2015 (11) TMI 1427 - HC - VAT and Sales Tax

Works contract activity or pure sales activity - printing annual report as per the specification - Exemption on the sales turnover - penalty under Section 12(3) of the Tamil Nadu General Sales Tax Act - Held that - Assessee undertook the work of printing annual reports as per the instructions of the customers. The items were printed for their exclusive use on works contract basis. When the predominant intention is for printing annual report as per the specification given by the customer it is therefore in the nature of works contract. Where the finished product supplied to a particular customer is not a commercial commodity in the sense that it cannot be sold in the market to any other person the transaction is only a works contract. - work executed by the assessee related to printing of materials and such printed materials are meant for particular customers who placed orders and it cannot be sold in the open market like any other goods. Going by the principle laid down in the above-said decision of the Apex Court 1988 (1) TMI 329 - SUPREME COURT OF INDIA which was followed by this Court in the subsequent decisions we have no hesitation in accepting the case of the assessee that the transaction in question does not call for any liabililty under the Act. As pointed out by the Apex Court the mere fact that in the execution of the contract for work the paper owned by the assessee stands transferred to the contractee incidentally would not lead to the inference that the transaction is only a sale and not a works contract. - Decided in favour of assessee.

Summary

Issues:
1. Claim under section 3(B) of the Act
2. Eligibility for exemption under the notification for reading books
3. Interference in the order of the Appellate Assistant Commissioner
4. Setting aside the order of the Appellate Authority in quantum appeal and penalty appeal
5. Restoration of penalty despite turnover disclosure and exemption claim

Analysis:

Issue 1: The assessee claimed exemption under section 3(B) of the Act for the sales turnover of printing annual reports. The Assessing Authority rejected this claim, considering the annual reports as taxable printed material rather than works contract. The Appellate Assistant Commissioner, following precedent, partially allowed the exemption. However, the Joint Commissioner, in a suo motu revision, set aside the Appellate Authority's order, concluding that the transaction did not involve a works contract.

Issue 2: The dispute also revolved around the eligibility of the appellant for exemption under a notification related to reading books. The assessee argued that the printed materials were customized for specific customers and lacked commercial value for open market sale. Citing relevant case law, the court emphasized that if the finished product cannot be sold to others, it signifies a works contract rather than a sale.

Issue 3: The Joint Commissioner's intervention in the Appellate Assistant Commissioner's order raised concerns about interference in the appellate process. The court examined the nature of the transaction, emphasizing the importance of determining whether a works contract existed based on the intention of the parties and the nature of the product supplied.

Issue 4: The Joint Commissioner's decision to set aside both the quantum appeal and the penalty appeal order by the Appellate Authority was challenged. The court, after analyzing the facts and legal principles, found in favor of the assessee on the primary issues, rendering the discussion on setting aside the appellate orders moot.

Issue 5: The restoration of penalty despite the disclosure of turnover and exemption claim was a contentious point. The court, based on the assessment of the transaction and relevant legal precedents, concluded in favor of the assessee, setting aside the Joint Commissioner's order and allowing the revision in favor of the assessee.