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COMMISSIONER OF SALES TAX, BOMBAY VERSUS RADIO ADVERTISING SERVICES

    SALES TAX REFERENCE 5 OF 1989

    Decided On, 05 October 1996

    At, High Court of Judicature at Bombay

    By, THE HONOURABLE MR. JUSTICE B.P. SARAF & THE HONOURABLE MR. JUSTICE D.G. DESHPANDE

    For the Appearing Parties: ---



Judgment Text

B.P. SARAF, J.


( 1 ) BY these references under section 61 (1) of the Bombay Sales Tax, 1959, the Maharashtra Sales Tax Tribunal has referred the following common questions of law, which arise out of three orders passed by it in similar factual circumstances in three different cases, to this Court for opinion : (1) Whether on the facts and in the circumstances of the case, the Tribunal was correct in holding that the supply of additional prints by the opponents to their customers from the negatives supplied by the customers was not a contract for sale but was a contract for work, labour and skill? (2) Whether on the facts and in the circumstances of the case and on a correct interpretation of the provisions of the Copy- rights Act 1957, the Tribunal was correct in its conclusion that there could be no sale of the additional prints by the opponents in favour of their customers as the customers themselves had the copy-rights in the prints? (3) Whether on the facts and in the circumstances of the case, the Tribunal was correct in concluding that the finished products were not wholly owned by the opponents and, therefore, there could be no transfer of property by way of sale in the finished prints from the opponents to their customers? (4) Whether the Tribunal was wrong in holding that the ratio of the decision of the Supreme Court in B. C. Kame?s case was applicable even in the case of additional prints? the following additional question has also been referred in sales tax reference No. 31 of 1989 (The Commissioner of Sales Tax vs. M/s Chopra films):whether on the facts and in the circumstances of the case, the Tribunal was correct in law in holding that the opponents were not liable to pay purchases tax under section 13 of the Bombay Sales Tax Act, 1959 on their turnover of purchases amounting to Rs. 12,574/-?


( 2 ) IN so far as the above additional question is concerned, it is stated by Mr. A. J. Rana, learned counsel for the revenue, that the revenue does not propose to press this question. The said question is, therefore, returned unanswered.


( 3 ) IN so far as the other four questions are concerned, the learned counsel for the parties are agreed that the real controversy between the parties is brought out in question No. 1 and that being so, this Court may answer the said question only. It is not necessary to answer the other three questions. We shall, therefore, examine the facts of the case with a view to answering question No. 1 only.


( 4 ) THE material facts of the three cases giving rise to the question referred to us are identical. We shall, therefore, set out the facts of one of these cases only viz. Radio Advertising services, who is the respondent in Sales Tax reference No. 5 of 1989. The facts are as below: M/s Radio Advertising Services are producers and distributors of advertising films throughout India. They are registered as dealer under the Bombay Sales Tax Act, 1959 (Act). They are engaged in (i) producing advertising films and supplying positive and negative prints thereof and (ii) preparing positive prints in the same size from the negative brought by the customers and supplying the same to them. On 5th December, 1977 the assessee received an order from one M/s Hindustan Thompson Associates Ltd., Bombay for the production and supply of 75 feet of an advertising film Halls Mentholyptus with complete Hindi commentary which was produced and supplied by the assessee. Thereafter, on 16th February, 1978, the assessee received order from the same party for production and supply of 550 prints of the said film. The assessee supplied 60 prints at the rate of Rs. 151/- per film vide its bill dated 3rd march, 1978 of the same date. The assessee thereafter filed an application under section 52 of the Bombay Sales Tax Act, 1959 ( the Act )before the deputy Commissioner of Sales Tax for determination as to whether any tax was payable on the supply of 60 films made by it. It may be observed that in the past, the assessee had been paying sales tax on the additional prints supplied by it. Despite that the above application for determination of the question whether any tax was payable on the supply of 60 prints covered by the aforesaid bill, was made because of the objection of the customer to levy of sales tax on the supply of additional prints of the advertising films in view of the decision of the Supreme Court in the case of The Assistant Sales Tax Officer vs. B. C. Kame, (1977) 39 STC 237. It is, however, pertinent to mention that in the past, as also at the material time, no sales tax was levied on the production of films (master prints) and supplying the positive and negative prints thereof as according to both the assessee and the revenue that was a worlds contract. Tax was levied only on the additional prints supplied to the customers. The case of the assessee before the Deputy commissioner was that the production and supply of additional prints of the advertising films was not a contract for supply of goods but it was a contract for work and labour and as such it was covered by the ratio of the decision of the supreme Court in the case of B. C. Kame (supra). The Deputy Commissioner of Sales Tax (Administration) accepted the above contention of the assessee and by his order dated 19th August, 1978 held that in view of the decision of the supreme Court in the case of B. C. Kame (supra), job of taking out and supplying additional prints of the advertising films by the assessee was a work of art and skill and no element of sale was involved therein. Accordingly, he held that no sales tax was payable on the supply of 60 prints by the assessee.


