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TMI Blog1968 (5) TMI 53X X X X Extracts X X X X X X X X Extracts X X X X ..... g the negative thereof with three prints of a certain size to the customer. On an application under section 52 of the Bombay Sales Tax Act, 1959, by the applicants, for the determination of the question as to whether any tax was attracted on the transactions which were the subject-matter of the said three bills, and, if so, at what rate, the Commissioner of Sales Tax in his order dated 17th August, 1961, took the view that the transactions embodied in all the said bills amount to sales, except that part of the transaction which is the subjectet-matter of bill No. 95198 which related to the developing of the customer's film roll, which he held would not amount to a sale. The applicants appealed from the decision of the Commissioner of Sales Tax to the Sales Tax Tribunal at Bombay in respect of each of the three specimen bills. The Tribunal by its order dated 28th June, 1963, confirmed the decision of the Commissioner of Sales Tax on all points, and dismissed those appeals on the ground that the gist of the business of a photographer is to practise the photographic process commercially in order to produce an article which would be bought and would yield profit, and that the essence o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd labour or one for the sale of a chattel." The leading case on the subject of contracts which involve both the transfer of property in some material, as well as the performance of work and labour, is the case of the State of Madras v. Gannon Dunkerley Co. (Madras) Ltd.[1958] 9 S.T.C. 353. The respondents in that case were doing the business of construction of buildings, roads and other works, and one of the items to which the reference in the said case related was the value of the material used by the respondents in the execution of their contracts. The Madras General Sales Tax Act, 1939, contained certain provisions, whereby tax was imposed on the supply of materials in the execution of works contracts. The sole question which arose before the Supreme Court in that case was whether there was a transaction of sale in respect of those goods, and the power of the Madras Legislature to impose a tax on sales under entry 48 in List II of Schedule VII of the Government of India Act, 1935, extended to imposing a tax on the value of the materials used in works. After an exhaustive review of the relevant case law, the Supreme Court held (at pages 377-78): "It has been already stated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ilding contract does not pass to the other party to the contract as movable property, but the construction embedded on the land becomes an accretion to it, and it vests in the other party, not as a result of the contract, but as the owner of the land. The Supreme Court observed (at page 386) that the theory that a building contract can be broken up into its component parts, and as regards one of them it can be said that there was a sale, must fail on the grounds that there was no agreement to sell materials as such, and that property in them did not pass as movables. In order to avoid misconception, the Supreme Court has made it clear (at pages 387-88) that their conclusion in the said case had reference to works contracts which were "entire and indivisible" as in the case before them. The Supreme Court then proceeded to observe that contracts could, however, take several forms, and further stated (at pages 387-88) as follows: "It is possible that the parties might eater into distinct and separate contracts, one for the transfer of materials for money consideration, and the other for payment of remuneration for services and for work done. In such a case, there are really two ag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e which involves the exercise of the artistic skill of the photographer concerned. In support of his contention that the assessee's work involves skill and labour, he has relied upon certain photographic publications which show the highly technical nature of the operation of a photographer in the matter of taking a photograph, developing the film and preparing the prints and/or enlargements. It is, on the other hand, contended by Mr. Khambatta on behalf of the department that the essential feature of the business of a photographer is the production of goods for sale, and that, with the advance that has been made in the manufacture of cameras, and even in the matter of the subsequent process of developing, printing and enlarging in the studio, there is very little scope for the exercise by the photographer of skill of any nature, everything being regulated by mechanical gadgets in the camera itself, or by other scientific precision processes. In support of that contention, Mr. Khambatta has relied strongly on four reported decisions of various High Courts in the country, and also on a reported decision of the High Court of Australia, which, he has contended, are directly in point. