TMI BlogSC upholds levy of Sales tax on processing and supplying of photographs - reiterates power to levy tax retrospectivelyX X X X Extracts X X X X X X X X Extracts X X X X ..... SC upholds levy of Sales tax on processing and supplying of photographs - reiterates power to levy tax retrospectively - By: - Bimal jain - Value Added Tax - VAT and CST - Dated:- 16-2-2015 - - Dear Professional Colleague, SC upholds levy of Sales tax on processing and supplying of photographs - reiterates power to levy tax retrospectively We are sharing with you an important judgment of the Hon ble Supreme Court, in the case of State of Karnataka Etc Vs. Pro LAB and Ors [ 2015 (2) TMI 388 - SUPREME COURT OF INDIA ] on following issue: Issue: Whether the Sales tax could be leviable on Processing and Supplying of photographs? Facts and background: Entry 25 of Schedule VI of Karnataka Sales Tax Act, 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 957 ( Entry 25 ) was inserted vide an amendment in July 1, 1989 thereby providing for levy of Sales tax for processing and supply of photographs, photo prints and photo negatives. The Hon ble High Court of Karnataka in Keshoram Surindranath Photo - Bag (P) Ltd. and others Vs. Asstt. Commissioner of Commercial Taxes (LR), City Division, Bangalore and others [ 1999 (9) TMI 938 - KARNATAKA HIGH COURT ] ( Keshoram Case ) declared the said Entry as unconstitutional on the ground that the contract of processing and supplying of photographs, photo frames and photo negatives was predominantly a service contract with negligible component of goods/material and, therefore, it was beyond the competence of State Legislature given i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n Entry 54 of List II of Schedule VII of the Constitution to impose Sales tax on such a contract. The State of Karnataka challenged the said judgment before the Hon ble Supreme Court wherein the Hon ble Supreme Court dismissed the Special Leave Petition vide order dated April 20, 2000 following its earlier judgment in the case of Rainbow Colour Lab and Another Vs. State of Madhya Pradesh and others [ 2000 (2) TMI 2 - SUPREME COURT OF INDIA ] ( Rainbow Colour Lab Case ) . Thereafter, three Judges Bench of the Hon ble Supreme Court had held another dimension vide ACC Ltd. Vs. Commissioner of Customs [ 2001 (1) TMI 248 - Supreme court of India ] ( ACC Ltd. Case ), wherein the Hon ble Supreme Court expressed i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts doubts about the correctness of the law laid down in Rainbow Colour Lab Case. After the judgment in ACC Ltd. Case, a Circular instruction was issued by the Commissioner of Commercial Taxes to the Assessing Authorities to proceed with the assessments as per Entry 25. This became the subject matter of challenge before the High Court of Karnataka in the case of Golden Colour Labs and Studio and others Vs. the Commissioner of Commercial Taxes [ 2003 (7) TMI 665 - KARNATAKA HIGH COURT ] . The Hon ble High Court allowed the writ petition vide judgment dated July 30, 2003 holding that a provision once declared unconstitutional could not be brought to life by mere administrative instructions. However, at the same time, the Court observed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that Entry 25 declared ultra vires the Constitution in Keshoram Case, cannot be revived automatically, unless there is re-enactment made by the State Legislature to that effect. Resultantly, the State Government via an amendment dated January 29, 2004 re- introduced Entry 25 with a retrospective effect from July 1, 1989. Pro LAB and Ors ( the Respondents ) challenged before the Hon ble High Court, the authority of the State Legislature to give a retrospective effect to Entry 25 as it violates Article 265 of the Constitution and also challenged the enactment of Entry 25 itself. The Hon ble High Court declared the provision unconstitutional in 2005. Being aggrieved, the State of Karnataka ( the Appellant ) preferred a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n appeal before the Hon ble Supreme Court . Held: The Larger Bench of the Hon ble Supreme Court after considering plethora of judgments held as under: In Gannon Dunkerley and Co. and others Vs. State of Rajasthan and others [ 1958 (4) TMI 42 - SUPREME COURT OF INDIA ] which was decided on April 1, 1958, the Supreme Court held that in a building contract which is one, entire and indivisible there is no sale of goods, and it is not within the competence of the Provisional Legislature under Entry 48 to impose a tax on the supply of materials used in the contract treating it as sale ; After the above judgment and a series of subsequent judgments, the Parliament amended the Constitution of India by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Constitution (46 th Amendment) Act, 1982. By this amendment, clause (29A) was inserted in Article 366 of the Constitution , providing for tax on the sale or purchase of goods ; In Builders Association of India and others Vs. Union of India and others [ 1989 (3) TMI 356 - SUPREME COURT OF INDIA ] , the Constitution Bench specifically noted that the purport and object of the said amendment was to enlarge the scope of the expression tax of sale for purchase of goods . With this amendment, the States are empowered to make the Works contract divisible and tax sale of goods component; In Larsen Toubro and another Vs . State of Karnataka and another [ 2013 (9) TMI 853 - SUPREME COURT ] ( Larsen Turbo Case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) , it