( 5 ) THE Commissioner of Sales Tax (Commissioner) called for the records of the case and on perusal of the same he was of the opinion that the Deputy Commissioner had erred in holding that the transaction of supply of additional prints was work of art and skill. The decision of the Supreme Court in Kame?s case, according to him, was not applicable to the facts of the present case. He, therefore, initiated proceedings for revision of the above order of the deputy Commissioner and after hearing the assessee, held that Kame?s case had no application to the supply of additional prints by the assessee. The Commissioner further held that the prints were supplied for commercial use and not for personal use and that they could not be described as a work of art. This conclusion was arrived at by the Commissioner because of the fact that the prints were made by a mechanical process and there was a mass production of such additional prints for commercial use. Accordingly, the commissioner, by his order dated 29th January, 1981, revised the order of the Deputy Commissioner and held that the transaction of supply of 60 additional prints by the assessee was a contract of sale which was exigible to sales tax.


( 6 ) AGAINST the above order of the commissioner, the assessee appealed to the Maharashtra Sales Tax Tribunal ( Tribunal ). The tribunal, on consideration of the facts and circumstances of the case, did not agree with the opinion of the Commissioner and held that the transaction of supply of additional prints of the advertising films by the assessee was a contract of work and labour and not a contract of sale. The tribunal observed that the ratio of the decision of the Supreme Court in B. C. Kame?s case was applicable equally to the production and supply of additional prints of advertising films as it applied to the production and supply of the master prints about which there was no controversy between the assessee and the revenue. The tribunal, therefore, decided the issue in favour of the assessee. Accordingly, the revisional order of the Commissioner was set aside and the order of the Deputy Commissioner holding the production and supply of additional prints to be a work of art and skill was restored. Hence this reference at the instance of the revenue.


( 7 ) WE have heard Mr. A. J. Rana, learned counsel for the revenue who submits that the preparation and supply of the additional prints by the assessee to their customers from the negatives supplied by them was not a contract for work, labour and skill but a contract for sale. According to the learned counsel, the prints having been supplied by the assessee to their customers for commercial use and not for their personal use, the preparation thereof cannot be described as work of art. It is contended that the prints were made by mechanical process and that fact itself militates against the contention of the assessee that the preparation of additional prints was a work of art.


( 8 ) IN reply, Mr. J. K. Seth, learned counsel for the assessee, submits that the controversy in this case is squarely covered by the ratio of the decision of the Supreme Court in Assistant Sales tax Officer vs. B. C. Kame, (1977) 39 STC 237. It was pointed out that the process of preparing extra prints from the negatives is a work of art and skill because it requires sophisticated technical knowledge to prepare prints from the negatives. According to the learned counsel, the fact that the prints are made with the help of machinery does not make it any less the work of art or skill. Reference was made in this connection to a handbook of motion picture technology named as principles of Cinematography by Lesliei, J. Willer, to show that processing of motion picture film is a highly sophisticated work of art and skill. Reliance was also placed by the learned counsel for the assessee on the Full Bench decision of this Court in Sarvodaya Printing Press vs. State of Maharashtra, 1994 (2) Mh. L. J. 1322 = (1994) 93 STC 387 and a recent decision of Supreme court in Everest Copiers vs. State of Tamilnadu, JT 1996 (7) SC 40.


( 9 ) WE have carefully considered the rival submissions. There is no controversy between the parties in this case that the production of the advertising films known as the Master Prints and supplying the positive and negative prints thereof cannot be regarded as a sale. That work, even according to the revenue, is a contract of work and labour. The only controversy is in regard to the levy of tax on extra prints taken out later and supplied to the customers. According to the revenue, it amounts to sale whereas according to the assessee, is a contract of work and labour.


