TMI Blog1984 (3) TMI 358X X X X Extracts X X X X X X X X Extracts X X X X ..... the opposite party that the paper on which the aforesaid materials were printed was supplied by the opposite party itself and not by the customers. The case of the opposite party was that the paper used in printing the aforesaid materials was locally purchased and was not imported. It was nobody's case that the opposite party was a manufacturer of the paper. Notification No. ST-II-332/X-1012-1971 dated 15th November, 1971, issued by the Governor in exercise of the powers under clause (a) of sub-section (1) of section 3-A of the Act read with section 21 of the General Clauses Act, 1904, contain "paper of all kinds including hand-made paper, whether meant for writing, printing, copying, packing or for any other purpose" at item No. 68. The point at which the tax is levied on this item is sale by the manufacturer in Uttar Pradesh or importer in Uttar Pradesh. It was urged on behalf of the opposite party that it, not being either manufacturer of the paper on which the aforesaid materials were printed or importer in Uttar Pradesh thereof, was not liable to pay any tax on the sale of the locally purchased paper. The Sales Tax Officer, however, took the view that what was sold by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Tribunal was in conformity with the decision relied on by it. According to him the said decision was not distinguishable and that a similar view had been taken by some other learned single Judges also. These decisions will be considered at their appropriate places. In Kanpur journals Ltd. v. Commissioner of Sales Tax [1956] 7 STC 661, the assessees were publishers and printers and in the course of their business as printers they accepted orders from customers for job-work such as receipt books, registers, forms, letter heads, visiting cards and handbills which were printed in accordance with the requirements of their customers on paper supplied by the assessee. The question which came up for consideration before a Division Bench of this Court in that case was "whether the turnover of receipt books, registers, forms, letter heads, visiting cards and handbills printed to order when all materials-paper, ink, etc., are supplied by the presses is assessable to sales tax? ". "Paper meant for writing and printing" was exempted from sales tax under a notification issued in this behalf. The question which was argued before the Division Bench was as to whether each of the items referred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is to be ascertained is laid down in sections 19 and 24 of the Indian Sale of Goods Act. The problem of determining when the property in the paper passed to the customer may not be an easy matter, but we think a useful test question is, on whom will the loss fall if the paper is destroyed by fire while in the hands of the printer?" In regard to the argument of the assessee's counsel that even if the transaction be one transaction the orders placed by the customers for job-work were not contracts for sale of goods at all but were contract for work and labour and were, therefore, outside the ambit of the Act, it was held: "We think this argument to be misconceived. We think it now to be established that in order to determine the nature of a contract the court has to look at its substance. If the substance of the contract is the production of something to be sold to the customer-such as a suit of clothes-then that is a sale of goods. If, on the other hand, the substance of the contract is that skill and labour have to be exercised for the production of the article, and that it is only ancilliary to that that there will pass to the customer some materials in addition to the skill ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... b-works, such as receipt books, registers, forms, letter heads, etc., and prints them in accordance with the requirements of his customers on paper supplied by the printer himself, the orders placed by the customers for such job-works are contracts for sale of goods and not contracts for work and labour. In Saraswati Printing Press v. Commissioner of Sales Tax [1959] 10 STC 286 a Division Bench of the Bombay High Court held that where the petitionerpress itself purchased the stationery and did printing work upon it according to the orders of individual customers and supplied the printed stationery to the customers the petitioners 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. It was further held that the transactions done by the petitioner-press were not in the nature of works contracts but were sales of goods. In State of Andhra Pradesh v. Krishna Power Press [1960] 11 STC 498 a Division Bench of the Andhra Pradesh High Court held that where the assesseepress itself purchased stationery and did printing work upon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... involves a taxable sale of goods must be decided on the facts and circumstances of the case. The burden in such a case lies upon the taxing authorities to show that there was a taxable sale, and that burden is not discharged by merely showing that property in goods which belonged to the party performing service or executing the contract stands transferred to the other party." In State of Orissa v. Ramanath Panda [1971] 27 STC 98 a Division Bench of the Orissa High Court held that in the case of an assessee, a printer supplying printed materials, where the customers supply paper and the assessee does nothing except printing on it, the contract is one of labour and there is no sale. Where