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TMI Blog2015 (8) TMI 447X X X X Extracts X X X X X X X X Extracts X X X X ..... essment year 1985-1986 upto the year 1990- 91, on the turnover relating to cine wall posters treating them as sales exigible to tax under the APGST and the CST Acts. Aggrieved thereby, the appellants carried the matter in appeal, before the Appellate Deputy Commissioner, contending that their business related purely to skill and labour, and not to sale of goods or material; the entire process of litho-printing involved high skill, at several stages, before the cinema wall posters came into existence; the following steps were involved in the process of manufacture of cine wall posters (1) preparing the design; (2) taking photographs of the design; (3) developing negatives, of the design, of the required size; (4) taking as many negatives as there were colours i.e., one negative for each colour; (5) giving touches to each negative; (6) exposing the negative on zinc or aluminium sheets; (7) attaching the zinc or aluminium sheets to the printing machines; and (8) printing on paper as many times as there were plates; when a customer approached them, they prepared 3 to 4 designs keeping in view the size of the picture, the colour scheme, and placement of the pictures; emphasis was placed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s not skill and labour; different materials namely paper, colours, and ink were involved; photographs, taken for private use, could be considered as works of art and skill; wall posters, which were printed on a large scale for the purpose of advertisement, had commercial value; they did not involve skill and labour; what was required to be examined was not the complicated process of making a commodity, but the basic object of the transaction; in the present case, it was a sale of wall posters that was the subject matter of the contract between the assessee and the purchaser; it was not a case of supply of skill and labour; to determine the taxability of publicity materials, the test to be adopted was the test of predominance of whether, in the end product, the value of material was more or the value of service was more; a random analysis of the cost of expenditure, involved in the manufacture and printing of cine-wall posters, revealed that the assessee was spending roughly 10% of the total cost on workers salaries, 2% on artists charges, and 80% on printing and processing; the predominant element, in the supply of wall posters, was not skill and labour, but material ie paper, ink ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ame the owner of the wall poster; hence there was no property in the thing produced as a whole; the things produced as a whole, i.e., wall poster, belonged to the customer as the design belonged to him; the printer could not sell it to any other person in the market, as he did not have any title over the property i.e., the wall poster; the transaction was in the nature of a works contract involving skill and labour; the design owner was the customer; once the customers design was reproduced in the form of wall posters, the customer became its owner; the title, in the wall poster, remained vested in the customer even though the design was reproduced in the form of a wall poster; as the title in the wall poster was vested in the customer, the appellants could not pass title; the consideration, they received from the customer, was only for the services rendered by them, and not for passing of title; in the instant case, i.e., in the wall poster, passing of material to the customer, in the form of paper, inks, etc, was purely incidental; the basic object of the transaction was to convert the customers design to that of a wall poster; the bargain, between the customer and the appellant, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rly mentioned by the buying dealer, and once the buying dealer was satisfied that the wall posters confirmed to the specifications, he took delivery of the goods and then the transfer of property was effected; the buyer purchased the raw material and used the same to develop the design and make the poster; the property in the goods was vested with the seller till such time payment was made, and delivery was effected; the wall posters were sold by distributors to the exhibitors for a price, and was not used exclusively by the exhibitors for their personal use; persons, who bought these wall posters, used them as publicity material for the film; these posters were resold by them to distributors, and to the exhibitors; the exhibitors in B and C class centres bought the wall posters, and in some cases the distributors themselves screened the shows in theatres using wall posters as publicity material for themselves; it only showed that it was a commodity put up for sale; it had all the ingredients of a commercial commodity; it was not meant for personal and exclusive use of any individual; the very fact that the dealer had obtained the required amount of paper, chemicals, ink and zinc s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Commissioner, Commercial Taxes directing him to rehear these matters under Section 20 of the APGST Act by giving them an opportunity to place