2009 (2) TMI 754 - HC - VAT and Sales Tax

Whether, under the facts and circumstances of the case, the Tribunal is correct in law while disposing of the appeal that the transaction of photo-identity card is a transaction in the nature of sale? Held that - Supply of photo-identity cards by the petitioner to the CEO is not exigible to sales tax. In the result, the question referred to above is answered in the negative, i.e., against the Revenue and in favour of the petitioner-dealer.

Summary

Issues Involved:
1. Whether the transaction of photo-identity card is a transaction in the nature of sale.
2. Whether the supply of photo-identity cards by the petitioner to the CEO amounts to a sale or a contract for work or service.

Issue-wise Detailed Analysis:

1. Nature of Transaction of Photo-Identity Card:
The petitioner, a Government of Orissa undertaking, engaged in the preparation of photo-identity cards for voters as per the orders of the Chief Electoral Officer (CEO). The petitioner received Rs. 12.70 per photo-identity card, amounting to Rs. 6,56,06,424 for the year under consideration. The petitioner claimed that this amount was for a job contract involving labour and service, not a sale, and thus did not pay any tax on it. The assessing officer, however, treated the work as a works contract, allowing 30% of the gross turnover towards labour charges and levying a 4% tax on the balance.

2. Supply of Photo-Identity Cards as Sale or Service:
The first appellate authority and the Tribunal upheld the assessment, treating the transaction as a sale. The Tribunal observed that the agreement's intention was for the preparation and delivery of photo-identity cards, amounting to a contract for transfer of chattel qua chattel.

Arguments by Petitioner:
The petitioner argued that the supply of photo-identity cards was a job contract, not a sale. The cards were not commercial commodities and could not be sold to any other person. The work involved technical skills like entering voter data into computers and taking video photographs, which were then used to prepare the cards. The materials used were incidental and insignificant, and tax had already been paid on them at the time of purchase. The petitioner contended that the transaction was predominantly about labour and service, not the value of materials used.

Arguments by Revenue:
The Revenue argued that the Tribunal correctly concluded that the transaction was in the nature of sale for cash or deferred payment. They relied on several Supreme Court judgments, including Karya Palak Engineer, C.P.W.D. v. Rajasthan Taxation Board, Ajmer, and Chandra Bhan Gosani v. State of Orissa.

Supreme Court Precedents:
The judgment referred to several Supreme Court decisions to determine whether a transaction constitutes a sale or a contract for work or service:
- In State of Himachal Pradesh v. Associated Hotels of India Ltd., the Supreme Court emphasized determining the nature of the contract to ascertain if it constitutes a sale or a contract for work or service.
- In Assistant Sales Tax Officer v. B.C. Kame, the Court held that the distinction between a contract of sale and a contract of work and labour depends on the primary object of the transaction.
- In Hindustan Aeronautics Ltd. v. State of Karnataka, the Court reiterated that mere passing of property in an article during the transaction does not render it a sale.
- In State of Tamil Nadu v. Anandam Viswanathan, the Court held that the nature of the contract and the intention of the parties must be found out to determine if it is a sale or a contract for work.

Conclusion:
The High Court concluded that the transaction was a job-work, not a sale. The preparation of photo-identity cards involved highly skilled labour and the materials used were incidental. The cards were not commercial commodities and had no utility or value to anyone other than the CEO. The Court held that there was no element of sale or transfer of property in the goods involved. The supply of photo-identity cards to the CEO was a contract for labour and service, not a sale, and thus not exigible to sales tax.

Judgment:
The question was answered in the negative, against the Revenue and in favour of the petitioner-dealer. The supply of photo-identity cards by the petitioner to the CEO was not exigible to sales tax.