TMI Blog2010 (4) TMI 969X X X X Extracts X X X X X X X X Extracts X X X X ..... the Legislature has introduced the additional word in Entry-40 will not change the position of law in any manner. The authorities will have to examine each transaction and look at the contract in question and decide whether it is works contract or whether it is only a sale. The mere fact of bearing the logo or name upto the specification to the customer's will not make it a works contract. - W.P. Nos.30036 to 30038 OF 2002, 25391 and 9552 of 2005 and WP. MP. Nos.34890 and 34891 of 2002 - - - Dated:- 5-4-2010 - Prabha Sridevan And P. P. S. Janarthana Raja,JJ. For the Petitioners : Mrs. R. Hemalatha For the Respondents : Mr. Haja Nazuruddin ORDER (Order of the Court made by Prabha Sridevan, J.) These writ petitions have been filed for a declaration that G.O. Ms. No.66, Commercial Taxes (B1) dated 16.8.2001 of the second respondent herein subjecting all the printed materials executed on specific orders exigible to sales Tax under Section 3 of the Tamil Nadu General Sales Tax (TNGST) Act, 1959 as that of sale, is outside the purview of the powers of the State Legislature and violative of the consistent principles of law laid down by the Hon'ble High Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tted that in a works contract, the transfer of goods is only incidental and, when goods are made to order according to the specifications of the customers and the materials are so printed, there is no transfer of goods. The legislature has attempted to treat as sale of goods , what is really a transaction in the nature of a works contract . Learned counsel referred to Article 366(29A) of the Constitution of India and Section 3(B) of the TNGST Act and the definition of sale in Section 2 thereof. The learned counsel submitted that the fact that the works contract is a 'deemed sale' will not give the State the power to tax it as if it was a contract for sale of goods. The learned counsel submitted that the State cut into the scope of Section 3(B) of the TNGST Act by a mere amendment of the Schedule. The learned counsel submitted that the entries in the Schedule cannot control or prevail over the provisions of the Act. The learned counsel further submitted that the Supreme Court had repeatedly held that it is not open to the State to define a sale in a manner as to make a sale outside its territory into a sale within its territory, similarly, the State cannot by this G.O. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unt books, registers, order books, receipt books, memorandum pads, folders, file covers and book covers, greeting cards and invitation cards of all kinds and trade mark labels including those materials manufactured according to specification of customers whether or not with logo or name or matter. ENTRY NO.40 :- FROM 27-03-2002 (i) Xerox copies (ii) Laser copies/Printouts (iii) Computer printouts Provided that if the paper used for taking such copies or printouts has suffered tax under Item 22 of this part, the copies or printouts shall not again be subjected to tax under any of the sub-items mentioned above. (iv) All printed materials other than those specified in sub-items (i) to (iii) above, whether made of paper, paper board or other materials, like account books, registers, order books, receipt books, memorandum pads, folders, file covers and book covers, greeting cards and invitation cards of all kinds and trade mark labels including those materials manufactured according to specification of customers whether or not with logo or name or matter. 6. Section 2(n) and Section 3(B) of the TNGST Act are extracted hereunder :- 2. Definitions. In this Act, u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or an auctioneer or any other mercantile agent, by whatever name called, whether for cash or for deferred payment or other valuable consideration, shall be deemed to be a purchase or sale, as the case may be, by such factor, broker, commission agent, arhatia, del credere agent, auctioneer or any other mercantile agent, by whatever name called, for the purposes of this Act. Explanation (1-C)-- Every transfer of property in goods including goods as unclaimed or confiscated or as unservicable or as scrap surplus, old, obsolete or discarded materials or as waste products, by the persons or bodies referred to in Explanation (3) in clause (g) of Section 2 of this Act, for cash or for deferred payment or for any other valuable consideration whether or not in the course of business shall be deemed to be a sale for the purposes of this Act. Explanation (2)--[Omitted by Act 28/84 w.e.f. 29th May 1984]. Explanation (3)-- (a) The sale or purchase of goods shall be deemed, for the purposes of this Act, to have taken place in the State, wherever the contract of sale or purchase might have been made, if the goods are within the State -- (i) in the case of specific or ascertained goods ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s from the total turnover of that dealer:-- (a) all amounts involved in respect of goods involved in the execution of works contract in the course of export of the goods out of the territory of India, or in the course of import of the goods into the territory of India or in the course of inter-State trade or commerce ; (b) all amounts for which any goods specified in the First Schedule or Second Schedule, are purchased from registered dealers liable to pay tax under this Act and used in the execution of works contract in the same form in which such goods were purchased ; (c) all amounts relating to the sale of any goods involved in the execution of works contract which are specifically exempted from tax under any of the provisions of this Act ; (d) all amounts paid to the