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion of the same High Court in the case reported in Babulal v. D.P. Dube and Others [1955] 6 S.T.C. 255., which was followed in Masanda's case(1), had proceeded specifically on severability, and only the sale part of the transaction had been held liable to tax in that case, severability was assumed and the question of severability was not considered at all in Masanda's case(1). The next in point of time is the decision of the Patna High Court in the case of M. Ghosh v. State of Bihar[1961] 12 S.T.C. 154 at 156. The facts of that case were that the petitioner carried on the business of a professional photographer, and was the proprietor of a shop and a photographic studio in Patna, and he was assessed to sales tax for the period from 1st January, 1952, to 31st March, 1955. The contention of the petitioner before the sales tax authority was that sales tax could not be lawfully levied on finished articles like photographs, as the action of the petitioner in taking photographs of customers and developing and printing negatives was not tantamount to sale of goods within the meaning of the Bihar Sales Tax Act. Having failed at all stages of the proceedings before the revenue authoritie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ejecting that argument, it was observed in the judgment of the Madras High Court in Bhatta's case(3) (at pages 447-48), that when a customer goes into a photographer's studio and engages his services to take a picture, he is bargaining not merely for the special skill which the photographer has to produce a negative, but also to supply from that negative as many copies of the finished positive as the customer may require. In that connection, the Madras High Court relied (at page 449) on the fact that a professional commercial photographer does not surrender his negative, as showing that the bargain was for the supply of copies therefrom as finished goods, and was, therefore, not a contract of labour. I fail to see how the fact as to whether a photographer surrenders the negative or retains it could make any difference in deciding upon the real nature of the transaction. Though the Madras High Court has in Bhatta's case[1965] 16 S.T.C. 441. discussed several authorities on the point, I do not find anything in the judgment of the Madras High Court in that case by way of reasoning to commend itself to me. Moreover, in the judgment in that case also, the question as to whether the tran ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ployed to exercise his art to obtain a portrait possessing the qualities that are demanded by the taste it is his purpose to consult, and that the end of his labours is not the production of so many material objects regarded as vendible articles. The contention is open to the observation that it does not strictly adhere to the question in the special case, which assumes the sale of the photographs as goods, and inquires, are they produced or manufactured?......... In any case, we think the contention cannot prevail. The end of the organised business of a portrait photographer is to produce as many copies of a picture as his customer will buy, and to sell them to him with a view to profit. It differs from many other productive arts in the fact that its products must be designed in each case for one individual, and in its attempt to secure some aesthetic value. But it is a process practised commercially to produce an article which will be bought. A tailor must attempt to fit his individual customer and the manufacturer of ornaments might claim that his designs had an aesthetic purpose." Starke, J., who was the fourth judge constituting the majority, however, confined his judgment s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uss the principles that should be applied for the purpose of deciding the question of severability. In the case of Sundaram Motors (Private) Ltd. v. The State of Madras[1958] 9 S.T.C. 687., the facts were that the assessee-company which carried on business in selling and distributing motor vehicles also dealt in motor parts and accessories, and maintained a workshop where reconditioning or repairs of motor vehicles were undertaken. The court was, however, concerned in the said case mainly with transactions in the workshop department of the company in which the turnover would represent not only the labour charges as such, but the cost of spare parts or materials supplied or used in effecting the repairs. The Madras High Court, in deciding that case, held that there was no evidence of any anterior agreement between the parties in regard to the transaction, and the only evidence available consisted of the account books of the assessee-company, as well as the bills issued by it to the customers. It was pointed out in the judgment in the said case that, in the accounts, the assessee had made a distinction between cases of sales as such and cases of charges for labour and work, but the e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecific instructions of the customers. The assessees, in their turn, delivered the sari pieces to embroidery workers, who were to be paid piece-rates according to the work done by them, the jari material being supplied by the assessees to these workers, and after the embroidery work was completed, the saris were returned to the customers. The cost of the jari materials used in the embroidery work came to about 30 per cent. of the total charges charged by the assessees to their customers, for which one consolidated bill was sent by the assessees, which also showed the rates per sari. On an application by the assessees under section 27 of the Bombay Sales Tax Act, 1953, the revenue authorities held that the contract in question was, firstly, a contract for the supply of materials for a price, and, secondly, to get