all relevant material in support of their case. The Commissioner was also directed to indicate the date of hearing to enable the appellants to participate in the hearing. The Commissioner was requested to decide the appeals as expeditiously as possible and within a period of six months from the date of receipt of a copy of the order. The Division bench made it clear that the Commissioner was entitled to decide the matters afresh in accordance with law. The Commissioner, Commercial Taxes issued show cause notice dated 04.06.2003 wherein it was stated that the order of the Appellate Deputy Commissioner was erroneous and unsustainable; the appellate authority should have seen that, when a dealer files an appeal with delay, each days delay involved in filing the appeal should be explained in the petition for condoning the delay; the dealer had filed the appeal with a delay condonation petition of 165 days; the Appellate Deputy Commissioner had mechanically condoned the enormous delay, without examining the fact whether such delay was because of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndonation petition, and the matter was argued; thereafter they had received another notice from the ADCs office for hearing on merits; they had inferred that the delay was condoned as otherwise it was not possible to hear the appeals on merits; there was a change in the office of the ADC and, subsequently, another ADC heard the matter on merits; condonation of delay was not the subject matter of revision by the Commissioner, Commercial Taxes earlier; the irregularity in conducting the appeal was neither pleaded nor raised nor argued in the High Court in the Special Appeals; it could not, therefore, be a ground in the extended revision proceedings under Section 20(1) read with Section 20(5) of the APGST Act; and the decision of the ADC, on condonation of delay, was allowed to become final at the volition of, and at the behest of, the department. On the question of unjust enrichment, the appellants contended that the proceedings of the CTO, withholding refund of the tax under Section 33(BB) of the APGST Act, was not before the Commissioner, Commercial Taxes; no objection was taken against the said order of the ADC which attained finality on the expiry of three years; the question of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s set aside the order of the Appellate Deputy Commissioner, and restored the order of the assessing authority. Aggrieved thereby the present appeals. The points which arise for consideration in these appears are: 1. Whether the Commissioner (Commercial Taxes) could have revised the order of the Appellate Deputy Commissioner on the ground that the appeal should not have been entertained as it was filed belatedly, when no such ground was raised in the earlier show cause notice proposing to revise the order of the Appellate Deputy Commissioner? 2. Whether printing and supply of cine-wall posters was in the nature of works contract and, if so, could it be subjected to tax as deemed sale of goods under the Andhra Pradesh General Sales Tax Act, 1957 and the Central Sales Tax Act, 1956 for the assessment years ending prior to 31.03.1993 ? 3. Whether the Commissioner (Commercial Taxes) could have directed the appellants to pay tax under the Andhra Pradesh General Sales Tax Act, 1957, and the Central Sales Tax Act, 1956, on such transactions when the order of the Appellate Deputy Commissioner, setting aside the order of the assessing authority withholding refund under Section 33-BB of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rehearing, after the appellants placed relevant material before the Commissioner to enable him to decide whether the activity, undertaken by the appellants, amounted to sale, within the meaning of Section 2(1)(n) of the APGST Act, liable to be taxed under the provisions of the said Act. It is only to this limited extent was the Commissioner permitted to re-hear the matter, and decide the revision afresh. It was, therefore, not open to the Commissioner to revise the order of the Appellate Deputy Commissioner on grounds other than those referred to in his show cause notice dated 30.09.1996. The Commissioner exceeded his jurisdiction in passing the order dated 23.07.2003, and thereby setting aside the order of the Appellate Deputy Commissioner, among others, on the ground that the appeal could not have been entertained belatedly. Unlike the proviso to Section 19(1) of the APGST Act, after its substitution by A.P. Act 8 of 1997 w.e.f. 04.01.1997, Section 19(1) of the APGST Act, as it stood during the relevant assessment years, enabled the Appellate Deputy Commissioner to condone the delay in preferring the appeal. Section 19 of the APGST Act related to appeals and, under sub-section (1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng and supply of cine wall-posters is a works contract, it was not among the works contract specified under Section 2(t) of the APGST Act during the relevant period; consequently the Commissioner could not have assessed the appellants to tax, under the APGST Act, on the printing and supply of cine wall-posters; the term works contract has been defined under the CST Act only from 01.04.2005; for the assessment years