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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 ..... t:- In order to constitute sale it is necessary that there is agreement between parties for purpose of transferring title to goods, agreement must be supported by money consideration and property should actually pass in goods – For being classified as works contract transaction, under consideration, must be composite transaction involving both goods and services – If transaction involves only service, i.e. work and labour, then it cannot be treated as works contract – Expression tax on sale or purchase of goods in Entry 54 of List II of Seventh Schedule, when read with definition clause 29-A of Article 366, includes tax on transfer of property in goods whether as goods, or in form other than goods, involved in execution of works contract Authorities had treated business transactions of assessees as sale of goods, and not as works contracts – Work involving preparation of negatives of wall-posters, was exclusively job work involving skill and labour, hence price charged thereof could not be subject to sales tax – However, second part of work involving printing of positive prints of wall- posters, was deemed to be works contract and, as such, tax was levied – Activity of printing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Appellant : Sri V. Bhaskar Reddy, Sri B.V. Ramamohan Rao Sri P. Chakravarthy For the Respondent: Sri Shaik Jeelani Basha, Spl. Standing Counsel for Commercial Taxes. (AP); and Special Government Pleader for Taxes JUDGMENT (Per Hon ble Sri Justice Ramesh Ranganathan) These appeals are preferred, under Section 23(1) of the APGST Act against the order passed by the Commissioner of Commercial Taxes dated 23.07.2003, setting aside the orders of the Appellate Deputy Commissioner, Guntur and Vijayawada, and restoring the orders of the assessing authority. It would suffice, for the purpose of adjudicating this batch of special appeals, if the facts in Special Appeal No.49 of 2003 are noted. The appellants herein, manufacturers of cine-wall posters, were finally assessed to tax, both under the APGST Act and the CST Act, from the assessment 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, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... short) in T.A. No.310 of 1991 in the case of M/s. Foto Colours, upheld the appellants contention, and allowed the appeals. Subsequently, the Appellate Deputy Commissioner passed another order setting aside the order of the Commercial Tax Officer withholding refund under the APGST Act and the CST Act, and directed that the amounts withheld, under the APGST and the CST Acts, be refunded to the appellants. Consequent thereto, the assessing authority revised the assessment order, and refunded the tax paid by the appellants. The Commissioner, Commercial Taxes issued notice dated 10.01.1996, calling upon the appellants to show cause why the order of the Appellate Deputy Commissioner should not be set aside, and the order passed by the assessing authority not be restored. The Commissioner observed that the dominant element, in the supply of wall posters, was 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 require ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the producer of the film; and creation of wall poster was a work of art, as the purpose of the wall poster was to sustain interest of the audience in the film even after the film had run for a considerable length of time. The appellants then narrated in detail the process of preparation of these wall posters commencing from its design till its eventual printing. They contended that there was no bargain, between the appellants and their customers, to sell paper, ink and colour; the only bargain between them was the wall poster which was required to be produced as per the agreed design; the basic object of the transaction was use of skill and labour to produce an exact replica of the design, but not sale of the material which had gone into its making; the contents of the design were reproduced and translated in the form of a wall poster; the customer became 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 po ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar customer, was not a commercial commodity, in the sense that it could not be sold in the market to any other person, the transaction was only a works contract; and the twin considerations were (1) whether the property was vested with the seller or whether it was a commercial commodity which could be used or supplied to anybody other than the customer. The Commissioner further held that the seller no doubt printed the wall poster as per the requirement of the customer, but it did not signify that the property in the goods stood transferred automatically to the buyer, the moment the wall poster was printed; these wall posters were used by the customers for publicity, and the transfer of property was effected by the selling dealer when the goods were handed over to the buying dealer; the selling dealer had to develop the poster as per the specifications clearly 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sale; the appellant did not place relevant material before the Commissioner; and they had pleaded that, if an opportunity was given to them, they would place all the relevant material before the Commissioner who should decide matters on the basis of such material, keeping in view the effect of the 46th amendment to the Constitution, which came into force in the year 1982. The Division bench was of the view