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PETITIONER: M/S.  RAINBOW COLOUR LAB & ANR.

       Vs.

RESPONDENT: THE STATE OF MADHYA PRADESH & ORS.

DATE OF JUDGMENT:       02/02/2000

BENCH: S.P.Bharucha, N.S.Hegde

JUDGMENT:

     SANTOSH HEGDE, J.

     Common questions involved in these appeals are whether the  job  rendered by a photographer in taking  photographs, developing  and  printing  films would amount  to  a  works contract  as  contemplated under Article 366(2A)(b) of  the Constitution read with Section 2(n) of the M.P.General Sales Tax  for  the  purpose  of levy of  sales  tax  on  business turnover of the photographers.

     Prior  to  the  46th  Constitutional  Amendment,  this question  was  settled  in favour of the  assessees  by  the judgment  of  this Court in the case of Assistant Sales  Tax Officer & Ors.  vs.  B.C.  Kame (1977 (39) STC 237).  Taking advantage  of the 46th Amendment of the Constitution and the consequent  amendment to the definition of sale in Section 2(n)  of the local Sales Tax Act, the Commissioner of  Sales Tax,  M.P.  issued Circular dated 25.1.1992 opining that the job  done by the photographers amounted to works  contract and turnover from such work would be exigible to the levy of sales-tax.   This Circular prompted the concerned  Assessing Officers  to re-assess the turnover of the assessees and  to issue  them demand notices.  Aggrieved assessees filed  writ petition before the M.P.High Court primarily contending that the  work  done by them is only a service contract,  out  of their  skill  and  labour and there was no element  of  sale involved in their work, hence their turnover was outside the levy  of sales-tax.  The High Court, however, relying on the judgment  of  this Court in Builders Association of India  & Ors.   vs.  Union of India & Ors.  (1989 (73) STC 370)  held that,  to the extent of the photo paper used in the printing of positive prints by the appellants in their work, there is a transfer of property in goods.  Therefore, to this extent, the job done by the appellants becomes a works contract as contemplated  under  Article 366(2A)(b) of the  Constitution and  as incorporated in Section 2(n) of the State Act.  This declaration of law is challenged before us in these appeals. On  facts,  there is no dispute before us in regard  to  the actual  nature  of work done by the appellants i.e.  in  the course  of their business.  The appellants take  photographs of  the  objects  desired by their  customers,  develop  the negatives  and  supply  the prints.  They also  develop  the films brought by the customers, make positive prints thereof and supply the positive prints and return the negative films

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back to the customers.  In some of the cases, it is possible that  the appellants may undertake the work of enlarging the photo  prints also.  It is also of common knowledge that the photo  prints  supplied by them to their customers  are  not marketable  commodities and as goods they have no value.  In this background, we will now examine the question arising in these  appeals.   This  Court in Kames case  (supra)  while considering  the  facts of a similar case held:    When  a photographer   like  the  respondent   undertakes  to   take photograph,  develop the negative, or do other  photographic work  and  thereafter  supply 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.   The occupation  of a photographer, except in so far as he  sells the  goods purchased by him, in our opinion, is  essentially one  of skill and labour.  x x x x x We, therefore, find  no cogent  ground to disagree with the High Court in so far  as it has decided against the revenue and has held the contract to  be  one for work and labour. Since this was a  judgment rendered  prior  to  the  coming  into  force  of  the  46th Constitutional  Amendment, we will have to consider  whether the  said  Amendment has brought about any change so  as  to doubt  the legal position enunciated in the above case.   It is  true  that  by  the  46th  Constitutional  Amendment  by incorporating  Clause 29-A(b) in Article 366, the definition of the words sale and works contract have been enlarged. The  State  of  Madhya  Pradesh has  also  brought  about  a consequent  change  in the definition of the word sale  in Section  2(n)  of its Sales Tax Act but it is to be  noticed that  in the said State Act the expression works  contract has  not been specifically defined.  Prior to the  Amendment of  Article  366, in view of the judgment of this  Court  in State  of Madras vs.  Gannon Dunkerley & Co.  (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 (supra)  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 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 service contract  or otherwise, may involve the use of some material or  the  other in execution of the said contract.  State  is not empowered by the amended law to impose sales-tax on such incidental  materials used in such contracts.  This is clear from  the  judgment of this Court in  Hindustan  Aeronautics Ltd.   vs.   State of Karnataka (1984 (55) STC 314  at  322) where  it was held thus :  ..Mere passing of property  in an  article or commodity during the course of performance of the  transaction in question does not render the transaction to  be  transaction of sale.  Even in a contract  purely  of work or service, it is possible that articles may have to be used  by the person executing the work, and property in such articles  or  materials may pass to the other  party.   That

