TMI Blog2007 (8) TMI 489X X X X Extracts X X X X X X X X Extracts X X X X ..... 194C of the Income-tax Act, 1961. 2. On the facts and in the circumstances of the case, the learned CIT(Appeals) erred in not considering the fact that the goods were got manufactured with the specifications given by the assessee and the commercial value of these goods, if not received by the deductor, is Nil. 3. On the facts and in the circumstances of the case, the learned CIT(Appeals) has erred by ignoring the CBDT Circular No. 715 (Question No. 15) dated 8-8-1995. 4. On the facts and in the circumstances of the case, the order of the Hon ble Supreme Court in the case of State of Tamilnadu v. Anandam Viswanathan [1989] 73 STC 1 applied, wherein the issue of contract vis-a-vis sale/purchase has been dwelt with in great detail and, it was held that the transactions of similar nature are the transactions of Contract and not that of sale and purchase. 5. The appellant craves leave to add, alter or amend any of the grounds of appeal at the time of hearing." 2. Rival contentions have been heard and record perused. Facts in brief are that the assessee is a company engaged in the business of processing, bottling and selling of scotch and Indian Made Foreign Liquor (I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; and I am sure that such customization would bring within its sweep the minor job of label printing. In fact, if the supplier does not do the printing job itself, it may have to deduct tax at source for getting the printing job done. In any case, the appellant is not liable to effect any deduction on such payments, much less liable to be treated as an assessee in default. Such a tunnel view of the transaction would lead to the inescapably unfair, unwarranted and unintended conclusion of holding the supplier liable to both the sales tax and the contract tax, even as the appellant has made payments for outright purchases. In this view of the matter, the impugned order is cancelled ." 4. Aggrieved by the above order of the CIT(Appeals), the revenue is in appeal before us. It was contended by the learned DR that procuring of customer specific labels, caps etc., were a contract though the specified material goods were supplied to the assessee subsequent to purchase orders placed by it. Supply as per specifications of the assessee with monograms of seagram prints etc., which are in specified quantity as required by assessee and have no commercial value for other entries; besides the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed aside by the Assessing Officer. He drawn our attention to the findings recorded by the CIT (Appeals) to the effect that transaction between the manufacturer of packing material and the assessee-company was a transaction of sale and purchase on a principal to principal basis. He further submitted that as per rule 10 of the ITAT Rules, if the department wants to allege the findings recorded by the CIT (Appeals), the same should be supported by the affidavits. Our attention was also drawn to various judicial pronouncements placed in the paper-book according to which under similar facts and circumstances, Hon ble High Court and Hon ble Supreme Court have held the transaction as "transaction of sale" and not a "work contract". 7. We have considered the rival contentions, carefully gone through the orders of the authorities below and also considered the ratios laid down in various judicial pronouncements as cited by the learned counsel and also discussed by lower authorities in their respective orders. From the record, we found that assessee is engaged in the business of processing, bottling and selling of a scotch and Indian made foreign liquor in India. It normally purchases the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... material supplied in accordance with the specifications laid down by the assessee, would not make the transaction into a transaction of contract. 8. In BDA Ltd. v. ITO (TDS) [2006] 281 ITR 99 1 , the Bombay High Court has held that supply of printed labels by an independent establishment to assessee as per the specifications of the assessee using its own raw-material and carrying out the printing work in its own premises amounted to a "sale" and not a "work contract" and, therefore, tax was not required to be deducted under section 194C of the Act from the payments made to the printer. 9. We have carefully gone through the sample purchased order, copy of their invoices with respect to purchase of packing material, statement of information collected from the supplier of packing material as placed on record. After going through all these materials, we can safely conclude that transaction between the assessee and the manufacturer of packing material was in the nature of sale and purchase, the same cannot be classified to be in the nature of "outsourcing" i.e., work contract, since manufacturing of packing material was not an activity of the assessee, therefore, the same ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... king material, there was no obligation on the manufacturer to disclose the source or contents of input raw-materials. These manufacturers were undertaking independent purchase of raw-material, without any assistance of assessee-company and the assessee-company was also not having any right to inspect the manufacturing activity. We also found that ownership in the packing material passed to the assessee-company only after delivery of goods and prior to that ownership vests with the manufacturer. Mere production of quantity as mentioned in the purchase order issued by the assessee-company, will not alter the character of transaction of sale to that of work contract. 10. In view of the above discussion, we do not find any infirmity in the order of CIT (Appeals) for holding that transaction between the assessee-company and manufacturer of packing material was a transaction of sale and purchase on principal to principal basis, assessee was not liable to deduct tax under section 194C on the payments so made, therefore, assessee was not in default under section 201 and 201(1A) of the Act. 11. As per Circular No. 681, dated 8-3-1994, the CBDT has clarified that provisions of sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... determination depends in each case upon its facts and circumstances. Mere passing of property in an article or commodity during the course of the performance of the transaction in question does not render it a transaction of sale. For even in a contract purely of work or service, it is possible that articles may have to be used by the person executing the work and property in such articles or materials may pass to the other party. That would not necessarily convert the contract into one of sale of those materials. In every case the court would have to find out what was the primary object of the transaction and the intention of the parties while entering into it. It may in some cases be that even while entering into a contract of work or even service, parties might enter into separate agreements, one of work and service and the other of sale and purchase of materials to be used in the course of executing the work or performing the service. But, then in such cases the transaction would not be one and indivisible, but would fall into two separate agreements, one of work or service and the other of sale. " 13. Let us now examine the decision of Hon ble Supreme Court in case of Sta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he other establishment as per their respective specifications. The printing work was not being carried out in the premises of the assessee. This supply of printed labels cannot be compared and equated with the supply of printed question papers to universities and educational institutions. M/s. Mudranika would not print such labels with the specifications of the assessee beyond the quantity specified in the purchase order, and therefore, it was wrong on the part of the Tribunal to hold that, the labels printed by M/s. Mudranika to supply to the assessee could not be sold to any other establishments in the market. This finding regarding no marketability is based on a fallacious premise that M/s. Mudranika was printing an unlimited number of labels. When the printing work was being carried in the premises of M/s. Mudranika, though as per the specifications of the assessee, the supply was limited to the quantity specified in the purchase order, it would not do such printing beyond the numbers specified in the same. There is nothing on record to show that, all other ancillary costs like the labels, ink, papers, screen printing, screens, etc., were being supplied by the assessee to M/s. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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