was held that by the 46 th amendment, States have been empowered to bifurcate the contract and to levy Sales tax on the value of the material in the execution of the Works contract; Thus, after insertion of clause 29A in Article 366 of the Constitution , the Works contract which was indivisible one by legal fiction, altered into a contract, is permitted to be bifurcated into two: one for sale of goods and other for services , thereby making goods component of the contract exigible to Sales tax ; Dominant Intention Test for treating a contract as a Works contract is not applicable . In other words analysis of dominant intention behind a Works contract, namely, whether it was for sale of goods or for services, i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s rendered otiose or immaterial; By virtue of the Article 366(29A) of the Constitution , the State Legislature is now empowered to segregate the goods part of the Works contract and impose Sales tax thereupon. Entry 54, List II of the Constitution of India empowers the State Legislature to enact a law taxing sale of goods. Sales tax, being a subject-matter into the State List, the State Legislature has the competency to legislate over the subject. Retrospective validity - In the case of Hiralal Ratanlal Vs. State of U.P. [ 1972 (10) TMI 84 - SUPREME COURT OF INDIA ] , it was observed that a power to legislate includes a power to legislate prospectively as well as retrospectively. In this regard legislative p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ower to impose tax also includes within itself the power to tax retrospectively . Therefore, the Hon ble Supreme Court upheld the levy of Sales tax on processing and supplying of photographs and that too retrospectively. Our Comments: The Larger bench of the Hon ble CESTAT, Delhi in the case of Agrawal Colour Advance Photo System Vs. CCE, Bhopal [ 2011 (8) TMI 291 - CESTAT, NEW DELHI (LB) ] has held that, for the purpose of Section 67 of the Finance Act, 1994 ( the Finance Act ), the value of service in relation to photography would be the gross amount charged including cost of goods/material used and consumed in the course of rendering such service and the cost of unexposed film etc., would stand excluded in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erms of Explanation to Section 67 of the Finance Act, 1994 if sold separately to the client. It was further held that the value of other goods and material, if sold separately would be excluded under Exemption Notification No.12/2003-ST dated June 20, 2003 and the term 'sold' appearing thereunder has to be interpreted using the definition of 'sale' in the Central Excise Act, 1944 and not as per the meaning of Deemed Sale under Article 366(29A)(b) of the Constitution . However, the recent judgment of the Hon ble Supreme Court has re-affirmed the position laid down in Larsen Turbo Case followed by landmark judgment of Five Judge Constitution Bench of the Hon ble Supreme Court in the case of Kone Elevator In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dia Private Limited Vs. State of Andhra Pradesh [ 2014 (5) TMI 265 - SUPREME COURT ] , regarding inapplicability of Dominant Intention Test in case of Works contract. Consequent to the aforesaid decisions, Assessees or the Revenue should no longer be able to have recourse to the Dominant Intention Test for determining the taxability of Works contract transactions. However, the question still prevails on applicability of Dominant Intention Test for transactions which do not get covered under Article 366(29A) of the Constitution. Accordingly, if a transaction doesn t qualify as a Works contract, it would not be open for vivisection, making it imperative for the Assessee to closely examine the transactions in order to determine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... their true nature. Hope the information will assist you in your Professional endeavors. In case of any query/ information, please do not hesitate to write back to us. Thanks and Best Regards, Bimal Jain FCA, FCS, LLB, B.Com (Hons) Delhi: Flat No. 34B, Ground Floor, Pocket - 1, Mayur Vihar, Phase - I, Delhi - 110091, India Desktel: +91-11-22757595/ 42427056 Mobile: +91 9810604563 Chandigarh: H. No. 908, Sector 12-A, Panchkula, Haryana - 134115 Kolkata: Ist Floor, 10 R G Kar Road Shyambazar, Kolkata - 700 004 Email: [email protected] Web: www.a2ztaxcorp.com Disclaimer: The contents of this document are solely for informational purpose. It does not constitute pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fessional advice or recommendation of firm. Neither the authors nor firm and its affiliates accepts any liabilities for any loss or damage of any kind arising out of any information in this document nor for any actions taken in reliance thereon. Readers are advised to consult the professional for understanding applicability of this newsletter in the respective scenarios. While due care has been taken in preparing this document, the existence of mistakes and omissions herein is not ruled out. No part of this document should be distributed or copied (except for personal, non-commercial use) without our written permission. - - Scholarly articles for knowledge sharing authors experts professionals Tax Management India - taxmanagemen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tindia - taxmanagement - taxmanagementindia.com - TMI - TaxTMI - TMITax ..... X X X X Extracts X X X X X X X X Extracts X X X X
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