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PETITIONER: M/S EVEREST COPIERSTHROUGH R.A. PARTNER

       Vs.

RESPONDENT: STATE OF TAMIL NADU

DATE OF JUDGMENT:       25/07/1996

BENCH: BHARUCHA S.P. (J) BENCH: BHARUCHA S.P. (J) THOMAS K.T. (J)

CITATION:  JT 1996 (7)    40        1996 SCALE  (5)535

ACT:

HEADNOTE:

JUDGMENT:                             WITH                CIVIL APPEAL NO. 5339 OF 1992                          O R D E R      The appellant runs a photocopying business. It has been assessed to  sales tax  for the  Assessment Year 1978-79 (in Civil Appeal  No. 5339/92)  and the  Assessment Year 1979-80 (in Civil  Appeal No.2672/92)  on the  basis that  there was sale by  it of  the photocopied  or xeroxed  document to the customer.  The   question  that   we  are   concerned  with, therefore, is  whether the  making of  photostat copies with the use  of a  xerox or  other machine  and  delivering  the copies so  taken to  the  customer  on  receipt  or  payment amounts to  a sale  of goods exigible to tax under the Tamil Nadu General Sale Tax Act, 1959.      Section 2(n)  of the  Tamil Nadu General Sales Tax Act, 1959 read as under at the relevant time:      " ’Sale’  with all  its grammatical      variations and  cognate expressions      means   every   transfer   of   the      property in  goods by one person to      another in  the course  of business      for cash or for deferred payment or      other valuable  consideration,  but      does  not   include   a   mortgage,      Hypothecation, charge on pledge."      It is  the case  of the  appellant that  no sale tax is involved in  that the  contract that he enters into with the customer is  only a  works contract.  It is  the case of the respondents that the contract is of sale of the photocopies.      The Karnataka  High Court,  In B.  Girija and  Anr. Vs. Sate  of  Karnataka,  (1984)  56  STC  297,  considered  the question that  arises in these appeals and observed that the turnover of  the assessee  was made  up of amounts collected from customers  as labour  charges  towards  developing  and printing of  photostat copies  and the  cost of the material used for  taking  such  copies.  It  was  matter  of  common

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experience that  persons went  to a  xerox establishment not with a  view to by supplicates of their documents but to get copies made  of their  documents. It was no less true in the case of  the assessee.  The assessee  utilised her own paper and ink  and, by  the use  of the  xerox machine, turned out copies of documents brought to her. The assessee charged for the service rendered in addition to the cost of the material used. On  these facts,  it had  to be found what the primary object of  the transaction  was and  the  intention  of  the parties, namely, whether it was a contract purely of work or service or  a contract  of sale.  The High Court noticed the decision of  this Court  in Hindustan  Aeronautics Ltd.  Vs, Tate of  karnataka,(1984) 55  STC 314  =(1984)  2  SCR  248, wherein it was held:-      ".........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  parson      executing the work, and property in      such articles or materials may pass      to the  other party. That would not      necessarily  convert  the  contract      into   one   of   sale   of   those      materials. In every case, The would      have  to  find  out  what  was  the      primary object  of the  transaction      and the  intention of  the  parties      while entering into it......." As has  been noticed,  the High  Court stated that no person went to the assessee for buying duplicates of his documents. He went  to ask  whether the  could get  xerox copies of his documents. The  assessee  undertook  to  get  the  documents duplicated  and   collected  a   certain  charge.  This  was essentially a  contract of work or labour or service and not a contract  of sale.  The distinction  had been explained in the Hindustan Aeronautics’s case (supra) thus:-      "...........A contract of sale is a      contract whose  main object  is the      transfer of  the property  in,  and      the delivery  of the possession of,      a  chattel  as  a  chattel  to  the      Buyer.  Where   however  the   main      object of  work under  taken by the      payee of  the  price  was  not  the      transfer of  chattel  qua  chattel,      the contract  is one  of  work  and      labour,. The  test is,  whether  or      not the  work and  labour  bestowed      and in  anything that  can properly      become the subject of sale; neither      the ownership of the materials, nor      the value  of the  skill and labour      as compared  with the  value of the      materials, is  conclusive, although      such  matters  may  be  taken  into      consideration  in  determining,  in      the circumstances  of a  particular      case  where  the  contract  was  in      substance one  for work  and labour      and one for the sale of a chattel".