the customer enters into an agreement that he would separately pay for the paper and the assessee would merely print on it, then also there is no sale. Where the customer does not enter into any separate agreement but merely asks the assessee to supply the printed materials, the contract is indivisible and the supply of printed materials is a sale liable to sales tax. In such a case charging separately for the paper and printing in the bill issued to the customer does not alter the essential cha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ys is a finished product which is a work of art. On the other hand, when a person gets his manuscript printed as an article or a book of verses, the printer does no more than a mechanical or technical job. The printer does not create the article or the poem, but merely renders his services to print which is in the nature of a job-work. The manuscript as such is the result of the skill, industry and scholarship of the author. In such a case, there is no sale of the article or book by the printer, nor would it be possible in such a case to spell out an agreement for the sale of materials such as paper or ink, which may have been incidentally used in the production of the printed work. While the painter sells a finished product which is a work of art, quite distinct and different from the materials used in its production, the printer merely does a job-work involving no sale; one is the work of an artist who is endowed with the finer qualities of imagination and taste and the other that of an artisan who is trained as a mechanic or technician. A printer of judgments, for example, does not produce and sell them; his work is purely that of a technician. This Court has therefore held that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessees were not only for printing the papers but included various other items mentioned therein. It was not a case of supplying such printed materials as in the instant cases. The reasons recorded by the Kerala High Court in the case of Varghese [1976] 37 STC 171 in regard to question papers also distinguish the aforesaid case from the instant ones. Counsel for the opposite party placed reliance on Commissioner of Sales Tax v. Kamta Press (printed at page 314 infra) 1979 UPTC 705. The facts of that case are not clear but from the answer given to the question referred it appears that it was a case where the assessee had received separate amounts towards costs of locally purchased paper and charges for printing. The question as to whether the whole transaction constituted a single contract and the sale of printed materials, was as such of finished goods does not seem to have been either argued or considered. The decision of the Division Bench of this Court in the case of Kanpur Journals Ltd. [1956] 7 STC 661 also does not appear to have been brought to the notice of the learned single Judge who decided this case. Reliance was also placed by the counsel for the opposite party on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 71. Counsel for the opposite party then placed reliance on the decision of the Supreme Court in Tungabhadra Industries Ltd. v. Commercial Tax Officer [1960] 11 STC 827 (SC) where it was held that hydrogenated groundnut oil continued to be "groundnut oil", notwithstanding the proceedings which is merely for the purpose of rendering the oil more stable thus improving its keeping qualities for those who desire to consume groundnut oil. Reliance was also placed by the counsel for the opposite party on Mini Fertilizer (Pvt.) Ltd. v. Commissioner of Sales Tax [1979] 44 STC 494; 1979 UPTC 1063 where it was held that sulphur rolls are nothing but purified forms of rock sulphur and as such were taxable as minerals. Counsel for the opposite party then brought to my notice the decision of the Supreme Court in Deputy Commissioner of Sales Tax v. Pio Food Packers [1980] 46 STC 63 (SC); AIR 1980 SC 1227 where it was held that processing of pineapple fruits into its slices for selling in sealed cans did not involve consumption of pineapples as a commodity in the process of manufacture of another commodity. In my opinion all these cases are clearly distinguishable. Simply because hydrogena ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... photographic work and thereafter supplies the prints to his client, he cannot be said to enter into a contract for sale of goods. The contract on the contrary is for use of skill and labour by the photographer to bring about a desired result. Therefore, it must be held that the photographer undertook the contract of work and labour and did not enter into a sale transaction, and was not liable to sales tax. In my opinion this decision is also clearly distinguishable on facts. It was essentially a case of use of specialised skill like the case of Robinson v. Graves [1935] 1 KB 579 relied on by the Division Bench of this Court in the case of Kanpur journals Ltd. [1956] 7 STC 661, where it was held that if the substance of the contract is that skill and labour have to be exercised for the production of the article, and that it is only ancilliary to that that there will pass to the customer some materials in addition to the skill involved-as in the case of an oil painting-the contract will be one of work. The instant case is not one of any such specialised skill. Lastly reliance was placed by the counsel for the opposite party on a decision of the Madhya Pradesh High Court in Commission ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tatute. They are always to be construed with reference