prior thereto, the appellants could not have been subjected to tax, on the deemed sale of goods involved in the execution of a works contract, even under the CST Act; and, in the absence of the term works contract being defined under the CST Act, the Commissioner erred in revising the order of the Appellate Deputy Commissioner. On the other hand Sri Shaik Jilani Basha, Learned Special Standing Counsel for Commercial Taxes, would submit that the order of the Commissioner is valid; these transactions relate to sale of cine wall-posters, and are not works contracts; and, even if they are held to be works contracts, the assessing authority is entitled to levy tax on the deemed sale of goods involved in such works contracts. Learned Special Standing Counsel would rely on Sta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 366(29A) was inserted, held that a works contract could not be split, and the State Legislatures lacked legislative competence to levy sales tax on a transaction which was not a sale of goods simpliciter. (Pro Lab (2015) 78 VST 451 (SC). In view of the forty-sixth amendment to the Constitution, the States now have the power to bifurcate the contract, and to levy sales tax on the value of the material used in the execution of a works contract. In other words, Article 366 (29- A) empowers the States to levy tax on the deemed sale of goods. (Larsen and Toubro Ltd. Larsen). After insertion of Article 366(29-A) a works contract, which was indivisible, has, by legal fiction, been altered into a contract which is permitted to be bifurcated into two, one for "sale of goods", and the other for "services", thereby making the goods component of the contract exigible to sales tax. (Pro Lab (2015) 78 VST 451 (SC). The following propositions are now well established: (i) as a result of the forty-sixth amendment to the Constitution, the contract which was single and indivisible has been altered by legal fiction into a contract which is divisible into one for sale of goods and the other for sup ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on there can be no sale of goods, and sales tax cannot be imposed. (Commissioner of Taxes, Assam v. Prabhat Marketing Co. Ltd. (1967) 19 STC 84). Generally a contract to make a chattel and deliver it, when made, is a contract of sale, but not always. The test would seem to be whether the thing to be delivered has any individual existence before delivery as the sole property of the party who is to deliver it. (Pollock and Mulla on Sale of Goods Act (1990, Fifth Edition, at page 53; Hindustan Shipyard Limited4). A contract may involve both a contract of work and labour and a contract of sale of goods. The distinction between a contract for the sale of goods and a contract for work (or service) has almost diminished in matters of composite contracts involving both (a contract of work/labour and a contract for sale) for the purposes of Article 366 (29-A)(b). Now, by legal fiction under Article 366(29- A)(b), it is permissible to make such a contract divisible by separating the transfer of property in goods (as goods or in some other form) from the contract of work and labour. (Larsen and Toubro Ltd. Larsen). The dominant nature test or overwhelming component test or the degree of labo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction involving both goods and services. If a transaction involves only service, i.e. work and labour, then it cannot be treated as a works contract. (Pro Lab. (2015) 78 VST 451 (SC)). After the 46th constitutional amendment, the narrow meaning given earlier to the term "works contract" no longer survives. Once the characteristics or elements of a works contract are satisfied in a contract then, irrespective of the additional obligations, such a contract would be covered by the term "works contract" because nothing in Article 366(29A)(b) limits the term "works contract" to contract for labour and service only. (Kone Elevator India Pvt. Ltd.6; Pro Lab (2015) 78 VST 451 (SC)). The term works contract, in Article 366(29- A)(b), is wide and cannot be confined to a particular understanding of the term or to a particular form. The term encompasses a wide range and many varieties of contracts. The Parliament had such a wide meaning of a works contract in view, at the time of the forty-sixth amendment. Even if in a contract, besides the obligations of supply of goods and materials and performance of labour and services, some additional obligations are imposed, such a contract does not cea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mmerce. Entry 54 of List-II of the VII Schedule relates to taxes on the sale or purchase of goods other than newspapers, subject to the provisions of Entry 92A of List-I. The expression tax on sale or purchase of goods, both in Entry 92A of List-I and Entry 54 of List-II of the VII Schedule, must be given the meaning referred to in Article 366 (29A) of the Constitution of India. The expression tax on the sale or purchase of goods in both the aforesaid entries would include a tax on the transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract. The tax leviable, by virtue of sub- clause (b) of clause (29-A) of Article 366 of the Constitution, thus becomes subject to the same discipline