( 10 ) IT may be expedient at this stage to mention that the controversy in this case pertains to supply of additional prints of advertising films which admittedly are not marketable. They are prepared by the customers who are manufacturers of some products for their own use for advertising their products and the same can neither be sold to any one else nor can they be of any use to any third party. There is also no serious dispute about the fact that it is not a layman s job to produce extra films from the master Copy. It is a highly specialised job which can be performed only by persons who are trained and experienced in such work. Obviously, the occupation of persons engaged in preparing the master prints and the extra copies thereof is essentially one of skill and labour. In such a situation, when a person undertakes to produce advertising films and supply positive and negative prints thereof or to prepare further prints of the same from the negatives brought by the customers and supply the same to them, he cannot be said to have entered into a contract for sale of goods. The contract, on the face of it, is for use of skill and labour to bring about the desired result. That being so, in our opinion, the ratio of the decision of the Supreme Court in B. C. Kame?s case squarely applies to the facts of this case.


( 11 ) THE controversy before the Supreme Court in the B. C. Kame s case was whether the supply of prints by the photographer to his client amounts to contract for sale of goods or it was a contract of work and labour. The Supreme Court held: when a photographer. . . . . . 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. A good photograph reveals not only the aesthetic sense and artistic faculty of the photographer, but it also reflects his skill and labour. The ratio of the above decision, in our opinion, squarely applies to the supply of extra prints of the advertising films by the assessed to their customers and the Tribunal, in our opinion, was justified in applying the same and holding the transaction in question to be a contract of work and labour and not a contract for sale.


( 12 ) REFERENCE may also be made in this connection to the decision of the Supreme Court in the State of Tamilnadu vs. Anandam Vishwanathan, (1989) 73 STC 1. That was a case of printing and supplying of question papers of the University. The controversy was whether it was a contract for supply of question papers or it was a works contract. The Supreme Court held that having regard to the nature of job to be done, it was not a case of sale but a works contract. While saying so, the Supreme Court also observed that where the finished product supplied to a particular customer is not a commercial commodity in the sense that it cannot be sold in the market to any other person, the transaction is only a works contract.


( 13 ) THE above decision was followed by the full Bench of this Court in Sarvodaya Printing press vs. State of Maharashtra (supra). In that case, the assessee who was a printing press, supplied printed material to the Madhya Pradesh electricity Board in the form of multi-coloured triplicate receipt books, specially designed, printed and prepared to the specifications of the board. The charges for the supply were of one composite sum for the entire job. A question arose whether the transaction was a sale or works contract. This Court, following the decisions of the Supreme Court in State of Tamilnadu vs. Anandam Vishwanathan (supra) and in Assistant sales Tax Officer vs. B. C. Kame (supra), held that the supply in question was not a sale but works contract.


( 14 ) WE are also supported in our conclusion by the latest decision of the Supreme Court in Everest Copiers vs. State of Tamilnadu (supra ). In this case, the controversy before the Supreme Court was whether the making of Photostat copies with the use of Xerox or other machine and delivering the copies so taken to the customer on receipt of payment amounts to a sale of goods exigible to tax. The Supreme Court answered the question in the negative and held that the contract between the supplier of the Photostat copies and the customer was a contract of work or service and not a contract of sale upon which sales tax was exigible. It was observed :the main object of the work undertaken by the operator of the 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 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. Following the test laid down in B. C.

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Kame?s case, it was held that the contract between the operator of the photocopier and the customer was a contract of work or service and not a contract of sale upon which sales tax was exigible. ( 15 ) THE ratio of the above decision squarely applies to the case before us. In this case also, the assessee supplied additional prints of the advertising films to the customers. The prints supplied were not prints which could be sold in the market, nor there was any utility of the same to anyone other than the customer. Admittedly, the prints supplied by the assessee is not a commercial commodity in the sense that it cannot be sold in the market to any other person. The fact that in the preparation of the prints, mechanical process was used or that the additional prints were to be used by the customers for advertising their products, in our opinion, is not relevant in determining nature of the transaction which, in the instant case, is obviously works contract. ( 16 ) IN view of the above, in our opinion, the tribunal was right in holding that the supply of additional prints by the assessee to their customers from the negatives supplied by them was not a contract for sale but was a contract for work, labour and skill. Accordingly, question No. 1 is answered in the affirmative and in favour of the assessee. In view of the above answer to question No. 1, the learned counsel for the parties are agreed that it is not necessary to answer the question Nos. 2, 3 and 4. The question nos. 2, 3 and 4 are therefore returned unanswered. ( 17 ) THIS reference is disposed of accordingly. In the facts and circumstances of the case, we make no order as to costs. Reference answered in favour of assessee.
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