TMI Blog1989 (1) TMI 359X X X X Extracts X X X X X X X X Extracts X X X X ..... MUKHARJI AND RANGANATHAN S. JJ. R, Mohan and R. Ayyam Perumal, Advocates, for the appellant in all the matters. T.A. Ramachandran, Senior Advocate (Mrs. Janaki Ramachandran, Advocate, with him), for the respondent in all the matters. -------------------------------------------------- The judgment of the Court was delivered by SABYASACHI MUKHARJI, J. -Special leave granted in Special Leave Petitions (C) Nos. 10539, 4704 and 921 of 1979. These appeals by leave under article 136 of the Constitution, are from the orders of the High Court of Madras, involving a common question though for different assessment years. It would be appropriate to deal with Civil Appeals Nos. 2346-47 of 1978, and the facts in other appeals are essentially the same. The assessee in these cases had entered into contracts with the Universities and other educational institutions in the country for printing question papers for the said educational institutions. The assessee in the demand notes prepared, gave the charges for printing, blocks, packing charges, handling charges, delivery charges, postage, value of paper and value of packing materials separately in the relevant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alue of paper was liable to be included in the taxable turnover of the assessee. The correctness of that decision was challenged before the High Court by two revision cases under section 38 of the Tamil Nadu General Sales Tax Act, 1959 (hereinafter called the Act ). The High Court on an analysis of the facts and the several decisions came to the conclusion that printing of question papers involved confidentiality of the materials to be printed, and held that apart from the paper nothing else could be included in the total taxable turnover of the assessee. The High Court came to the conclusion that the contract entered into between the assessee and the University and other educational institutions was a composite contract, i.e., a contract for work and labour, as well as a contract for sale of the paper. It was contended on behalf of the Revenue that in case of sale of all printed materials, the sales tax was liable on the entire work. In that view of the matter if the liability for sale of printed material would include the entire price then there was no authority, according to the Revenue, to treat the question papers differently. It is, however, clear as the High Court noted, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in this context, it was a composite contract which can be split up into contract for sale of paper and contract for work and labour. Relying on a decision of this Court in Government of Andhra Pradesh v. Guntur Tobaccos Ltd. [1965] 16 STC 240, the High Court was of the view that the cost of paper shown separately in the contract would be liable to tax and except for that cost of paper and the material supplied in other respect, the contract was a contract for work and labour and there could not be any liability for sales tax. According to the High Court, this would cover the printing charges. Blocks, it was found, were destroyed after the question papers had been printed. Hence, there was no question of sale of blocks or passing of the property. The High Court so held. Following the aforesaid position in other matters which are the subject-matters of other appeals where the High Court held accordingly, it dismissed the revision application of the Revenue. Aggrieved thereby, the appellant has come up to this Court by leave. Our attention was drawn by both Mr. Mohan, learned counsel for the appellant and Mr. Ramachandran, counsel for the respondent, to the decision of this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rinting work upon it according to the orders of individual customers and supplied the printed stationery to the customers. It was held that there the petitioner had produced a commercial commodity which was capable of being sold or supplied and when the petitioner sold the printed stationery to its customers, it sold goods to the customers, upon which sales tax was leviable. In those circumstances, it was held that the transactions done by the said petitioner press were not in the nature of works contracts but were sales of goods and therefore recourse to rule 5(3) of the Rules could not be made. It was further held that as the petitioner did not immediately dispose of the stationery purchased by it in favour of its constituents, but kept it in the press and did printing work upon it and then supplied the finished product to its constituents, the provisions of clause (iv) of explanation 1 of clause (m) of section 2 were not attracted. The High Court relied on the decision of the Allahabad High Court reiterating the principle that it is necessary to determine the substance of the contract, and as the substance of the contract is that skill and labour that had been exercised fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ers or printed matters entails primarily the confidence, and secondly the skill and to a very small measure the material. If that is the position then, in our opinion, it cannot be categorised as entailing sale of goods but it is rather a contract for works done. Mr. Mohan also relied on the decision of the Madras High Court in P.M. Venkatachalam Pillai v. State of Madras [1969] 23 STC 72, where it was held that when a transaction is claimed to be a works contract, a decision on the question depends on the particular facts. The primary point to bear in mind in such cases is what is the intention of the parties viewing the transaction as a whole; do they intend an apportionment or view the transaction on compartmental basis as that which represents labour and that which represents sale of the materials. Different tests may be applied in answering such a question as the stage of passing of property, risk and the like. But all these tests converge towards finding out what is the intention of the parties. There, the question was whether the assessee's turnover consisted of