TMI Blog2003 (7) TMI 665X X X X Extracts X X X X X X X X Extracts X X X X ..... t to sub-section (4), (5) or (6) of the said section, every dealer shall pay for each year, a tax under this Act on his taxable turnover of transfer of property in goods (whether as goods or in some other form) involved in the execution of works contract mentioned in column (2) of the Sixth Schedule at the rates specified in the corresponding entries in column (3) of the said Schedule." 3. The term "works contract" is defined in section 2(1)(v-i) as including any agreement for carrying out for cash, deferred payment or other valuable consideration, the building, construction, manufacture, processing, fabrication, erection, installation, fitting out, improvement, modification, repair or commissioning of any movable or immovable property. 4. The Sixth Schedule enumerates the description of works contracts involving transfer of property in goods in regard to which tax is payable under section 5-B. Entry 25 of the Sixth Schedule, with which we are concerned is extracted below: Sl. No. Description of works contract Period Rate of tax U/S. 5-B 25 Processing and supplying of photographs, photo prints and photo negatives. 1-7-1987 to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his negative for obtaining positive prints does not ask for purchase of positive prints but requests for giving him positive prints from his negative. Both of them, i.e., exposed film and negative are not marketable commodities. They have no market value for other persons. While taking out positive prints from the negative with the help of photo papers and chemicals, there is no accretion on the basic material, i.e., negative. 10.. The main object of the work undertaken by the petitioner was not to transfer the photo papers upon which the positive prints were taken. The transfer of paper was simply incidental to the said transaction. Payment was made to get the positive prints and not to get the photo papers. Customers had interest in the positive prints and not in the photo papers. The contracts in-between the petitioner and its customers were neither the contracts of sale nor the direct or indirect works contract involving supply of photo papers. No sale of photo papers was involved which could be taxed under the Act." The division Bench of this Court upheld the contention of the assessees, and declared that entry 25 was unconstitutional, on the following reasoning: "31. P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch work would be exigible to levy of sales tax. When the assessees challenged the said circular and consequential reassessment, the Madhya Pradesh High Court, relying on the decision of the Supreme Court in Builders' Association of India v. Union of India [1989] 73 STC 370 held that to the extent of the photo papers used in the printing of positive prints by the appellants in their work, there is a transfer of property in goods and therefore to that extent the job done by the appellants would be works contracts as contemplated under article 366(29A)(b) of the Constitution of India and as incorporated in section 2(n) of the M.P. General Sales Tax Act defining "sale". On appeal by the assessees, the Supreme Court set aside the order of the Madhya Pradesh High Court holding that the reliance placed by the High Court on Builders' case [1989] 73 STC 370 (SC) was misplaced, and quashed the assessment orders and demand notices, holding that unless there is a sale and purchase of goods, either in fact or deemed, and such sale is primarily intended and not incidental to the contract, the State cannot impose sales tax on a works contract simpliciter in the guise of expanded definition found ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o find out what was the primary object of the transaction and the intention of the parties while entering into it ' The judgment in the above case was quoted with approval by this Court in the case of Everest Copiers v. State of Tamil Nadu [1996] 103 STC 360 (to which judgment one of us, honourable Bharucha, J., was a party) wherein it was stated: 'Where the main object of the work undertaken by the person to whom the price is paid is not transfer of a chattel as a chattel, the contract is one of work and labour. The main object of the work undertaken by the operator of a photocopier or Xerox machine is not the transfer of the paper upon which the copy is produced; it is to duplicate or make a Xerox copy of the document which the payer of the price wants duplicated. The paper upon which the duplication takes place is only incidental to this transaction. The object of the payment of the price is to get the document duplicated, not to receive the paper. The payer of the price has no interest in the bare paper upon which his document is duplicated. He is interested in it only if it bears such duplication. What is involved is not a sale but a contract of work or labour.' In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issioner of Customs [2001] 124 STC 59; (2001) 4 SCC 593, considering the question whether drawings, designs, diskettes, manuals, etc., relating to machinery or industrial technology were "goods " which could be subjected to customs duty on their transaction value at the time of their import, under