that the matters required a fresh hearing by the Commissioner, and the appellants should be permitted to place relevant material before him to enable him to reach the conclusion whether the activity undertaken by the appellant would amount to sale within the meaning of Section 2(1)(n) of the APGST Act, liable to be taxed in terms of the provisions of the Act. The Division bench set aside the orders assailed in the special appeals, and remitted the matter to the 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 Comm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the manufacture of wall posters, on workers salaries, 2% on artist charges, and 80% on printing and processing; the predominant element, in the supply of cinema wall posters, was not skill and labour, but only sale of material i.e., paper, ink and colours; there was transfer of property in these goods to the customers; and the order of the Appellate Deputy Commissioner necessitated revision. In reply thereto, the appellants filed their written submissions on 03.07.2003 stating that the delay condonation application was filed before the Appellate Deputy Commissioner wherein they had stated that the mistake in payment of tax was a mutual mistake, on their part as well as that of the assessing authority, as the tax paid and collected was contrary to the established position of law; thereafter the ADC had issued a hearing notice, first of all to hear them on the delay condonation 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 AD ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aper as many times as there were plates. The appellants referred extensively to the provisions of the Copy Rights Act and the APGST Act, and to several judgments, in support of their contention that there was no sale involved in the printing of wall posters which was more in the nature of a job work involving skill and labour. The Commissioner, Commercial Taxes passed an elaborate order on 23.07.2003 holding that the contract involved production of a marketable commodity; commercial activity was reflected in the entire process, and was not dependent entirely on work and labour; the cost of material involved was 80%, and labour 20%; the essence of the process was the sale of a finished product, and not a case where work and labour were alone involved; and all the objections raised by the dealer were untenable and were liable to be rejected. The Commissioner, Commercial Taxes 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pellants to show cause why the order of the Appellate Deputy Commissioner should not be set aside, and the order of the assessing authority not be restored. After the appellants submitted their reply thereto by their letter dated 30.09.1996, the Commissioner, by his order dated 21.03.1997, set aside the order of the Appellate Deputy Commissioner, and restored the order of the assessing authority. It is relevant to note that the Commissioner, in his notice dated 10.01.1996, did not propose to revise the order of the Appellate Deputy Commissioner on the ground that he could not have entertained the appeal after the limitation prescribed for preferring the appeal had expired. The order of the Commissioner dated 21.03.1997 was set aside by a Division bench of this Court, by its order in Special Appeal No.25 of 1997 and batch dated 09.12.2002; and the matter was remanded to the Commissioner for 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... skar Reddy, Learned Counsel appearing on behalf of the appellants, would submit that the Commissioner erred in holding that the transactions, relating to printing and supply of cine wall-posters, was a sale and not a works contract; the Division Bench of this Court, in State of Andhra Pradesh v. M/s.Dinakar Litho Printers Pvt. Ltd. , held that printing and supply of cine wall-posters is in the nature of a works contract; the assessment years, both under the APGST and the CST Acts, relate to periods prior to the assessment year 1993-94; the term works contract was given a restricted meaning under the APGST Act during the said period, and did not include the works contracts of printing and supply of cine wall-posters; it is only by way of an amendment from 01.04.1995 was the restricted meaning, given earlier to the term works contract, removed and the definition given an extended meaning; while printing 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 supp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g within its fold goods in a form other than as goods. Goods in some other form would thus mean goods which had ceased to be chattel or movables or merchandise, and had acquired some other form. A transfer of property in goods, under clause 29-A(b) of Article 366, is deemed to be a sale of the goods involved in the execution of a works contract by the person making the transfer, and the purchase of those goods by the person to whom such transfer is made. (Larsen and Toubro Ltd.5; Pro Lab.2; Kone Elevator India (P) Ltd. v. State of T.N. (2014) 7 SCC 1)). Consequently, wherever the expression tax on the sale or purchase of goods is used in the Constitution, the said expression would include a tax on the transfer of property in goods involved in the execution of a works contract. The decisions of the Supreme Court, which related to the period prior to the fortysixth amendment of the Constitution when Article 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... imposition is the value of the goods involved in the execution of a works contract. Since the taxable event is the transfer of