to the facts of a particular case in which they were made. Viewed in that light and keeping in mind the distinguishing features pointed out while discussing those cases, I am of opinion that there is nothing on principle which may be said to be in conflict with the decision of the Division Bench of this Court in the case of Kanpur Journals Ltd. [1956] 7 STC 661 which does not seem to have even been brought to the notice of the learned single Judges who decided those cases. But even if there may be some conflict I am bound to follow the decision of the Division Bench in the case of Kanpur journals Ltd. [1956] 7 STC 661 in preference to the decisions of the learned single judges. In State of U.P. v. Ram Chandra Trivedi AIR 1976 SC 2547 it was held by the Supreme Court that even in cases where a High Court finds any conflict between the views expressed by larger and smaller Benches of this Court, it cannot disregard or skirt the views expressed by the larger Benches. The proper course for a High Court in such a case is to try to find out and follow the opinion expressed by larger Benches of the Supreme Court in preference to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tomers as and when needed for price paid in lump sum; (c) The customers of the assessee give specifications as also the quantity of the required goods and the assessee supplies those goods and the payments are made to the assessee by the customers but it is not clear as to whether there were two contracts between the parties one for sale of paper and the other for binding and/or printing, or there was only a single contract for sale of finished goods. If the case falls under category (3)(a) the turnover of the assessee will not be taxable as there is no sale and it is only a case of works contract. If on the other hand the case falls under category (3)(b) the turnover of the assessee will be taxable as it is clearly a case of sale of finished goods produced by the assessee on the basis of the given specifications. It stands on the same footing as the sale of "suits of cloth" referred to in the case of Kanpur journals Ltd. [1956] 7 STC 661. If the case falls under category (3)(c) the answer to the question as to whether the turnover of the assessee will be taxable will depend on the finding arrived at in regard to the nature of the contract on the basis of the evidence produ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion papers as the work done by assessee was in nature of works contract. It was also alleged that the papers sold by assessee were in fact brochures or book-lets and they being exempt from payment of tax the revising authority committed an error in levying tax on turnover of supply of papers. In Agra University Press Paliwal Park v. Commissioner of Sales Tax (printed at page 317 infra), 1979 UPTC 1270 a question arose whether Madhyamic Shishu Mandal, Madhya Pradesh, Bhopal carrying on business of printing press was a dealer in respect of supply of examination papers, mark sheets, certificate, etc. It was held that the nature of work carried on by assessee was such that it involved not only printing of examination papers but selling them in envelopes and cartons and maintaining strict secrecy. The contract therefore was for supply of papers and for labour and the contract being composite the authorities were not justified in levying tax on it. The revising authority found that assessee prepared the examination paper after holding a meeting of Headmasters of various institutions for moderating it and thereafter supplied it at the rate fixed by the assessee to various schools who de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uld cost of paper be taken into account as paper was not imported by the assessee. This first question is answered in the affirmative. The second question becomes academic in view of the answer given to the first question, and is returned unanswered. The assessee is entitled to its cost, which is assessed at Rs. 200. Appendix III [The judgment of B.N. SAPRU, J., of the Allahabad High Court in Industrial and Commercial Service v. Commissioner of Sales Tax (Sales Tax Revision No. 642 of 1982, decided on 25th November, 1983) is printed below: ] INDUSTRIAL AND COMMERCIAL SERVICE V. COMMISSIONER OF SALES TAX B.N. SAPRU, J.-This is a revision by the assessee and pertains to the assessment year 1973-74. The assessee is aggrieved by an order of the Sales Tax Tribunal which decided, in appeal, that the assessees had effected sales of diaries and labels and had not done any works contract. The assessee is a dealer in diaries, books, etc. He also booked orders to prepare labels of specifications provided by the customers and also prepared diaries of certain specifications. The assessee has been found to have charged a consolidated price for the diaries and labels. He has not cha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y his customers. The revenue wanted to tax the transaction. The Supreme Court held that it was a works contract and sales tax was not leviable. The Supreme Court observed that, "The question as to whether a contract is a contract of work and labour or a contract for sale is not one free from difficulty. The reason for that is that in border line cases the distinction between the two types of contracts is very fine. This is particularly so when the contract is a composite one involving both a contract of work and labour and a contract of sale. Nevertheless, the distinction between the two rests on a clear principle. A contract of sale is one whose main object is the transfer of