the Customs Act, 1962. In that context the appellant therein contended, relying on several decisions relating to levy of sales tax, that in contracts for supply of services, there is no sale of goods and, as such, no customs duty could be imposed on the intellectual property which was obtained. The Supreme Court therefore considered in detail the decisions in Assistant Sales Tax Officer v. B.C. Kame [1977] 39 STC 237; (1977) 1 SCC 634, State of Tamil Nadu v. Anandam Vishwanathan [1989] 73 STC 1; (1989) 1 SCC 613 and Everest Copiers v. State of Tamil Nadu [1996] 103 STC 360; (1996) 5 SCC 390 as also the decision in Rainbow Colour Lab [2000] 118 STC 9 (SC). After referring to the first three decisions, the Supreme Court held as follows: "24. All the aforesaid decisions related to the period prior to the Forty-sixth Amendment of the Constitution when article 366(29A) was inserted. At tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ws: '9. Prior to the amendment of article 366, in view of the judgment of this Court in State of Madras v. Gannon Dunkerley Co. (Madras) Ltd. [1958] 9 STC 353, the States could not levy sales tax on sale of goods involved in a works contract because the contract was indivisible. All that has happened in law after the 46th Amendment and the judgment of this Court in Builders' case [1989] 73 STC 370 is that it is now open to the States to divide the works contract into two separate contracts by a legal fiction: (i) contract for sale of goods involved in the said works contract, and (ii) for supply of labour and service. This division of contract under the amended law can be made only if the works contract involved a dominant intention to transfer the property in goods and not in contracts where the transfer in property takes place as an incident of contract of service. The amendment, referred to above, has not empowered the State to indulge in a microscopic division of contracts involving the value of materials used incidentally in such contracts. What is pertinent to ascertain in this connection is what was the dominant intention of the contract. Every contract, be it a serv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ur Lab's case [2000] 118 STC 9 (SC); (2000) 2 SCC 385, which does not appear to be correct, the other decisions cited related to the pre-Forty-sixth Amendment period. Furthermore, the provisions of the Customs Act and the Tariff Act are clear and unambiguous. Any moveable articles, irrespective of what they may be or may contain would be goods as defined in section 2(22) of the Customs Act." 9.. In view of the said decision in Associated Cement Companies Ltd. [2001] 124 STC 59 (SC); (2001) 4 SCC 593, the Commissioner of Commercial Taxes in Karnataka, issued instruction to the sales tax authorities vide Circular No. 17 of 2002-03, dated September 27, 2002 stating that having regard to the decision in Associated Cement Companies Ltd. [2001] 124 STC 59 (SC); (2001) 4 SCC 593 the earlier decision in Rainbow Colour Lab [2000] 118 STC 9 (SC), is impliedly overruled and all authorities under the Act are bound by the apex Court's decision in Associated Cement Companies Ltd. [2001] 124 STC 59; (2001) 4 SCC 593 and therefore "the levy of tax in respect of transfer of goods involved in the execution of works contract of the nature of work undertaken by a photographer in taking photographs, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ders of assessment earlier passed without subjecting such turnover to tax, prejudiced the interests of the Revenue. In some other cases, orders of rectification have been passed under section 25-A treating the nonsubjecting such turnover to tax, as a mistake apparent from the records and passing orders of rectification. In some other cases, matters are still at the stage of notice under sections 12-A, 21 and 25-A. 11.. Feeling aggrieved, the assessees have filed these petitions for the following reliefs: (i) To declare the circular dated September 27, 1992 issued by the Commissioner of Commercial Taxes in Karnataka is contrary to law and/or to quash the same or declare it is unenforceable. (ii) To declare that the activities of the petitioners of processing and supplying photographs, photo prints and photo negatives are not a works contract and not liable to tax under the Act. (iii) To quash the orders of assessment passed and/or notices issued under section 12(3), section 12-B(3), section 12-A, section 21 and section 25-A of the Act. 12.. On the contentions raised, the following two points arise for consideration in these petitions: (i) Whether the pronouncement of law ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cases of works contract will have no application to the Customs Act. It is also pointed out that in Associated Cement Companies Ltd. [2001] 124 STC 59 (SC); (2001) 4 SCC 593 the Supreme Court did not expressly overrule the decision in Rainbow [2000] 118 STC 9 (SC) but only observed that the decision in Rainbow [2000] 118 STC 9 (SC) does not appear to be correct, thereby leaving open the question for further consideration in an appropriate matter. The petitioners therefore submit that Rainbow [2000] 118 STC 9 (SC) still holds the field in so far as taxing of the activity of processing of negatives and supply of prints