property in goods involved in the execution of a works contract, and the said transfer of property in such goods takes place when the goods are incorporated in the works, the value of the goods which constitute the measure for the levy of the tax is the value of the goods at the time of incorporation of the goods in the works, and not the cost of acquisition of the goods by the contractor. (Larsen and Toubro Ltd. (2013) 65 VST 1 (SC)). In order to constitute a sale it is necessary that there should be an agreement between the parties for the purpose of transferring title to the goods, the agreement must be supported by money consideration, and that, as a result of the transaction, the property should actually pass in the goods. Unless all the ingredients are present in the transaction 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eloping negatives, photo prints etc. is negligible, is founded on the dominant intention theory which is no longer valid in view of the 46th Amendment to the Constitution. (Pro Lab (2015) 78 VST 451 (SC)). As the dispute, in this batch of appeals, is whether the subject transactions are sale of goods, or a works contract, it is necessary to understand what the expression works contracts means. For sustaining the levy of tax on the goods, deemed to have been sold in the execution of a works contract, three conditions must be fulfilled: (i) there must be a works contract, (ii) the goods should have been involved in the execution of a works contract, and (iii) the property in those goods must be transferred to a third party either as goods or in some other form. (Larsen and Toubro Ltd. (2013) 65 VST 1 (SC)). For being classified as a works contract the transaction, under consideration, must be a composite transaction 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an obligation to supply goods and materials, as well as installation of the lift, which conveys performance of labour and service; and the fundamental characteristics of a works contract were satisfied in such contracts. The power to make laws is conferred on Parliament and the State Legislatures under Articles 245 and 246 of the Constitution. Article 246(1) confers exclusive power on Parliament to make laws with respect to any of the matters enumerated in List-I of the VII Schedule to the Constitution. Article 246(3) enables the State Legislatures, subject to clauses (1) and (2), to make laws for such State or any part thereof with respect to any of the matters enumerated in List II of the VII Schedule to the Constitution. Entry 92-A of List-I of the VII Schedule relates to taxes on the sale or purchase of goods other than newspapers, where such sale or purchase takes place in the course of inter-State trade or commerce. 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- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urchase of goods referred to in the respective entries, both Parliament and the State Legislatures have, in view of Article 366(29A)(b), the power to make a law levying tax on the transfer of property in goods involved in the execution of a works contract. While the aforesaid provisions of the Constitution confer power on the legislature (Parliament and the State Legislatures) to make a law levying tax on the deemed sale of goods involved in the execution of a works contract, it is only on such a law being made can the dealer be made liable to tax on the deemed sale of goods involved in the execution of a works contract. It is necessary to now examine the law as it stood for the years prior to 31.03.1995, since all the appeals relate to assessments made under the APGST and CST Acts for assessment years prior to 1991-92. Special Appeal Nos.49, 50, 52, 55, 56, 58, 59, 64, 65, 66, 71, 72 and 73 of 2003 are the appeals which arise 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of any movable property. Section 2(t) was amended, subsequently, by Act 22 of 1995 w.e.f. 01.04.1995 and, after its amendment, included any agreement for carrying out for cash or for deferred payment or for any other valuable consideration, the building construction, manufacture, processing, fabrication, erection, installation, fitting out, improvement, modification, repair and commissioning of any moveable or immovable property. While the definition of works contract, prior to 01.04.1995, began with the words means, the definition of works contract after 01.04.1995 began with the word includes. An interpretation clause in a Statute may serve two different purposes. If it states at greater length what an expression used in the other provisions in the Statute means, it is no more than a drafting device to promote economy of language. It is a direction to the reader: Wherever you see this shorter expression in the statute you must treat 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aration of negatives of the wall-posters, was exclusively a job work involving skill and labour and, hence, the price charged for preparation thereof could not be subject to sales tax. However, the second part of the work involving printing of positive prints of wall- posters, in several copies, was deemed to be a works contract and, as such, tax was levied. The questions of law, framed for consideration in the revision cases filed before the High Court by the Revenue, were (1) whether the activity of preparing negatives and positives for delivery to customers was a job work as contended by the dealers, or a sale transaction; and (2) whether the STAT was justified in setting aside the orders of the lower authorities and remanding the