TMI Blog2021 (9) TMI 475X X X X Extracts X X X X X X X X Extracts X X X X ..... sale and even in case, an invoice is raised in this regard i.e., part and parcel of the works contract and cannot be construed as a sale. In the present case, the master copy was allowed to be utilized only for the purpose of recording of blank cassettes by the cassette manufacturers and after recording, he is not permitted to sell the product in the open market, but to handover the recorded cassettes only to the petitioner company, who in turn, reserve their rights to sell the product in the open market. Thus, such sale by the petitioner in the open market cannot be construed as a second sale, but to be taken as the first sale for the purpose of levying tax under the provisions of the TNGST Act. In the present case, there was a works contract between the petitioner and the cassette manufacturers to use the master copy for the purpose of recording the blank cassettes in large scale. Secondly, there is an execution of works contract and such execution is done on certain terms and conditions of the agreement. Thirdly, in the present case, the goods were transferred to the petitioner, who has supplied the master copy and not sold in the open market admittedly. It would have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stered under the TNGST Act and the said suppliers charge Sales Tax under TNGST Act in respect of the sales of pre-recorded audio cassettes. 4. The petitioner acquires audio rights from the artists themselves or from the film producers in Tamil Nadu to publish, manufacture, sell, distribute and broadcast the devotional songs and songs of cine films. The petitioner entrusts the master copy received from the producers to the cassette manufactures and supply pre-recorded cassettes. The cassette manufactures purchase blank cassettes from registered dealers within the State after payment of Sale tax and record the devotional songs / film songs etc., on the blank cassettes and sell the pre-recorded cassettes to the petitioner, charging the total value of the pre-recorded cassettes and the Sales tax. 5. The petitioner states that the sales, which are made by the petitioner, are therefore second sales of pre-recorded audio cassettes, which are exempt from payment of tax as pre-recorded audio cassettes are only subject to tax at the point of first sale. 6. The first respondent after duly verifying first sale invoices in respect of pre-recorded audio cassettes, has allowed the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... machines; (vii) printing of information on cassette body; (viii) printing of inlay cards; (ix) testing and cellowrapping of the finished cassettes. The machines which were the subject of the contract dated 6- 11-1989 were required for the fourth-mentioned item, namely, high-speed transfer, of music signals from 1/2 master tape to 1/8 pancakes. 11. The term manufacture is not defined in the Customs Act. In the allied Actnamely the Central Excise Act, 1944 also, the term manufacture is not to be found defined though vide clause (f) of Section 2 an inclusive definition is given of the term manufacture so as to include certain processes also therein. 12. Manufacture came up for the consideration of the Constitution Bench in Ujagar Prints v. Union of India [(1989) 3 SCC 488 : 1989 SCC (Tax) 469 : (1988) 38 ELT 535] . It was held that if there should come into existence a new article with a distinctive character and use, as a result of the processing, the essential condition justifying manufacture of goods is satisfied. The following passage in the Permanent Edition of Words and Phrases was referred to with approval in Delhi Cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty of service industry . It is held that the pre-recorded audio cassettes is generally sold by reference to its name or title which is suggestive of the contents of the audio recording on the cassettes. The activity of recording the audio cassettes is a manufacturing activity and cannot be termed as a activity of service industry, because pre-recorded audio cassettes are certainly distinct and different routes from blank audio cassettes. Accordingly, the Hon'ble Supreme Court of India set aside the order passed by the CEGAT and the case was remanded back to the Assistant Commissioner for denovo consideration, treating the appellants as a manufacturing activity. Thus, the issue involved is not relatable to sell or works contract , which is to be considered in the present case with reference to the provisions of the TNGST Act. 12. The learned Counsel for the petitioner reiterated that the processing procedures involved in the manufacture of pre-recorded audio cassettes was considered by the Hon'ble Supreme Court and in the present case, admittedly, the petitioner is a copyright holder as far as the master recording is concerned, who in turn, allows a third person to p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... audio right for taking copies from the master copy. As blank cassettes / CDs and pre recorded cassettes / CDs are commercially different goods, sale on blank cassettes / CDs are liable to tax and when they are recorded and sold as pre recorded cassettes / CDs, then such sale also will be liable to tax as different goods. Originally, these dealers were allowed exemption from tax as second sales on the ground that such cassettes / CDs were purchased from local registered dealers. But later on, it was found out that these dealers being copy right owners sent master copy to certain