under the sales tax laws. 15.. "Obiter dictum" is defined as words of an opinion entirely unnecessary for the decision of the case. It is a remark made, or opinion expressed by a Judge, in his decision upon a cause, "by the way", that is, incidentally or collaterally, and not directly upon the question before him, or upon a point not necessarily involved in the determination of the cause, or introduced by way of illustration, or analogy or argument. Such are not binding as precedent vide Black's Law Dictionary. In Maharajadhiraja Madhava Rao Scindia v. Union of Indi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onounces upon a question by holding that a decision of a smaller Bench is contrary to the decision of a Constitution Bench and therefore not correctly decided, such pronouncement is the law declared by the Supreme Court within the meaning of article 141 and binding on all courts, even if such pronouncement was not necessary for deciding the case before it. 16(2). We may in this behalf refer to the observations made in the decision of a Full Bench of this Court in State of Karnataka v. H. Krishnappa ILR 1975 Kar 1015 while considering the binding nature of the pronouncement in O.N. Mohindroo v. Bar Council of Delhi AIR 1968 SC 888, relating to a matter which did not directly arise for decision in that matter. In Mohindroo's case AIR 1968 SC 888, the Supreme Court, after referring to the relevant legal provisions and the earlier decision in State of Bombay v. Narottamdas Jethabhai AIR 1951 SC 69 stated that the jurisdiction and powers of the High Courts are not dealt with in entry 78 in the Union List and that under entry 3 in the State List the State Legislature can confer jurisdiction and powers on all courts which would include the High Court (except the Supreme Court). The Fu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... STC 9 (SC), in great detail and categorically held that the principle of dominant intention was no more relevant after the Forty-sixth Amendment; and the said amendment was made precisely to empower the State to bifurcate the contract and to levy sales tax on the material involved in the execution of the works contract, notwithstanding that the value may represent a small percentage of the amount paid for the execution of the works contract. It also in terms stated that the decision in Rainbow [2000] 118 STC 9 (SC) required consideration; and that the conclusion arrived in Rainbow [2000] 118 STC 9 (SC) runs counter to the express provision contained in article 366(29A) of the Constitution of India and the decision of the Constitution Bench of the Supreme Court in Builders' Association of India v. Union of India [1989] 73 STC 370. We have extracted the relevant portions of the decision in Associated Cement Companies Ltd.'s case [2001] 124 STC 59 (SC); (2001) 4 SCC 593 which shows that what is stated is not intended to be a passing comment or casual observation, but the point was specifically raised and decided by the court. The Supreme Court considered the entire case law on the mat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tioners, service element is not the dominant element, and the cost of the chemicals used for the processing negatives and the cost of the paper used for taking positive prints form a substantial and not negligible part of the price/charge received by them from the customer. It is contended that processing photo negatives and printing and supplying photo positives is a regular works contract. It is not however necessary to examine this aspect. Having regard to the decision in Associated Cement Companies Ltd. [2001] 124 STC 59 (SC); (2001) 4 SCC 593 even if the value of the materials involved in execution of the works contract is small, it could be subjected to tax under the Act. Be that as it may. Re: Point (ii): 19.. The second question is whether entry 25 declared unconstitutional in Keshoram [2001] 121 STC 175 (Kar), stood restored to the statute book as a consequence of the law laid down in Associated Cement Companies Ltd. [2001] 124 STC 59 (SC); (2001) 4 SCC 593 and therefore the authorities under the Act are entitled to proceed on the basis that entry 25 has always been in the statute book. 20.. A statute or its provision is unconstitutional and void when (a) it is bey ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amus issued by the High Court disappeared and the Act stands revived with its full vigour, the invalidity declared by the High Court having been removed by the judgment of the Supreme Court; and as a consequence of the law declared invalid by the High Court, being held to be constitutionally valid by the Supreme Court, the mandamus forbearing the authorities from enforcing its provisions would become ineffective. 