matter to the assessing authority. Before the Division Bench, it was represented by the learned counsel for the parties, that, in view of the judgments of the Supreme Court in Larsen Toubro (2013) 65 VST 1 (SC) 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 2(t), and were therefore not exigible to tax under the APGST Act during the relevant assessment years prior to 31.03.1995. Special Appeal Nos.51, 53, 54, 57, 60, 61, 62, 63, 67, 68, 69 and 70 of 2003 are the appeals which arise out of the revisional order passed by the Commissioner, Commercial Taxes under the provisions of the C.S.T.Act. These appeals relate to different assessment years from 1985-86 to 1990-91. The legislative power of the States, under Entry 54 of the State List, is subject to two limitations - one flowing from the entry itself which makes the said power subject to the provisions of Entry 92-A of List I, and the other flowing from the prohibition contained in Article 286. The legislative power under Entry 54 of the State List is not available in respect of transactions of sale or purchase which take place in the course of inter-state trade or commerce. As a result of Article 286(1), the legislative power conferred under 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 15 of the Central Sales Tax Act. (Larsen and Toubro (2013) 65 VST 1 (SC); Gannon Dunkerley Co. (1993) 88 STC 204; Pro Lab (2015) 78 VST 451 (SC)). Section 2(g) of the CST Act, prior to its substitution by Finance Act 20 of 2002 w.e.f. 13.05.2002, defined sale, with its grammatical variations and cognate expressions, to mean any transfer of property in goods by one person to another for cash or for deferred payment or for any other valuable consideration, and to include a transfer of goods on the hire-purchase or other system of payment by instalments, but not to include a mortgage or hypothecation of or a charge or pledge on goods. After its substitution w.e.f. 13.05.2002, Section 2(g) of the CST Act defined sale, with its grammatical variations and cognate expressions, to mean any transfer of property in goods by one person to another for cash or deferred payment or for any other valuable consideration, and to include a transfer of property 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 provis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ddy, Learned Counsel for the appellants, would submit that the Appellate Deputy Commissioner, after having set aside the order of the assessing authority seeking to levy tax on these transactions, had subsequently set aside the order of the assessing authority withholding refund under Section 33(BB) of the APGST Act; the order of the Appellate Deputy Commissioner, to the extent it set aside the order of the assessing authority refusing to refund the tax, has attained finality; it was not, therefore, open to the Commissioner to direct the appellants to pay tax under the APGST Act and the CST Act on these transactions; the appellants are not liable to be taxed on these transactions; and, even if they have paid the tax which was later refunded to them, they cannot now be asked to repay the said amount as any action, for forfeiture of refund, can only be made within three years. The assessing authority assessed the appellants to tax on the transactions of manufacture, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eased to remain in force; and the order of the assessing authority, wherein it was held that the transaction amounted to sale, stood restored. As a result thereof, the appellants-assessees were liable to pay tax, under the APGST and CST Acts, on such transactions. The mere fact that the subsequent order of the Appellate Deputy Commissioner, whereby the order of the assessing authority withholding refund of tax was set aside, has attained finality matters little, as the subsequent order of the Appellate Deputy Commissioner is merely a consequence of his earlier order which was set aside by the revisional order of the Commissioner. As long as the order of the Commissioner remained in force, the appellants-assessees continued to remain liable to pay tax. It is only by the order now passed by us, have the subject transactions been held not to be a sale of goods exigible to tax under the APGST and CST Acts. It is of no consequence, therefore, that the subsequent order 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 ea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed on, as the case may be. Whether the claim for restitution is treated as a constitutional imperative or as a statutory requirement, it is neither an absolute right nor an unconditional obligation but is subject to the above requirement. Where the burden of the tax/duty has been passed on, the claimant cannot say that he has suffered any real loss or prejudice. The real loss or prejudice is suffered, in such a case, by the person who has ultimately borne the burden, and it is only that person who can legitimately claim its refund. But where such person does not come forward, or where it is not possible to refund the amount to him for one or the other reason, it is just and appropriate that the amount is retained by the State, i.e., by the people. There is no immorality or impropriety involved in such a proposition. (Mafatlal Industries Ltd. (1997) 5 SCC 536 ). If, as is now contended before us by Sri Shaik Jilani Basha, Learned Special Standing Counsel for Commercial 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 Commissi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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