embroidery work done by workmen, and that the property in the materials passed to the customer before the materials were affixed to the saris. At the instance of the assessees, the following question was then referred to the Gujarat High Court: "Whether on the facts and in the circumstances of the case, the agreement with Messrs Pacific Traders (the customers of the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... abour as well as the supply of materials, therefore, are: whether there was an agreement, express or implied, between the parties that the materials should be treated as sold separatim, and whether the intention to sell the materials, as such, has been proved. Applying these tests to the transactions which are the subject-matter of each of the specimen bills in the present case in respect of the transaction embodied therein, in my opinion, the parties intended to enter into more than one contract, viz., for the sale of materials as well as for work and labour to be done, and those contracts are distinct and easily severable though they form part of one transaction under each of the said three bills. It is not possible to say that any of. those transactions embodies a pure contract for the sale of goods, or a pure contract for work and labour to be done. Each of these three transactions is in the nature of a transaction relating to work and materials, such as would fall within the second of the three broad categories into which they have been classified in the passage from the English case of Clay v. Yates[1856] 156 E.R. 1123. quoted in Benjamin on Sale at page 160, to which I have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed to certain technical processes which are known as "developing" processes. The first part of the transaction has, therefore, rightly been held by the Commissioner as well as the Tribunal not to be a contract of sale. There is, however, a clear intention to sell the prints as such, or as many copies of the prints as the customer may require, and an implied agreement that they should be sold separatim. These two contracts are distinct and severable parts of the transactions embodied in bill No. 95198, and the charges thereof are also clearly ascertainable, and are actually stated separately in the bill in question. Turning to the third type of transaction which is the subject-matter of bill No. 16531 and is of the most comprehensive nature, involving as it does the taking of the photograph in the studio, the developing of the film, and the furnishing of three prints thereof, there can be no doubt that the intention of the parties in respect of this transaction also was to enter into three distinct contracts. It is impossible to say that the first part of the transaction, viz., the taking of a photograph, is, even as a matter of plain language, a contract for sale. It is clearly a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and printing charges would be a negligible part of the amount of Rs. 4 which has been charged in bill No. 16531. By far the major part of it, therefore, relates to the photographer's skill and labour, and had I come to the conclusion that the transaction comprised in bill No. 16531 was "entire and indivisible", I would have held it to be, in essence, a works contract, and not a contract of sale. In my opinion, the dominant intention of the parties in regard to this type of transaction is not to buy or sell the negatives, or the prints. That is apparent from the fact that, even as a matter of plain language, no person who walks into a photographic studio to have a photograph taken of himself says, "I am going to buy my photograph." What the parties really intend to do would be correctly expressed by the customer's saying to the photographer, "I want to have a photograph taken, and to buy 3 prints of it which you must give me along with the negative." In such a case, what the parties, therefore, intend to do is to enter into three separate contracts which are distinct and severable, though they form part of one transaction. The first is a contract for the use of the labour and the ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m part of the single transaction that is embodied in each of the said three bills. In the case of each of the said three bills, therefore, as the Supreme Court has observed in Gannon Dunkerley and Co. (Madras) Ltd.'s case[1958] 9 S.T.C. 353., though there is a single instrument there is more than one agreement enbodied therein which can be, and should be, separated, and only such part of each of the said transactions as amounts to a sale of goods is liable to sales tax under the Act. I, therefore, answer the question that has been referred to this court in each of the three references as follows: Each of the transactions which is the subject-matter of determination by the Commissioner of Sales Tax embodies more than one contract, and only the following are liable to sales tax: (1) In the case of the transaction embodied in bill No. 60293, only the contract for the supply of the enlarged photographs as reproduced on paper of the particular size mentioned therein, excluding the work of preparing the enlargements which is a contract for skill and labour, amounts to a sale. (2) In the case of the transaction embodied in bill No. 95198, only the contract for the supply of prin ..... X X X X Extracts X X X X X X X X Extracts X X X X
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