1. This is a reference under section 34(1) of the Bombay Sales Tax Act, 1953 (hereinafter referred to as 'the said Act') made at the instance of the Commissioner of Sales Tax, Bombay.
2. The facts giving rise to this reference can be briefly stated : The respondent, inter alia, carries on business as a producer of documentary films. By an agreement entered into on 11th March, 1959, between the respondent and the President of India, the respondent agreed to produce a motion picture styled 'telephones' on the subject based on the synopsis set out in Schedule A, which was annexed thereto. The terms of the said agreement, inter alia, provided that the respondent was to shoot, direct, produce, edit, title and in all respects complete and execute a 35 mm. black and white talkie-film on the subject of telephones with background music and commentary in English/Hindi of the length of about 1,000 feet and after completion thereof to deliver to the Government of India, described as the 'buyer', the original picture negative, the final mixed sound negative, music track positive, effects track positive, final release prints, dupe sheets, commentary sheets, one dupe negative in 35 mm. and one fine grain duplicating positive in 35 mm. It was provided that the respondent would get the said picture approved by the buyer or any officer or authority specified by the buyer. The agreement provided that the picture and materials when delivered would become the sole property of the buyer. It was provided that the buyer would pay to the respondent-company, which has been described as 'the contractor' in the said agreement, for the completed materials of the picture at the rate of Rs. 17 per foot, as particularly set out in clause 12 of the said agreement. The picture was ultimately completed and delivered to the buyer. On 23rd October, 1959, the respondent submitted its bill for Rs. 28,033 out of which only about 6.5 per cent. was in respect of the materials used by the respondent. The respondent received payment in terms of the bill. The Sales Tax Officer while assessing the respondent for the period from 1st April, 1959, to 31st December, 1959, treated the production and supply of the picture, which was a documentary film entitled 'Hallo Everybody' to the Government of India as a sale and included the receipts realised from the Government of India amounting to Rs. 28,033 in the turnover of sales of the respondent and levied sales tax on the same. The respondent preferred an appeal to the Assistant Commissioner against this decision, but without success. Thereafter, the respondent preferred a revision application before the Deputy Commissioner of Sales Tax, but the same was rejected, and the Deputy Commissioner confirmed the orders of the lower authorities. Against this order of the Deputy Commissioner, the respondent preferred a revision application before the Sales Tax Tribunal. The Tribunal took the view that notwithstanding the use of certain terms like 'buyer', 'consideration', 'delivery of materials', 'approval' and so on, the contract had to be interpreted and understood in the light of the surrounding circumstances. It was held by the Tribunal that what the parties intended was not to contract for sale of goods but to contract for the skill and labour of the respondent in the production of the said film. The Tribunal has further held that although the relative value of the labour and skill as compared to the cost of the material in such a case need not be the sole criterion for deciding the question as to whether the transaction was one of sale of goods, it was difficult to ignore the fact that only 6.5 per cent. of the total consideration paid to the respondent went towards the physical material used by the respondent in the production of the said film. The Tribunal allowed the revision application and ordered that the said receipt of Rs. 28,033 in respect of the said film should be excluded from the gross turnover of the business of the respondent on the ground that the said contract was not one of sale of goods but a contract for the skill and labour of the respondent.
3. The question, which has been referred to us at the instance of the Commissioner of Sales Tax, for our consideration is :
'Whether, on the facts and in the circumstances of the case and on a proper interpretation of the terms of the contract entered into by the respondent with the Government of India, the production and supply of the documentary film entitled 'Hallo Everybody' by the respondent to the Government of India amounted to a sale ?'
4. As far as the question referred to us is concerned, the same hardly presents any difficulty in view of the judgment of a Division Bench of this Court in Commissioner of Sales Tax v. Patel India Pvt. Ltd. ( 28 S.T.C. 516), which covers the point raised in the above question. In that case, a contract was entered into between the Central Government and a producer under which the producer agreed to shoot, direct, produce, title and in all respects complete a 35 mm. talkie-film of the length of about 2,000 ft. on the subject of handloom industry with background music and commentary in Hindi and after completion to deliver to the buyer the original picture negative, sound track, etc., of that film. The contract contained several terms as to what the film was to contain and for checking, supervision, etc., by the Government. The Tribunal, on the construction of the said contract, held that the contract was for a work of art and not for sale of goods. The Commissioner of Sales Tax made an application to the Tribunal for referring the question to this court as to whether the said contract was for a work of art or for sale of goods. The Tribunal declined to state a case. On an application to this Court under section 34(2) of the said Act praying for a direction for having two questions of law referred to this Court, it was held by the Division Bench of this Court that although the construction of a document would be a question of law, in the case before it, the Division Bench was satisfied, on a construction of the contract, that the reasons for holding that the contract was for a work of art were so overwhelming that no useful purpose would be served in directing a reference to be made. A perusal of the report clearly shows that the contract was in all material particulars similar to the one before us. In view of that decision, there is no doubt that the Tribunal has come to a correct conclusion, viz., that the contract in question was for the skill and labour of the respondent and not for sale of goods. Moreover, as pointed out by the Tribunal, it is not altogether irrelevant that out of the total amount paid as consideration to the respondent under the said contract, the amount paid towards the materials used by the respondent in the production of the said film came to only 6.5 per cent.
5. In the result, we answer the question as follows :
'On the facts and in the circumstances of the case on the terms of the contract in question, the production and supply of the said documentary film by the respondent to the Government of India does not amount to a sale within the meaning of the said term in the said Act.'
6. The applicant must pay to the respondent the costs of this reference.
7. Reference answered accordingly.