1999 (3) TMI 665 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Whether the activities carried on by the appellants in photographic work constitute a "works contract" under the Kerala General Sales Tax Act.
2. Whether the processing of photographic prints constitutes a service contract or involves the sale of goods.
3. The applicability of the 46th Constitutional Amendment and its impact on the taxability of photographic activities.
4. The constitutionality of Clause (6) of the Table appended to Section 5C of the Act concerning photography as a deemed sale.

Issue-wise Detailed Analysis:

1. Whether the activities carried on by the appellants in photographic work constitute a "works contract" under the Kerala General Sales Tax Act:

The appellants argued that their photographic activities, including taking photographs, developing negatives, and printing photographs, did not constitute a "works contract" as defined in the Act. They contended that these activities were primarily service contracts involving skill and labor rather than the sale of goods. The court examined the three categories of activities carried on by photographers:
- Taking photographs, developing negatives, and supplying prints.
- Developing exposed films brought by customers and supplying prints.
- Taking positive prints from negatives brought by customers and supplying prints.

The court concluded that the first category did not involve a works contract as no goods were supplied by the customer, and the photographer's work was primarily based on skill and labor. However, the second and third categories involved processing goods (negatives) supplied by customers, thus constituting a works contract.

2. Whether the processing of photographic prints constitutes a service contract or involves the sale of goods:

The appellants contended that the processing of photographic prints was a service contract and did not involve the sale of goods. They relied on previous judgments, including the Supreme Court's decision in Assistant Sales Tax Officer v. B.C. Kame, which held that the occupation of a photographer was essentially one of skill and labor, and the supply of photographic prints did not constitute a sale of goods.

The court, however, distinguished between the different categories of photographic activities. It held that while the first category (taking photographs and supplying prints) was a service contract, the second and third categories (developing exposed films and supplying prints) involved the transfer of property in goods (photographic paper) and thus constituted a works contract subject to sales tax.

3. The applicability of the 46th Constitutional Amendment and its impact on the taxability of photographic activities:

The appellants argued that the 46th Constitutional Amendment, which introduced Clause 29A to Article 366 defining tax on the transfer of property in goods involved in the execution of works contracts, did not change the taxability of photographic activities. They contended that the amendment did not affect the nature of their work as a service contract.

The court referred to the Supreme Court's decisions in Builders Association of India v. Union of India and Gannon Dunkerley and Co. v. State of Rajasthan, which upheld the validity of the 46th Amendment and allowed states to impose tax on the transfer of property in goods involved in works contracts. The court concluded that the amendment was applicable, and the appellants' activities involving the transfer of property in goods (photographic paper) were taxable as works contracts.

4. The constitutionality of Clause (6) of the Table appended to Section 5C of the Act concerning photography as a deemed sale:

The appellants challenged the constitutionality of Clause (6) of the Table appended to Section 5C of the Act, which deemed photography as a works contract for tax purposes. They argued that this provision was ultra vires and void, as it did not properly interpret the definition of works contract and processing under the Act.

The court examined the legislative intent and the definition of works contract in the Act. It held that the provision was constitutional and valid, as it aligned with the 46th Constitutional Amendment and the Supreme Court's interpretation of works contracts. The court found that the activities of developing exposed films and printing photographs involved processing goods supplied by customers and constituted works contracts subject to sales tax.

Conclusion:

The court dismissed the writ appeals, holding that the appellants' activities of developing exposed films and printing photographs constituted works contracts subject to sales tax under the Kerala General Sales Tax Act. The court upheld the constitutionality of Clause (6) of the Table appended to Section 5C of the Act and concluded that the 46th Constitutional Amendment applied to the appellants' activities, making them liable for sales tax on the transfer of property in goods involved in the execution of works contracts.