property in, and the delivery of the possession of, a chattel as a chattel to the buyer. Where the principal object of work undertaken by the payee of the price is not the transfer of a chattel qua chattel, contract is one of work and labour. The test is whether or not the work and labour bestowed end in anything that can properly become the subject of sale; neither the ownership of materials, nor the value of the skill and labour as compared with the value of the materials, is conclusive, although such matte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee when it supplied the labels, executed a works contract. So far as the diaries are concerned, the Tribunal will re-determine the question as to whether the assessee can be subjected to tax on the price of the diaries sold by him keeping in view the observations made in this judgment. The parties will bear their own costs. The papers will now go back to the Tribunal under section 11(8) of the Act to make appropriate orders. Appendix IV [The judgment of C.S.P. SINGH, J., of the Allahabad High Court in Agra University Press Paliwal Park v. Commissioner of Sales Tax, U.P., Lucknow (S.T.R. No. 796 of 1979, decided on 12th April, 1979) is printed below: ] AGRA UNIVERSITY PRESS PALIWAL PARK v. COMMISSIONER OF SALES TAX SINGH, J.-The assessee owns a printing press and supplies printed materials in the shape of envelopes, examination papers, certificates, result sheets, etc. In the assessment year 1972-73, it entered into an agreement with the Madhyamik Shiksha Mandal, Madhya Pradesh, Bhopal, for the supply of examination papers, mark sheets, certificates, etc., in sealed envelopes and packages. Under the terms of the agreement they were to be prepared in accordance wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... olved in printing those materials. It was held that the contract for supply of the aforesaid material was a composite contract, and could not be broken up into one relating to sale of paper and the other for work and labour, and as it was a works contract, its turnover could not be taxed. In Anandam's case the assessee had entered into a contract with Universities and other educational institutions for printing question papers. In the quotation the assessee had given separately the charges for printing, block-making, packing and handling and for the cost of paper and packing material. It was held that as the contract was a composite contract for the supply of printed question papers properly packed, it could not be broken up into a contract for sale of paper and for work and labour involved in printing them. These cases clearly support the contention of the assessee. Sri V.D. Singh, the Learned Standing Counsel, however, referred to the decisions in the cases of Babulal Onkarmal Co. v. State of Bombay [1964] 15 STC 598, Government of Andhra Pradesh v. Guntur Tobaccos Ltd. [1965] 16 STC 240 (SC), Hyderabad Deccan Cigarette Factory v. State of Andhra Pradesh [1966] 17 STC 624 (SC ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing material by the assessee must be taken to be incidental to the works contract. This case affords no assistance to the contention raised, but on the contrary goes in favour of the assessee, inasmuch as in the present case too it cannot be held that the assessee had contracted with the Board to supply envelopes, etc., separately, from the printed examination papers. As secrecy had to be maintained regarding the contents of the examination papers, they had to be sent in sealed envelopes. The packing of the examination papers in the envelopes and cartons was incidental to the contract for the supply of printed examination papers and did not constitute a separate contract. In Hyderabad Deccan Cigarette Factory's case [1966] 17 STC 624 (SC) the department sought to assess the cigarette factory on the turnover of packing material consisting of cardboard and dealwood. It was held that the question as to whether there was a sale of packing material was essentially a question of fact, and as no finding had been given that it was subject to an agreement for sale, or was used by the sellers as convenient and cheap vehicle of transport, the question could not be decided till such findin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... smissed the revision of the department. The assessee's contention before the judge (Revisions) was that its main business was to print examination question papers for the Agra and various other Universities and educational institutions in India. This entire work was of a confidential nature and utmost secrecy was required to be observed. Thus, the assessee had merely done a job-work or a works contract and the transactions did not amount to sale. According to the assessee it was not liable to tax even in respect of the net turnover admitted by it before the assessing authority, that is, Rs. 43,183.77. Reliance was placed on behalf of the assessee in support of this contention on a decision of this Court rendered in its own case for the assessment year 1972-73, Agra University Press Paliwal Park v. Commissioner of Sales Tax (printed at page 317 supra) 1979 UPTC 1270. It was held in that case that as secrecy had to be maintained regarding the contents of the printed examination papers, they had to be sent in sealed envelopes and the packing of the examination papers in envelopes was incidental to the contract for the supply of printed examination papers. Thus the contract could not ..... X X X X Extracts X X X X X X X X Extracts X X X X
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