2010 (4) TMI 969 - HC - VAT and Sales Tax

Whether the items mentioned in the entry did not involve a simple sale of goods? Held that - It is possible that during festival times a purchaser may place orders for 1000 diaries or 1000 address books which are readily available with the supplier. Since these address books or diaries will be distributed to the customers for Deepavali or New Year the purchaser might ask the supplier to print his name or affix the label. Then the mere fact that the labels have been printed bearing the name of the particular customer will not make it a works contract. It is obvious that a diary bearing the name XYZ Limited cannot be sold to anyone else but when the supplier has stocks of diaries where he merely prints XYZ Limited or ABC Limited and gives them to his customers that printing will not turn the transaction into a works contract. It is purely and simply a sale of goods. Here the printing of the logo is incidental to the sale and the transaction between the supplier and the purchaser is not work charged. The fact that the Legislature has introduced the additional word in Entry-40 will not change the position of law in any manner. The authorities will have to examine each transaction and look at the contract in question and decide whether it is works contract or whether it is only a sale. The mere fact of bearing the logo or name upto the specification to the customer s will not make it a works contract.

Summary

Issues Involved:
1. Constitutionality of G.O. Ms. No.66, Commercial Taxes (B1) dated 16.8.2001.
2. Classification of transactions as "sale of goods" or "works contract."
3. Legislative power to amend tax schedules and entries.
4. Interpretation of "sale" and "works contract" under the Tamil Nadu General Sales Tax (TNGST) Act and the Constitution.

Issue-wise Detailed Analysis:

1. Constitutionality of G.O. Ms. No.66, Commercial Taxes (B1) dated 16.8.2001:
The petitioners challenged the constitutionality of G.O. Ms. No.66, arguing that the inclusion of printed materials in the taxable category under the TNGST Act was outside the powers of the State Legislature and violated established legal principles. They cited various judgments from the Madras High Court and the Supreme Court, asserting that the amendment attempted to tax works contracts as sales of goods, which was unconstitutional. The court examined the legislative power to classify goods and amend tax schedules, ultimately rejecting the petitioners' challenge. The court held that the G.O. did not change the legal position that the nature of the contract (sale or works contract) must be determined based on the specific terms of each contract.

2. Classification of Transactions as "Sale of Goods" or "Works Contract":
The court analyzed whether transactions involving printed materials constituted sales of goods or works contracts. The petitioners argued that the transfer of goods in works contracts was incidental and that the State could not tax such transactions as sales. The court reviewed various judgments, including those involving printing of question papers, account books, and other materials, concluding that each transaction must be examined individually. The court emphasized that the mere printing of a name or logo on goods did not automatically classify the transaction as a works contract. Instead, the nature of the contract and the intention of the parties must be considered.

3. Legislative Power to Amend Tax Schedules and Entries:
The court addressed the legislative authority to classify goods and amend tax schedules. The petitioners contended that the State could not redefine a sale to include transactions outside its jurisdiction. The court referred to the Supreme Court's rulings affirming the legislature's broad latitude in classifying objects for taxation. It was noted that the entries in the Schedule could not override the provisions of the Act. The court upheld the State's power to amend the Schedule, provided that the classification was consistent with the Act's provisions.

4. Interpretation of "Sale" and "Works Contract" under the TNGST Act and the Constitution:
The court examined the definitions of "sale" and "works contract" under Section 2(n) and Section 3(B) of the TNGST Act and Article 366(29A) of the Constitution. The petitioners argued that the State could not tax works contracts as sales by merely amending the Schedule. The court reviewed precedents where the Supreme Court and High Courts had distinguished between sales and works contracts. It was reiterated that the determination depended on whether the transfer of property was incidental to the contract for work or the primary objective. The court concluded that the classification must be based on the specific terms and conditions of each contract.

Conclusion:
The court dismissed the writ petitions, upholding the constitutionality of G.O. Ms. No.66 and affirming the State's power to classify and amend tax schedules. It emphasized that the determination of whether a transaction was a sale or a works contract required a detailed examination of the specific contract's terms and conditions. The court rejected the notion that the mere inclusion of printed materials in the Schedule could automatically classify all such transactions as sales of goods.