2003 (7) TMI 665 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Whether the pronouncement of law in Associated Cement Companies Ltd. prevails over the decision in Rainbow Colour Lab.
2. Whether the authorities under the Act can proceed on the basis that entry 25 of the Sixth Schedule is reinstated or restored to the statute.

Summary:

Re Point (i):

Rainbow [2000] 118 STC 9 (SC) and Keshoram [2001] 121 STC 175 (Kar) proceeded on the basis that when a photographer takes photographs, develops the negative and supplies the print, it is a service contract and not a works contract; and photography being a service, the main object is not transfer of property in goods and whatever goods that passes is only incidental to the service contract. It was further held that a works contract can be divided into two separate contracts by a legal fiction (the first for sale of goods involved in the works contract and the second for supply of labour and services), only where the dominant intention is to transfer of property in goods and not where the transfer in property takes place as an incident of service contract; and that the 46th Amendment to the Constitution has not empowered the State to indulge in microscopic division of contracts involving a value of materials used incidentally in such contracts.

Learned counsel for the petitioners contended that the observations in Associated Cement Companies Ltd. [2001] 124 STC 59 (SC); (2001) 4 SCC 593 in respect of contracts for processing and supplying photo prints, photographs and photo negatives and levy of sales tax on the material used in such contracts and about the correctness of the decision in Rainbow [2000] 118 STC 9 (SC) are only obiter, as the decision in Associated Cement Companies Ltd. [2001] 124 STC 59 (SC); (2001) 4 SCC 593 related to the Customs Act and the decision itself made it clear that the provisions of the Sales Tax Act and the Customs Act were different and decisions rendered with reference to levy of sales tax in cases of works contract will have no application to the Customs Act. It is also pointed out that in Associated Cement Companies Ltd. [2001] 124 STC 59 (SC); (2001) 4 SCC 593 the Supreme Court did not expressly overrule the decision in Rainbow [2000] 118 STC 9 (SC) but only observed that the decision in Rainbow [2000] 118 STC 9 (SC) does not appear to be correct, thereby leaving open the question for further consideration in an appropriate matter. The petitioners therefore submit that Rainbow [2000] 118 STC 9 (SC) still holds the field in so far as taxing of the activity of processing of negatives and supply of prints under the sales tax laws.

"Obiter dictum" is defined as words of an opinion entirely unnecessary for the decision of the case. It is a remark made, or opinion expressed by a Judge, in his decision upon a cause, "by the way", that is, incidentally or collaterally, and not directly upon the question before him, or upon a point not necessarily involved in the determination of the cause, or introduced by way of illustration, or analogy or argument. Such are not binding as precedent vide Black's Law Dictionary. In Maharajadhiraja Madhava Rao Scindia v. Union of India AIR 1971 SC 530, the Supreme Court observed that "it is difficult to regard a word, a clause or a sentence occurring in a judgment of this Court, divorced from its context, as containing a full exposition of the law on a question when the question did not even fall to be answered in that judgment". Following the said decision, in Addl. Dist. Magistrate, Jabalpur v. Shivakant Shukla AIR 1976 SC 1207 the Supreme Court, held that observations of the Supreme Court, by way of "obiter", are undoubtedly entitled to great weight, but do not have any binding effect and cannot be regarded as conclusive on the point. On the other hand, an observation of the Supreme Court on a point raised and argued before it will be binding, if the opinion is final and not tentative. This position was recently reiterated in Director of Settlements A.P. v. M.R. Apparao AIR 2002 SC 1598; 2000 AIR SCW 1504. The Supreme Court held:

" 'Obiter dictum' as distinguished from a 'ratio decidendi' is an observation by court on a legal question suggested in a case before it, but not arising in such manner as to require a decision……. even though an obiter may not have a binding effect as a precedent, but