to which any levy under Entry 54 of the State List is made subject to under the Constitution. The 46TH Amendment does no more than making it possible for the States to levy sales tax on the price of goods and materials used in works contracts as if there was a sale of such goods and materials. As the Constitution exists today, the power of the States to levy taxes on sales and purchases of goods, including the "deemed" sales and purchases of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rise out of the revisional order passed by the Commissioner, Commercial Taxes under the provisions of the APGST Act. These appeals relate to different assessment years from 1985-86 till 1990-91. Section 2(n) of the APGST Act, as inserted by Act 18 of 1985 w.e.f.1.7.1985, defined Sale, with all its grammatical variations and cognate expressions, to mean every transfer of the property in goods (whether as such goods or in any other form), in pursuance of a contract or otherwise, by one person to another in the course of trade or business for cash, or for deferred payment, or for any other valuable consideration or in the supply or distribution of goods by a society (including a co-operative society), club, firm or association to its members, but not to include a mortgage, hypothecation or pledge of, or a charge on, goods. Under Explanation VI thereto, (as inserted by Act 18 of 1985 w.e.f.1.7.1985), whenever any goods were supplied or used in the execution of a works contract, there was deemed to be a transfer of property in such goods, whether or not the value of the goods so supplied or used in the course of execution of such works contract was shown separately, and whether or not t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eat it as being shorthand for the longer one. Alternatively an interpretation clause may be used by the draftsman not to define the meaning of an expression appearing in the statute but to extend it beyond the ordinary meaning which it would otherwise bear. An indication that this may be its purpose is given if it purports to state what the expression includes instead of what it means. (Inland Revenue Commissioners v. Joiner ). Generally, when the definition of a word begins with means it is indicative of the fact that the meaning of the word has been restricted; that is to say, it would not mean anything else but what has been indicated in the definition itself. (Feroze N. Dotivala v. P.M. Wadhwani (2003) 1 SCC 433 )). The use of the word means indicates that the definition is a hard-and-fast definition, and no other meaning can be assigned to the expression than is put down in definition. The word includes, when used, enlarges the meaning of the expression defined so as to comprehend not only such things as they signify according to their natural import, but also those things which the clause declares that they shall include. (P. Kasilingam v. P.S.G. College of Technology (1995 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nbsp; and Pro Lab (2015) 78 VST 451 (SC), the questions which arose for consideration, in the batch of cases, were already answered; with regards the first limb i.e., preparation of negatives and delivery etc., to the customers, the Supreme Court had held that it also amounted to a works contract which was part of a deemed sale; and, in that view of the matter, the order of the STAT, to the extent of exempting tax on the first limb i.e., preparation of negatives of wall-posters, was liable to be set aside. The Division Bench remanded the matter to the assessing authority with a direction to make fresh assessment after treating the entire work as a works contract. While the subject transactions, undoubtedly, constitute a works contract as it is a composite contract of sale of goods and of labour and services, it is not all types of works contracts which could be subjected to tax under the APGST Act prior to 01.04.1995. By the use of the word means in the definition of works contract, under Section 2(t) of the APGST Act as it stood prior to 01.04.1995, the legislature intended to subject only such works contracts to tax under the APGST Act as were specified in Section 2(t) of the Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r Entry 54 of the State List does not extend to imposing tax on a sale or purchase of goods which takes place outside the State or which takes place in the course of import or export of goods. In view of the aforesaid limitations, imposed by the Constitution, on the legislative power of the States under Entry 54 of the State List, it is beyond the competence of the State Legislature to make a law imposing or authorising the imposition of tax on the transfer of property in goods involved in the execution of a works contract, with the aid of Sub-clause (b) of Clause (29-A) of Article 366, in respect of transactions which take place in the course of inter-State trade or commerce or transactions which constitute sales outside the State or sales in the course of import or export. Consequently it is not permissible for a State to frame the legislative enactment, in exercise of the legislative power conferred by Entry 54 of the State List, in a manner as to assume the power to impose tax on such transactions, and thereby