2002 (9) TMI 868 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Whether the photo paper used in printing positive prints by photographers constitutes a transfer of property in goods.
2. Applicability of the Meghalaya Finance (Sales Tax) Act to the business of developing photographs.
3. Interpretation of the definition of "business" under Section 2(1B) of the Meghalaya Sales Tax Act.
4. Relevance of Supreme Court judgments in determining the nature of the transaction.

Issue-wise Detailed Analysis:

1. Transfer of Property in Goods:
The core question was whether the photo paper used in printing positive prints by photographers constitutes a transfer of property in goods. The court referred to the Supreme Court judgment in Rainbow Colour Lab and Anr. v. State of M.P. and Ors., which held that the use of photo paper in printing positive prints does not involve a transfer of property in goods. The dominant intention of the contract was to provide a service, not to sell the paper. The court emphasized that the work done by the photographer is a service contract, not involving any sale of goods.

2. Applicability of the Meghalaya Finance (Sales Tax) Act:
The appellant argued that the Meghalaya Finance (Sales Tax) Act was not applicable to his business of developing photographs. The court noted that the appellant's business did not fall within the purview of the Act as it was primarily a service contract. The court held that the paper on which photographs are developed or any material used in developing photographs cannot be subjected to sales tax under the Local Sales Tax Act.

3. Definition of "Business" under Section 2(1B):
The court examined the definition of "business" under Section 2(1B) of the Meghalaya Sales Tax Act, which includes any trade, commerce, manufacture, or execution of works contract carried on with the motive to make a profit. The court concluded that this definition does not extend to treating service contracts as sales. The court held that the definition of "business" does not imply that such business amounts to a sale, and any other interpretation would not be permissible under the Constitution, even after the 46th Amendment.

4. Relevance of Supreme Court Judgments:
The court relied on various Supreme Court judgments, including Builders Association of India v. Union of India and Hindustan Aeronautics Ltd. v. State of Karnataka, to support its conclusion. The court reiterated that the primary object of the contract and the intention of the parties are crucial in determining the nature of the transaction. The court observed that the 46th Amendment allowed states to levy sales tax on the price of goods and materials used in works contracts, but this did not apply to incidental materials used in service contracts.

Conclusion:
The court allowed the appeal, set aside the judgment of the learned Single Judge, and held that the paper used in developing photographs cannot be subjected to sales tax under the Local Sales Tax Act. The appellant was not required to obtain registration under the Meghalaya Sales Tax Act. However, the court noted that if the appellant was found to be selling the printing paper or any other material required in developing photographs, the authorities could take action in accordance with the law.