sub-contractors as consideration for execution of works contract whether wholly or partly : Provided that no such deduction shall be allowed unless the dealer claiming deduction, produces proof that the sub-contractor is a registered dealer liable to pay tax under this Act and that the turnover of such amounts is included in the return filed by such sub-contractor ; and (e) all amounts towards &# ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... art of any service or in any other manner whatsoever, of goods, being food or any other article for human consumption or any drink (whether or not intoxicating), where such supply or service, is for cash, deferred payment or other valuable consideration, And such transfer, delivery or supply of any goods shall be deemed to be a sale of those goods by the person making the transfer, delivery or supply and a purchase of those goods by the person to whom such transfer, delivery or supply is made;] . 8. Now let us refer to the aforesaid decisions mentioned in the writ prayer, both of the Supreme Court as well as those of this Court, since the impugned Government Order is being attacked as being unconstitutional :- I. Decisions of the Madras High Court : (a) In A.I.R. 1954 Madras 1130 (supra), this Court held that the expression 'sale' or 'purchase of goods' in Entry 54 of List II of the Constitution had the same meaning as the words 'sale' had in the Sale of Goods Act. It was held that a construction works contract could not be broken into a contract for sale of materials and a contract for payment of works done. (b) In (1977) 39 S.T.C. 226 (supra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the contention that when all the materials used in the construction of a coach belongs to the railways there can be any sale of the coaches itself. It was held that the difference between the price of a coach and the cost of the material can only be the cost of services rendered by the assessee. (d) In A.I.R. 1972 S.C. 1131 (supra), it was held that in the case of supply of food and other amenities apart from lodging made by a hotelier to his guests for which a consolidated amount is charged, the contract for services cannot be bifurcated as one for service and another for sale of foodstuff. (e) In (1984) 55 S.T.C. 314 (supra), the contract was one for servicing, repairing and overhauling air force planes. The spare parts were separately built. The question was, whether the contract amounted to works contract and whether the supply of spare parts amounted to sale. The Supreme Court held as follows :- It would be appropriate, in our opinion, because it clearly enunciates the principles, to refer to the statement of law in Benjamin's Treatise on the Law of Sale of Personal Property with reference to the French Code and Civil Law Eighth Edn. [1950] pp. 167-168., where th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty concluded that the contract is a contract for sale of goods and dismissed the appeal filed by the assessee. 9. According to the learned counsel for the petitioners, these decisions would clearly indicate that when the goods in question included printed materials or where printing was done, there was no question that it was a works contract and therefore, by the impugned Government Order, the Government was bringing to tax as sale, a works contract which could not be taxed as such and therefore, the impugned Government Order is unconstitutional. 10. In (1989) 74 S.T.C. 146 [Elel Hotels Investments Ltd. vs. Union of India], the Supreme Court held that it is well settled that a very wide latitude is available to the legislature in the matter of classification of objects, persons and things for purposes of taxation. In (1991) 81 S.T.C. 113 [Aphali Pharmaceuticals Ltd. vs. State of Maharashtra], the Supreme Court explained how the Schedule should be used in construing provisions in the body of the Act and it is as much an act of Legislature as the Act itself and it must be read together with the Act for all purposes of construction. The expression in the Schedule cannot contr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... separate contracts can be spelt out one for the supply and sale of lining material or hair canvas or, for the matter of that, for the supply and sale of thread and buttons, and the other for service charges. The two are indivisible. Supply is inevitable, for, without either thread or buttons or lining material, it may not be possible to execute the work. That these articles are required to be used need not be determinative of the question whether there is no separate agreement for purchase. Ordinarily, such contracts, where materials to be used are ancillary to the execution of the contracts, do not import agreements to sell materials, as such, If that is so, it cannot be said that the tailoring bill involves the sale of materials as well as the charges for stitching. 12. The decision of our High Court in (1977) 39 S.T.C. 226 (supra) was confirmed by the Supreme Court in (1989) 73 S.T.C 1, wherein it was observed that printed question paper or printed papers cannot be categorised as entailing sale of goods, but it is rather a contract for work done. The Supreme Court held that such contracts that referred to printing of judgments cannot be construed as contract for sale. In (19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upply of printed material to the MPEB by the applicant was not a sale, but a works contract. Here too, we will see that the passing of the property was incidental or ancillary to the contract of printing and they became the property of the Electricity Board only by the accretion factor. It was important that the general public had no access to these receipts, because they could be misused and so, there may also even insist to destroy whatever excess receipts that had been printed over and above the numbers for which MPEB had placed orders. So, the conclusion depends on the nature of the goods in question and the agreement between the parties. 