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would  not necessarily convert the contract into one of sale of  those materials.  In every case, the court would have to 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  vs. State  of Tamil Nadu (1996 (103) STC 360) (to which judgment one  of  us - Hon.  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 the 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  Bavens  v.  Union of India & Ors.  (1995 (97)  STC 161),  a  Division Bench of the Kerala High Court had  taken the  view  that Where a photographer takes a photograph  of his  customer,  develops the negative and supplies  positive prints in the desired size to the customer, the photographer uses his own camera and his own film.  The negative which is subjected  to further processing belongs to the photographer and not to the customer.  No basic goods are provided by the customer  which  are subjected to processing, etc.,  by  the photographer  so  as to make the contract a works  contract. There is no accretion to goods or property or the nucleus of a property which originally belonged to the customer.  There is  no  works  contract  involved  in  this  category  of  a photographers  activity.  However modernised the camera be, the skill of the photographer is still important for getting the  best  results.  It cannot also be treated as a sale  of the  photograph for the reason that it is not the  intention of  the customer to buy a photograph from the  photographer. The  photograph  has no marketable value.  What is  expected from  the  photographer is his service, artistic  skill  and talent.   If any property passes to the customer in the form of  photographic paper, it is only incidental to the service contract.   No  portion  of the turnover of  a  photographer relating to this category of work would be exigible to sales tax.  We are in agreement with the view taken by the Kerala High  Court  in the above case.  The reliance placed by  the High  Court in Builders case (supra) is misplaced.   Though this  Court in the said case held that by the 46th Amendment to  the Constitution, the definition of the expression  tax on  the  sale or purchase of goods stood enlarged, it  also held  that  the 46th Amendment does no more than  making  it possible  for  the States to levy sales-tax on the price  of goods and materials used in the works contract as if there was  a  sale  of such goods and materials.  The  Court  also observed  :  We are surprised at the attitude of the States which  have put forward the plea that on the passing of  the 46th  Amendment the Constitution had conferred on the States

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a  larger  freedom  than what they had before in  regard  to their  power  to levy sales tax under entry 54 of the  State List.   The  46th  Amendment  does no more  than  making  it possible  for  the States to levy sales tax on the price  of goods  and materials used in works contracts as if there was a  sale  of such goods and materials.  We do not accept  the argument  that sub-clause (b) of article 366(29-A) should be read  as being equivalent to a separate entry in List II  of the Seventh Schedule to the Constitution enabling the States to  levy tax on sales and purchases independent of entry  54 thereof.   As the Constitution exists today the power of the States  to  levy  taxes  on sales  and  purchases  of  goods including  the  deemed sales and purchases of goods  under clause  (29- A) of article 366 is to be found only in  entry 54  and  not  outside  it.  We  may  recapitulate  here  the observations of the Constitution Bench in the case of Bengal Immunity  Co.  Ltd.  (1955) 6 STC 446;  (1955) 2 SCR 603  in which  this Court has held that the operative provisions  of the  several parts of article 286 which imposes restrictions on  the levy of sales tax by the States are intended to deal with  different  topics, and one could not be  projected  or read  into  another  and each one of them has to  be  obeyed while  any  sale or purchase is taxed under entry 54 of  the State List. Thus, it is clear that unless there is sale and purchase  of goods, either in fact or deemed, and which 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 the expanded definition found in Article  366(29-A)(b)  read with Section 2(n) of  the  State Act.   On facts as we have noticed that the work done by the photographer  which  as  held by this Court in  Kames  case (supra),  is  only in the nature of a service  contract  not involving  any sale of goods, we are of the opinion that the stand taken by the respondent-State cannot be sustained.

     For  the  reasons stated above, we are of the  opinion that  the  view  taken by the Division Bench of  the  Madhya Pradesh  High  Court  in  the impugned  judgment  cannot  be sustained.  Hence, we allow these appeals, setting aside the judgment under appeal and grant the prayer of the appellants by  quashing  the assessment orders and the  demand  notices impugned  in  the writ petitions before the High Court.   No costs.  SLP © Nos.18089-90/97 :

     Leave granted.

     Following   the   judgment  of   this  Court   in   CA Nos.5350-51/97  etc.   these appeals are also  allowed.   No costs.