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TMI Blog2000 (11) TMI 312X X X X Extracts X X X X X X X X Extracts X X X X ..... oth the parties and in view of the reasons explained by the representative of the assessee, we condone the delay of seven days and admit the appeals. 4. The assessee Company is having a Unit at Sinnar, Distt. Nashik, where it manufacture Ghee, Cheese, Butter and Milk powder. The assessee purchases packing material, such as big cartons, small bags, plastic bags, wrapping material etc. from various manufacturers. For the purpose of purchase of this material, purchase orders are placed with set specifications of packing material. In packing this material, company's name, monogram, nature of product, quantity of product is printed in the packing material. Batch numbers and the date of manufacture are only mentioned in blank and batch number and the date of packing is put by the assessee when the various batches are manufactured. The suppliers who manufacture this packing material while selling it to the assessee are liable to pay Excise duty as well as Sales-tax and the same is also recovered as part of the sale-price. The I.T.O. (TDS) Nashik, during the course of his visit to the Factory on 14-2-1996 went through the record and observed that the assessee had incurred expenses on acco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cording to the Assessing Officer it is not an ordinary purchase of packing material, in that, a particular type of work is involved. Since the sole purchase is with reference to certain specification, it clearly becomes a contract between two parties. He accordingly held that such transaction being of contract is hit by the provisions of section 194C of the Income-tax Act. 7. The I.T.O. further observed that printing on the materials supplied is not incidental. Specific printing on the packing material has got its own importance and a minor mistake of printing in mentioning the contents of ingredients, date of manufacturing and expiry date and batch number will cause great losses to the Company and affect adversely its goodwill and credibility. Thus, the printing is not at all incidental in this case. The principal object of the assessee was to get materials printed as per the prescribed specifications and not to purchase printed material as available in the market. According to the I.T.O., the charges are composite, though not separately mentioned. Under such contract, the supplier parties cannot retain or use the printed materials and the excess, if any, was to be destroyed. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or scrutiny by the TDS section of the Income-tax Department of Nashik. He submitted that both the ITO (TDS) as well as the learned CIT(A) laid stress on the fact that on each packing material, batch number, date of manufacture and date of expiry is printed by the supplier and this is of utmost importance and requires a close contract between the assessee and the supplier spelling out a works contract. The learned counsel emphasised that this was a total misunderstanding of the transaction. When the supplier supplies the packing material where specifies like date and batch number etc. are not printed. This clearly rules out any possibility of close contact between the assessee and the supplier. According to the learned counsel, in the present case, the main purpose in buying packing material was to obtain goods for the purpose of packing and the fact the incidentally some printing was required to be done by the supplier was of no consequence. In support of his contentions, he relied upon the following judgments: (1) State of Himachal Pradesh v. Associated Hotels of India Ltd. [1972] 29 STC 474 (SC), (2) Hindustan Aeronautics Ltd. v. State of Karnataka [1984] 55 STC 314 (SC), (3) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut any work (including supply of labour for carrying out any work). The point to be seen is whether in the present case, whether the assessee has engaged any contractor for carrying out any work. The expression 'contractor for carrying out any work' implies that the contractor should have carried out such activities. The term 'carried out' suggests an executory contract rather than a case of a mere supply or sale of goods. If a person engages the services of another and gives him a job of manufacturing goods or articles and for the purpose supplies him raw material, it would be a clear case of a contract of work. In such cases, the provisions of section 194C would undoubtedly be applicable. But, if, on the other hand, a manufacturer on his own purchases material and manufactures product which he sells to the assessee and it may be that such product might be customer-specific as per the requirement of the customer, it is still a case of a sale and not for carrying out any work. In such sale which is customer-specific, the fact that the goods manufactured are according to the requirement of the customer does not mean or imply that any work has been carried out on behalf of the contra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any article or thing fabricated according to the specifications given by the Government or any other specified person and the property in such article or thing passes to the Government or such person only after such article or thing is delivered, the contract will be a contract for sale and as such outside the purview of this section. This Para really answers in a very clinching manner the objection raised by the department in the present case. As per Para (b), even in fabrication contracts if the property in the article passes to the Government or other person after its delivery, still it is a case of contract for sale. The fact that fabrication has been carried out as per specification given by the contractee is not considered to be relevant. The assessee's case would appear to fall squarely within clause (b) above, because in the assessee's case the property in the packing material passes only after the same is delivered by supplier to the assessee. Obviously in such cases since these are contracts for sale, sales-tax and excise duty are being levied. Thus the payment of sales-tax and excise duty by supplier, though not conclusive, is clearly indicative of the fact under those l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th approval the statement of law in Benjamin's Treatise on the Law of Sale of Personal Property with reference to the French Code and Civil Law, wherein certain principles have been laid down. These have been stated as under: "1. A contract whereby a chattel is to be made and affixed by the workman to land or to another chattel before the property therein is to pass, is not a contract of sale, but a contract for work, labour and materials, for the contract does not contemplate the delivery of a chattel as such. 2. When a chattel is to be made and ultimately delivered by a workman to his employer, the question whether the contract is one of sale or of a bailment for work to be done depends upon whether previously to the completion of the chattel the property in its materials was vested in the workman or in his employee. If the intention and result of the contract is to transfer for a price property in which the transferee had no previous property then the contract is a contract of sale. Where, however, the passing of property is merely ancillary to the contract for the performance of work such a contract does not thereby become a contract of sale. 3. Accordingly, (i) Where the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lysed the many useful aspects of the question of works contract. As compared to the assessee's case, the facts in the above case before the Chandigarh Bench were on weaker footing, still it was held that provisions of section 194C would not apply. 15. The reliance placed by the Assessing Officer and CIT(A) and subsequently by the learned senior D.R. on the ratio of Bombay High Court (FB) in the case of Sarvodaya Printing Press v. State of Maharashtra 93 STC 387 is of no assistance to the Revenue, because the facts in this case are distinguishable from those obtaining in the assessee's case. In the case before the Bombay High Court, the assessee was running a printing press where only job work was done. It supplied printed materials to Madhya Pradesh Electricity Board in the form of multi-coloured triplicate receipt books, specifically designed, printed and prepared to the specifications of the MPEB. The charges for the supply were of one composite sum for the entire job. The assessee was obliged to destroy any receipt books in excess of the MPEB's requirements. On the question whether the transaction was a sale or works contract, it was held that having regard to the special type ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a packing material which is of primary use. The fact that such cartons bear the name of the company and other printed material is insignificant and if we apply the tests which have been laid down in the case of Associated Hotels of India Ltd. by considering the main object of the contract, it will be seen that the main purpose in the assessee's case is to obtain packing material, whereas in the case before the Bombay High Court on which reliance has been placed, the main purpose was to obtain printing. This has been clarified by the Bombay High Court by stating that the object was to get materials printed and not to purchase printed material. Moreover, in the case before the Bombay High Court, it was a clear case of a contractor who was only undertaking job-work. In the case of the assessee, suppliers have not undertaken any job-work on behalf of the assessee. They are independent supplier of materials and their role cannot be compared or equated with that of a job-worker. 16. The ratio laid down by the Hon'ble Madras High Court in the case of Kumudam Publications (P.) Ltd. relied upon by the learned D.R. also does not apply to the facts of the case before us. In this case, the as ..... X X X X Extracts X X X X X X X X Extracts X X X X
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