2000 (2) TMI 2 - SC - Service Tax

whether the job rendered by a photographer in taking photographs, developing and printing films would amount to a 'works contract' as contemplated under Article 366(2A)(b) of the Constitution read with Section 2(n) of the M.P. General Sales Tax for the purpose of levy of sales tax on business turnover of the photographers? Held that - It is clear that unless there is sale and purchase of goods, either in fact or deemed, and which sale is primarily intended and not incidental to the contract, the State cannot impose sales-tax on a works contract simpliciter in the guise of the expanded definition found in Article 366(29A)(b) read with Section 2(n) of the State Act. On facts as we have noticed that the work done by the photographer which as held by this Court in Kame's case ( 1976 (12) TMI 164 - SUPREME COURT OF INDIA ), is only in the nature of a service contract not involving any sale of goods, we are of the opinion that the stand taken by the respondent-State cannot be sustained. Appeal allowed by setting aside the judgment under appeal and grant the prayer of the appellants by quashing the assessment orders and the demand notices impugned in the writ petitions before the High Court.

Summary

Issues:
Whether the job rendered by a photographer in taking photographs, developing and printing films would amount to a 'works contract' for the purpose of levy of sales tax on business turnover of the photographers.

Analysis:
The common questions in the appeals revolved around whether the work of photographers constituted a 'works contract' under Article 366(2A)(b) of the Constitution and Section 2(n) of the M.P. General Sales Tax Act. The issue arose post the 46th Constitutional Amendment and a subsequent circular by the Commissioner of Sales Tax, M.P. asserting that photographers' work fell under 'works contract' for sales tax purposes. The High Court, relying on precedent, held that there was a transfer of property in goods, making it a 'works contract'. However, the appellants contended that their work was a service contract, devoid of any sale element.

The Supreme Court examined the nature of work done by the photographers, involving taking photographs, developing negatives, and supplying prints. The Court noted that the prints were not marketable commodities and had no value as goods. Referring to past judgments, the Court emphasized that the occupation of a photographer primarily involved skill and labor, not sale of goods. The Court analyzed the impact of the 46th Constitutional Amendment, clarifying that the amendment did not empower states to impose sales tax on incidental materials used in contracts, emphasizing the dominant intention of the contract.

The Court referenced previous cases to support its stance that unless there was a primary sale and purchase of goods, the state could not levy sales tax on a works contract. The Court highlighted that the photographer's work was a service contract, as established in earlier judgments. Ultimately, the Court held that the view taken by the High Court could not be sustained, allowing the appeals and quashing the assessment orders and demand notices. The Court emphasized that the photographer's work was a service contract, not involving the sale of goods, thereby rejecting the state's stance on imposing sales tax.

In conclusion, the Supreme Court's judgment clarified the distinction between service contracts and works contracts in the context of photography services, emphasizing the absence of a primary intention to sell goods in the photographer's work. The Court's analysis provided clarity on the application of sales tax laws to such service-oriented contracts, setting aside the High Court's decision and ruling in favor of the appellants.