the aggregate of labour charges and the cost of materials in printing work or of outright sales of finished ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he tickets, and not merely of paper. The Tribunal agreed with the finding of the Deputy Commissioner and confirmed the order. On a revision it was held by the High Court on a consideration of some of the orders placed by the customers, that the orders were specifically for printing and supply of tickets. The fact that break-up figures were given in the bills was not decisive or conclusive in determining the question whether there were two contracts-one for supply of paper and the other for printing. We agree that the transaction under its true perspective must be viewed and the intention of the parties must be found out. Our attention was drawn to the decision of the High Court of Kerala in Sales Tax Officer v. I.V. Somasundaran [1974] 33 STC 68. In that case by printing something on paper, as in the cases of printing letter-heads, invitation cards, wedding invitations, judgments of courts, or ration cards, the printed matter does not become paper products within the meaning of that expression in item 42 of Schedule I to the Kerala General Sales Tax Act, 1963. The High Court found that in such a case a further question arises as to whether it was sale of goods which could b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nvolved making it a composite transaction which was capable of bifurcation into a contract for sale of materials and a contract for work and labour. What was sold was something other than paper. It could not be said that printed materials such as bill books, vouchers and the like were mere paper or products of paper. Hence, the supply of bill books, vouchers, etc., was liable to be taxed under the Act as finished products. It was further held that the question papers, however, were the subject- matter of a contract for work and labour and the charges realised by the assessee for printing them were not liable to tax. The High Court at page 176 of the report observed: Only in respect of those goods to which title has passed as a result of contract, can it be said that the goods have been sold. Where a person buys a 'Picasso' or a 'Ravi Varma', he does not intend to buy or pay for the canvas or the paint, although canvas and paint are involved in the production of the painting, and title to such materials is transferred to him. But such transfer of title to the materials is not pursuant to any agreement for the sale of the materials as such. It would never have bee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... il Nadu [1983] 54 STC 379. There, the Tribunal found that the contracts between the assessee and his customers were indivisible contracts under which the assessee undertook to deliver printed material in accordance with the customer's instructions and therefore considered the receipts in the assessee's business as representing turnover in sales of goods taxable under the Tamil Nadu General Sales Tax Act, 1959, and that the order form was a make-believe and did not reflect the real nature of the transactions between the assessee and his customers. It was held that given the finding by the Tribunal, the printed conditions in the order form were not to be accepted at face value and that the transactions between the assessee and the customers involved only the supply of printed material at a price. The High Court held that the decision of the Tribunal that the entire receipts in the assessee's business must be held to be sales turnover liable to tax under the Act must be upheld. As mentioned hereinbefore, the High Court was dealing entirely with sample printed materials of order forms of bill books. The Allahabad High Court had to consider this question in Commissioner o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gh a high degree of skill and craftsmanship might be required in making of the coat, the contract was no more than one for the making of an article for the special use of the customer by someone whose business it was to make it. The nature of the transaction, therefore, was that it was one for the making and supply of a particular article at a price and not one for work and labour done and materials supplied, and there being no memorandum in writing to satisfy the requirements of section 4 of the Sale of Goods Act, 1893, the contract was unenforceable. Hence, the principle following from the decision is that the nature of transaction has to be found out, whether it is making and supply of particular article or printing material. Mr. Ramachandran, however, submitted before us that in view of the principles laid down by this Court in State of Madras v. Gannon Dunkerley Co. (Madras) Ltd. [1958] 9 STC 353 and Hindustan Aeronautics Ltd. v. State of Karnataka [1984] 55 STC 314, the High Court was right. He submitted that the contract in essence was for supply of question papers which are not commercial commodities. The blank papers ceased to be the property of the dealer, the momen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tate of Tamil Nadu [1983] 54 STC 382 (Mad.) and Commissioner of Sales Tax v. Ratna Fine Arts Printing Press [1984] 56 STC 77 (MP). In our opinion, in each case the nature of the contract and the transaction must be found out. And this is possible only when the intention of the parties is found out. The fact that in the execution of a contract for work some materials are used and the property in the goods so used, passes to the other party, the contractor undertaking to do the work will not necessarily be deemed, on that account, to sell the materials. Whether or not and which part of the job-work relates to that depends, as mentioned hereinbefore, on the nature of the transaction. A contract for work in the execution of which goods are used may take any one of the three forms as mentioned by this Court in Government of Andhra Pradesh v. Guntur Tobaccos [1965] 16 STC 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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