parties who after recording them made sale of pre recorded cassettes / CDs and charged tax as pre recorded cassettes / CDs. The dealers in their turn on having made such taxable purchases, claimed exemption from tax as second sale of pre recorded cassettes / CDs. 6....Such dealer who undertake this work of recording did not have the right to sell recorded cassettes / CDs to persons other than audio right holder. Thus, this transaction of recording audio and supply of such recorded cassettes would only be works contract in nature but the contractors treated the transactions as first sale of pre record ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of pre recorded cassettes cannot claim exemption as second sales and they will be liable to pay tax as first sellers of pre recorded cassettes. In respect of the cassettes manufactured using the master copy of the petitioners, the supplier cannot be treated as first sellers because the copy right cannot be sold by the manufactures, but could be done only by the petitioners. 15. The respondents have contended that the provisions under the Central Excise Act are different and the application of TNGST Act for levying of Tax for sale cannot be compared with the provisions of the Central Excise Act and therefore, the analogy adopted by the petitioner in this regard is not in consonance with the provisions of the Statute. 16. Considering the arguments as advanced by the respective learned counsels appearing on behalf of the parties to the lis , let us look into the definition for works contract under Section 2 (u) of the Tamil Nadu General Sales Tax Act, 1959. works contract includes any agreement for carrying out for cash, deferred payment or other valuable consideration, the building, construction, manufacture, processing, fabrication, erection, installation, fitting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1. The definition of sale under Section 2(n)(iv) stipulates that a transfer of the right to use any goods for any purpose (whether or not for a specified period) for cash, deferred payment or other valuable consideration. 22. Here, in the present case, the right was not given to use goods for any purpose and it is given for a particular purpose that recording the songs in blank cassettes and after recording, such recorded cassettes are to be supplied only to the petitioner. Therefore, the cassette manufacturer's services are utilized to process the recording system and after processing the recording system, the recorded cassettes are handed over or sold to the petitioner and the materials utilized for such recording of cassettes cannot be construed as a sale and even in case, an invoice is raised in this regard i.e., part and parcel of the works contract and cannot be construed as a sale. The invoice, if at all raised by the cassette manufacturers, that is relatable to the purchase of blank cassettes from open market or manufacturing of cassettes, which cannot be a sale within the meaning of the provisions of the TNGST Act. 23. In the present case, except the peti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or purchase of goods wherever it occurs in the Constitution so that it may include within its scope any transfer, delivery or supply of goods that may take place under any of the transactions referred to in sub-clauses (a) to (f). The Constitution Bench*** explained that clause 29-A refers to a tax on the transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract. The emphasis is on the transfer of property in goods whether as goods or in some other form. A transfer of property in goods under sub-clause (b) of clause 29-A is deemed to be a sale of the goods involved in the execution of a works contract by the person making the transfer and a purchase of those goods by a person to whom such transfer was made. 90. The Court in Hindustan Shipyard case also set out three categories: (a) the contract may be for work to be done, for remuneration and for supply of materials used in the execution of work for a price, (b) contract for work in which the use of the materials is accessory or incidental to the execution of the work and (c) contract for supply of goods where some work is required to be done ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re-recorded audio cassettes with reference to the Gramophone case (cited supra) may not have application as the issue raised before the Hon'ble Supreme Court are not connected with the sale or works contract and levy of tax under the provisions of the TNGST Act as in the present case. 27. This Court is of the considered opinion that for the purpose of levying tax with reference to the provisions of the tax law, the nature of transactions are of paramount importance for forming an opinion, whether such transaction amounts to sale or works contract or otherwise. In the present case, there is no dispute with reference to the transaction between the petitioner and the cassette manufacturers for recording of blank audio cassettes and supply of the recorded cassettes to the petitioner. Thus, this Court has no hesitation in forming an opinion that the first sale as claimed by the petitioner cannot be considered as a first sale, but to be construed as works contract and the sale by the petitioner in the open market is to be taken as the first sale for the purpose of levy of tax under the provisions of the TNGST Act. 28. Accordingly, the impugned Circular passed by t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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