and supplying photographs.
2. Validity of Entry 25 of the Sixth Schedule of the Karnataka Sales Tax Act, 1957.
3. Applicability of the 46th Constitutional Amendment.
4. Marketability and taxability of photographs, photo prints, and photo negatives.

Summary:

Nature of the Contract:
The appellant, engaged in the business of taking photographs and supplying prints, contended that the contract is one of pure skill and labour, not involving the sale of goods. The process involves technical expertise and controlled chemical processing. The Supreme Court in Assistant Sales Tax Officer v. B.C. Kame [1977] 39 STC 237 (SC) held that such contracts are for work and labour, not for the sale of goods. The occupation of a photographer is essentially one of skill and labour, and the contract does not constitute a sale of goods.

Validity of Entry 25:
The validity of Entry 25 of the Sixth Schedule, which proposes to levy tax on processing and supplying photographs, was challenged. It was argued that there is no transfer of property in goods involved in the execution of the works contract. The High Court upheld the validity of Entry 25, stating that it is not possible to generally lay down that there is no element of works contract involved in all cases of processing and supplying photographs.

Applicability of the 46th Constitutional Amendment:
The 46th Constitutional Amendment, which allows for the division of contracts into sale of goods and supply of labour, was discussed. The court observed that the amendment creates a legal fiction by which individual contracts can be divided. However, in this case, the main object is not the transfer of property in goods but the provision of a service.

Marketability and Taxability:
The court examined various judgments to determine the marketability of photographs. It was noted that photographs have no marketable value as they are not commercial commodities. The Supreme Court in Everest Copiers v. State of Tamil Nadu [1996] 103 STC 360 (SC) held that the main object of such contracts is not the transfer of paper but the duplication of documents, making it a contract of work or labour. The court concluded that photographs are not marketable or saleable commodities, and thus no tax can be levied on them.

Conclusion:
The court allowed the writ appeals, holding that the contracts for processing and supplying photographs are primarily service contracts involving skill and labour. The photographs are not marketable commodities, and Entry 25 of the Sixth Schedule to the Karnataka Sales Tax Act, 1957, is beyond the scope of article 366 of the Constitution of India.