13. Following the decision in (1989) 73 S.T.C. 1 (supra), our Court, in 1997 STC 489 (supra), held that the supply of account books for Indian Bank amounts to works contract. 14. In (1996) 100 S.T.C. 417 [Thomson Press (India) Ltd. Vs. State of Haryana], a Full Bench of the Punjab and Haryana High Court held that in the facts and circumstances of the case, the printing of lottery tickets amounted to execution of works contract. In that case, the lottery tickets were printed in four colours, the material for printing on the reverse wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 39;normally'. It cannot be relied on as a dicta that any product which is supplied by a person to another which cannot be sold in the open market must be a transaction involving works. 15. In a number of cases, the assessees had taken the stand that when there are printing materials which contain labels or logos or names of purchaser, then all such transactions are works contract. In fact, this Court, in (2009) 26 V.S.T. 397 [The State of Tamil Nadu represented by Deputy Commissioner (CT), Tirunelveli Division vs. The Orient Packaging Industries and The Secretary, The Tamil Nadu Sales Tax Appellate Tribunal], held that supply of biscuits and labels made according to the specifications with the name and address of the manufacturer printed thereon by the dealer was a sale or a works contract. But it is clear that G.O. Ms. No.66 was not brought to the notice of the Court in the above case. 16. The apprehension of the petitioners appears to be that by the above Government Order, all transactions which are really works contract would be brought in to tax as a sale of goods and what the State was not permitted to do by the various decisions referred to above, it has attempted t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onged to the Universities. The printer was merely asked to print what is required by the University. The University has no intention to purchase the papers. It places an order for printing of questions. The University required utmost confidence to be maintained, since the questions should not be leaked to the students before the actual date of the examination. But the printing of question paper on the request of the University cannot be equated to printing of a name or logo on goods which are purchased. We referred to diary only as an example. There, the subject of the transaction is only purchase of the diary. The printing of name is just incidental. So, what we have to see is whether the word is incidental or the purchase is incidental. The fact that the Legislature has introduced the additional word in Entry-40 will not change the position of law in any manner. The authorities will have to examine each transaction and look at the contract in question and decide whether it is works contract or whether it is only a sale. The mere fact of bearing the logo or name upto the specification to the customer's will not make it a works contract. 20. In (2000) 118 S.T.C. 9 [Rainbow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ied, even if they bear the name of the purchaser, will without any question be deemed to be works contract. The following extract from (1965) 16 S.T.C. 240 (supra), is relevant for the purpose of the present case :- The fact that in the execution of a contract for work some materials are used and 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. A contract for work in the execution of which goods are used may take one of three forms. The contract may be for work to be done for remuneration and for supply of materials used in the execution of the work for a price; it may be a contract for work in which the use of materials is accessory or incidental to the execution of the work or it may be a contract for work and use or supply of materials though not accessory to the execution of the contract is voluntary or gratuitous. In the last class there is no sale because though property passes it does not pass for a price. Whether a contract is of the first or the second class must depend upon the circumstances : if it is of the first, it is a composite contract for wor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the transaction is taxable as one for sale of goods. We are not persuaded by the submissions made by the learned counsel for the petitioners that merely by inclusion the State will bring to tax what is a works contract. Even after the inclusion, it is necessary to prove whether a given transaction is a works contract pure and simple or it involves sale of goods. The Supreme Court held that this is a mixed question of law and fact depending upon the facts of each case vide (1984) 55 S.T.C. 314. On the contrary, the State wanted to check the mischief, where merely because the goods were printed material, the assessees had been able to persuade that the transfer of goods in question were part of a works contract, relying on Anandam Viswanathan's case (supra). Therefore, the challenge to the constitutional validity of the Government Order is rejected. 24. Learned Government Pleader relied only on a decision in State of Andhra Pradesh Vs. Kone Elevators (India) Ltd., reported in 2005 (40) S.T.C. 22 which dealt with the actual work at site for installation of lift. It is submitted that for installation, the test that is applied should be applied here and that is the real standard ..... X X X X Extracts X X X X X X X X Extracts X X X X
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