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The High  Court, therefore,  held that what was involved was not a contract of sale, but a contract of work or service.      The principles  enunciated in Hindusan Aeronautics case (supra), quoted  by the  High Court, also find expression in the earlier  decision of  this Court  in Assistant Sales Tax Officer &  Ors,, vs. B.C. Kame. (1977) 39 STC 237 = (1977) 2 SCR 435.  In Kame’s  case  the  respondent  carried  on  the business  of   supplying  Photographs   to  those   who  got themselves photographed  at his studios. It was held that he did not enter into a contract of Sale.      The judgment  of the  Karnataka High  Court  was  cited before the  Division Bench that wrote the Judgment and order under appeal  (reported in 83 STC 420). It was distinguished on the  ground that  it "Proceeded  upon an  erroneous under standing     of  the  nature  of  the  transaction  and  was apparently carried  away by  the corporeal  rights over  the contents or  subject-Matter of  the copies with the material turned out,  namely, the duplicate copies made. If an author or a  publisher of a text orders for the printing and supply of a specified number of copies of the literature concerned, it could  not be said that the work merely is a contract for work and  labour or  service and  not a  contract for  sale. Duplication or  making out copies does not get its character altered merely  on account  of the  proprietory ownership of the  material   which  was   sought  to   be  duplicated  or Multiplied". The  Division Bench  held that  the supply of a xerox copy  manufactured by the use of a xerox machine for a price consisted  of a  an indivisible  contract of sale and, consequently, the  turnover relating to the same had rightly been subjected to tax by the assessing authority.      As we  see it,  the view  taken by  the Karnataka  High Court is  right and  is based  upon the  decisions  of  this Court. Where the main subject of the work under taken 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  the photocopier  or xerox  machine is  not  the transfer of  paper upon which the copy is produced; it is to duplicate or  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 not interest in the bare paper upon which his  document is  duplicated. He  is interested  in it only if it bears such Duplication.      The case is very similar to Kame’s case. The tests laid down  by  this  Court  as  aforestated  are  satisfied;  the contract between  the appellant  and the  payer the price to him is  contract of  work or service, not a contract of sale upon which sale tax is exigible.      In  the   result,  the  appeals  are  allowed  and  the judgments and orders under appeal are set aside.      There shall be not order to costs. The South Indian Photographic and Allied Trades Association. V. The State of Tamil Nadu & ors                          O R D E R       Learned  counsel for  the appellants  seeks  leave  to withdraw these  appeals. He  states that  in an  appropriate case where  the judgment  under appeal  is  relied  upon  in assessment proceedings  or proceedings  subsequent thereto a challenge to the judgment shall be made.      The appeals are dismissed as withdrawn. CIVIL APPEAL NO. 11903 OF 1995

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------------------------------      Learned  counsel  for  the  appellant  seeks  leave  to withdraw this  appeal. He  states that in a appropriate case where the judgment under appeal is relied upon in assessment proceedings or  proceedings subsequent  thereto, a challenge to the  judgment shall be made. Learned counsel adds that in this matter  the agreement of inapplicability of the statute to the  commodities used  by the appellants was urged before the High Court, But was not considered in the judgment.       Appeal is dismissed as withdrawn. CIVIL APPEAL NO 11294 OF 1995:      Learned  counsel   for  the  appellant  sees  leave  to withdraw this  appeal. He states that in an appropriate case where the judgment under appeal is relied upon in assessment proceedings or  proceedings subsequent  thereto, a challenge to the  judgment shall  be made.  The appeal is dismissed as withdrawn.