transgress these constitutional limitations. When a law is enacted by Parliament under Article 286(3) the legislative power of the States under Entry 54 in the State Lis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rty in goods (whether as goods or in some other form) involved in the execution of a works contract. Section 6 of the CST Act relates to liability to tax on inter-State sales and, under sub-section (1) thereof, subject to the other provisions contained in the Act, every dealer shall be liable to pay tax under the Act on all sale of goods, other than electrical energy, effected by him in the course of inter-State trade or commerce during any year on and from the date so notified. It is only after the amendment of the definition of sale under Section 2(g) of the CST Act, with effect from 13.05.2002, that the deemed sale of goods, involved in the execution of a works contract, were brought within the definition of sale. As the assessment years under the CST Act, in relation to the appeals which form part of this batch, are long prior to 13.05.2002, no tax could be levied under the CST Act on the subject transactions. Section 2(j) of the CST Act defines turnover, used in relation to any dealer liable to tax under the CST Act, to mean the aggregate of the sale prices received and receivable by him in respect of the sale of any goods in the course of inter-State trade or commerce made d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anufacture, printing and supply of cine wallposters holding that it amounted to sale of goods exigible to tax under the APGST and CST Acts. It is this order of the assessing authority which was set aside in appeal by the Appellate Deputy Commissioner on the ground that these transactions did not amount to sale of goods, or sale of material, as it involved a high degree of skill and labour. As the appellants had already paid tax, the consequence of the order of the Appellate Deputy Commissioner was that they were entitled to claim refund of the tax paid by them earlier. The assessing authority, however, withheld the refund order exercising powers under Section 33-BB of the APGST Act. Section 33-B of the APGST Act related to refund on appeal and, where as a result of any order passed in appeal or other proceeding under the Act, refund of any amount became due to the assessee, the assessing authority was required to refund the amount to the assessee, without his having to make any claim in that behalf, or adjust or apply such amount as provided in Section 33. Section 33-BB of the APGST Act related to non-refund of tax in certain cases and, where a levy and collection of tax was held ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der of the Appellate Deputy Commissioner, setting aside the order of the assessing authority withholding refund of tax under the APGST and CST Acts, has attained finality. The Commissioner was not disabled from revising the earlier order of the Appellate Deputy Commissioner merely because he did not revise the subsequent order which was only a consequence of the earlier order. This point is answered in the affirmative, and in favour of the revenue. Point No.4: Sri Shaik Jilani Basha, Learned Special Standing Counsel for Commercial Taxes, would submit that the appellants had collected tax from their customers, and had retained them; such retention amounts to unjust enrichment; and the revenue is, therefore, entitled to recover the amount which the appellants had collected from their customers, on the printing and supply of cine wall- posters, and had retained them. While the order of the Commissioner, treating the subject transactions as sale of goods and levying tax under the APGST and CST Acts is no longer valid, the question which still remains to be examined is whether the appellants-assessees can be permitted to retain the amounts collected by them from their customers on th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Taxes, that the appellants have collected tax on the manufacture and supply of cine wall-posters treating such transactions as sale of goods, then, notwithstanding the fact that the revisional order of the Commissioner is set aside and it is now held that the said transactions were not exigible to tax under the APGST and CST Acts during the relevant period, the appellants cannot be permitted to retain the amount collected by them from their customers as that would resulted in their unjust enrichment. As long as the revisional order of the Commissioner remained in force, the appellants were liable to tax under the Act. It is only by the order now passed by us, has the matter been put at rest, and the appellants have been held not liable to pay tax on the manufacture and supply of cine wall-posters. The period of limitation for recovery of the amounts, if any, retained by the appellants after collecting them as sales tax from their customers, would, therefore, commence only from the date of this order. The assessing authority shall, after giving the appellants an opportunity of being heard, consider whether the appellants have collected tax on these transactions from their customers ..... X X X X Extracts X X X X X X X X Extracts X X X X
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