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TMI Blog1991 (11) TMI 224X X X X Extracts X X X X X X X X Extracts X X X X ..... entire turnover thereby reporting the taxable turnover to be nil in the form A1 return filed by them. Before the assessing authority, the assessee claimed deduction of the entire turnover as labour charges received. On the other hand, the assessing authority was of the view that the assessee sold copies of documents taken in xerox photostat copies and consequently, the transaction should be considered to be sale of copies of the documents produced by them and subject to tax at 4 per cent. 3.. Aggrieved against the same, an appeal was filed before the first appellate authority which confirmed the view of the assessing officer. The first appellate authority was of the view that there is material distinction between taking photographs and xerox copies and unlike photography which involves works of skill and labour, the production of copies by utilising the xerox copying machine does not involve any peculiar work of skill and labour and consequently, the turnover was rightly subjected to tax. On further appeal before the Tribunal, the claim of the assessee was sustained holding that taking of copies with the help of xerox machine involves a process almost similar to photogr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owed the decision in Sales Tax Officer v. I.V. Somasundaran [1974] 33 STC 68 (Ker), was applied to come to the conclusion that transactions of the nature concerned therein can be, if at all, taken as constituting two contracts (a) for the sale of paper and (b) for the supply of labour and since the sale of paper was second sales in the hands of the assessee it will not be taxable and supply of labour also did not invite levy of sales tax. So far as the turnover relating to printing of question papers for educational institutions is concerned, the ratio of the decision in State of Tamil Nadu v. Anandam Viswanathan [1977] 39 STC 226 (Mad.) since affirmed by the Supreme Court in State of Tamil Nadu v. Anandam Viswanathan [1989] 73 STC 1 was applied to hold that it cannot be taken to be a contract for sale of a finished product and that in the nature of things, the same can be a contract only for labour. 6. In the decision of the Kerala High Court in I.V. Somasundaran case [1974] 33 STC 68, where the assessee was a printer and supplier of letter heads, invitation cards, wedding invitations, judgments of courts or ration cards, while expressing the view that the different ty ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... air. That question would naturally depend upon the facts and circumstances of each case. Mere passing of property in an article or commodity during the course of performance of the transaction in question does not render the transaction to be transaction of sale. Even in a contract purely of work or service, it is possible that articles may have to be used by the person executing the work, and property in such articles or materials may pass to the other party. That would not necessarily convert the contract into one of sale of those materials. In every case, the court would have to find out what was the primary object of the transaction and the intention of the parties while entering into it. It may in some cases be that even while entering into the contract of work or even service, parties might enter into separate agreements, one of work and service and the other of sale and purchase of materials to be used in the course of executing the work or performing the service. But, then in such cases, the transaction would not be one and indivisible, but would fall into two separate agreements, one of work or service and the other of sale. In Girija v. State of Karnataka [1984] 56 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f different nomenclature in describing the assessee and the absence of use of word sale in the contract were held not decisive or to affect the basic character of the contract. 10.. In Assistant Sales Tax Officer v. B.C. Kame [1977] 39 STC 237 the Apex Court considered the question in the context of a photographer undertaking photograph and supplying positive prints to customers. The Apex Court laid down the following relevant and essential tests in such cases: The question as to whether a contract is a contract of work and labour or a contract for sale is not one free from difficulty. The reason for that is that in border line cases the distinction between the two types of contract is very fine. This is particularly so when the contract is a composite one involving both a contract of work and labour and a contract of sale. Nevertheless, the distinction between the two rests on a clear principle. A contract of sale is one whose main object is the transfer of property in, and the delivery of the possession of, a chattel as a chattel to the buyer. Where the principal object of work undertaken by the payee of the price is not the transfer of a chattel qua chattel, the cont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... v. Guntur Tobaccos Ltd . [1965] 16 STC 240, the court observed as follows: The contract may be for work to be done for remuneration and for supply of materials used in the execution of the works for a price; it may be a contract for work in which the use of materials is accessory or incidental to the execution of the work; or it may be a contract for work and use or supply of materials, though not accessory to the execution of the contract, is voluntary or gratuitous. In the last class, there is no sale because though property passed it did not pass for a price. Whether a contract is of the first or the second class must depend upon the circumstances; if it is of the first, it is a composite contract for work and sale of goods; where it is of the second category, it is a contract for execution of work not involving sale of goods. It was further observed by the court in analysing the question of law with reference to the particular nature of the contract in the following terms: Normally, it may be that the goods prepared by the assessee which could not be exhibited for sale, would not be decisive of the matter and could in certain circumstances be sales liable to sal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TC 240. In our opinion, the contract in this case is one, having regard to the nature of the job to be done and the confidence reposed, for work to be done for remuneration and supply of paper was just incidental. Hence, the entire price for the printed question papers would have been entitled to be excluded from the taxable turnover, but since in the instant case the demand notes prepared by the assessee showed the costs of paper separately it appears that it has treated the supply of paper separately. Except the materials supplied on the basis of such contract, the contract will continue to be a contract for work and labour and no liability to sales tax would arise in respect thereof. 12.. After bestowing our thoughtful consideration to the problem before us in the light of the various judicial pronouncements referred to and some of those whose reference has been avoided to avert multiplicity and repetition, the basic test commended as acceptable seems to be as to what essentially is the nature of the contract and an answer to this has to be found by looking into the true perspective and the intention of the parties on an overall consideration of all relevant aspects an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ans of a xerox machine. To identify both to be one and the same would be turning one's blind eye to the special attributes and intricate nature of the work of a photographer highlighted in the decision of the Apex Court, reported in [1977] 39 STC 237 ( Assistant Sales Tax Officer v. B.C. Kame ) or basic principles underlying the case relating to the printer of question papers of educational institutions or court judgments. After a careful consideration of the various judgments referred to by the Tribunal as well as the peculiar facts and circumstances of the case on hand and the essential nature and vital features of the contract in question, we are of the view that supply of a xerox copy manufactured by the use of xerox machine for a price consists of an indivisible contract of sale and consequently the turnover relating to the same was rightly subjected to tax by the assessing authority. The conclusions and findings of the Tribunal do not lay down the correct position of law and consequently, we set aside the order of the Tribunal and restore that of the other authorities below. In the circumstances of the case, however, we make no order as to costs. Petition allowed. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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