22(2). In K. Sahadev v. Suresh Bir (1995) Supp 3 SCC 668 the Supreme Court dealt with a case relating to the fixation of fair rent under section 4 of the Andhra Pradesh Buildings (Lease, Rent and Eviction) Control Act, 1960 ("AP Rent Act", for short). The Andhra Pradesh High Court had held that the said section 4 of the AP Rent Act to be unconstitutional in Mohd. Ataur Rehman Khan v. Mohd. Kamaluddin Ahmed (1987) 1 ALT 216. In spite of the decision in Ataur Rehman (1987) 1 ALT 216 holding that section 4 was unconstitutional, the Rent Controller held in respect of appellant's premises that he had jurisdiction to determine the fair rent taking into account, the existing circumstances of the case. That order was maintained in appeal and taken up by the appellant in revision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h removes the lack of legislative competence. The second is when the Supreme Court dealing with the constitutional validity of a similar enactment (or provision of an enactment) of another State, declares it to be constitutionally valid by applying or evolving a different legal principle. That is for example, if a provision of the sales tax law of State "K" is declared to be beyond the legislative competence and void by the High Court or Supreme Court, and later an identical or similar provision of the sales tax law of State "M" is declared by the Supreme Court to be valid by applying a different principle, then State "K" can re-enact the provision (Note: for this purpose, where the earlier decision holding the provision of law of State "K" to be void is of the Supreme Court, the later decision holding a similar provision of law of State "M" to be valid should be of a larger Bench of the Supreme Court). In brief the principle emerging can be summarised thus: (i) Where the very provision, held to be constitutionally invalid is reconsidered in an appeal or otherwise subsequently, and held to be valid, then the provision stands restored to the statute and becomes enforceable, withou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... declared to be invalid by this Court in Padmanabha Rao v. State of Karnataka ILR 1986 Kar 2480 stood revived on account of the decision of the Supreme Court in Shobha Surender v. H.V. Rajan (1998) 8 SCC 281. The question arose this way; section 31 of the Karnataka Rent Control Act, 1961, made the chapter extending protection to tenants against eviction inapplicable to non-residential premises the rent of which exceeded Rs. 500 p.m. The City Civil Court, Bangalore, had decreed a suit for eviction filed by the landlord Shobha Surender in respect of a non-residential premises, the rent of which was more than Rs. 500 per month. The tenant (HV Rajan) challenged the said decree in R.F.A. No. 391 of 1983. A division Bench of this Court allowed R.F.A. No. 351 of 1983 on the ground that section 31 of the KRC Act was struck down in Padmanabha Rao's case ILR 1986 Kar 2480 during the pendency of the appeal. This Court held that the remedy of the landlord was to file an eviction petition under the KRC Act. The landlord (Shobha Surender) challenged the decision of this Court before the Supreme Court in Civil Appeal No. 13754 of 1996. By the time said appeal filed by Shobha Surender came up for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cision in Bhatia (1995) 1 SCC 104 rendered with reference to section 3(1) of the Delhi Rent 2Control Act; and on the same principle, entry 25 in Sixth Schedule declared unconstitutional in Keshoram [2001] 121 STC 175 (Kar) stood restored to the statute book automatically, on Supreme Court rendering the decision in Associated Cement Companies Ltd. [2001] 124 STC 59, (2001) 4 SCC 593 and therefore the authorities under the Act are required to proceed on the basis that entry 25 has always been in the statute book. 25.. The decision in Rudramurthy (1998) 8 SCC 275, if carefully read shows that it favours the petitioners. In Rudramurthy (1998) 8 SCC 275, the Supreme Court held that the decision of the Supreme Court in Shobha Surender (1998) 8 SCC 281 [following the decision in Bhatia (1995) 1 SCC 104 relating to the Delhi Rent Control Act] impliedly held that section 31 of the Karnataka Rent Control Act, 1961 was valid and therefore in the statute book, thereby clearing the eclipse created by the decision in Padmanabha Rao ILR 1986 Kar 2480. Though the decision in Padmanabha Rao ILR 1986 Kar 2480 holding that section 31 was invalid, had attained finality, in Rudramurthy (1998) 8 SCC 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Commissioner of Commercial Taxes, Karnataka is quashed; Here italicised. (ii) It is declared that the decision in Keshoram Surindranath Photo-Mag (P) Ltd. v. Assistant Commissioner of Commercial Taxes (LR), City Division, Bangalore rendered on September 6, 1999 [2001] 121 STC 175 affirmed by the Supreme Court in S.L.P. (Civil) No. 6136-6163 of 2000 and connected cases decided on April 20, 2000, holding that entry 25 in the Sixth Schedule of the Act, is unconstitutional, for want of Legislative competence, continues to be binding on the respondents. (iii) As a consequence, it is declared that the authorities under the Act cannot proceed on the basis that entry 25 is restored to the Sixth Schedule of the Act by virtue of the decision of the Supreme Court in Associated Cement Companies reported in [2001] 124 STC 59; (2001) 4 SCC 593. Nor can they proceed with or decide any proceeding on the basis that entry 25 in the Sixth Schedule is restored to the Act. (iv) All proceedings initiated or orders passed in the cases of petitioners, by the authorities under the Act on the basis of Commissioner's Circular No. 17 of 2002-2003 dated September 27, 2002 are quashed. (v) Parties ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
