1. In this Reference under S. 61(1) of the Bombay Sales Tax Act, 1959, made at the instance of the Commissioner of Sales Tax, the following two questions have been referred to us for our determination :
'(1) Whether, having regard to the facts and circumstances of the present case, the Tribunal was justified in law in coming to the conclusion that from the turnover of sales of films there should be deducted an amount of Rs. 17,125 paid to artists engaged in the making of such films
(2) Whether, having regard to the facts and circumstances of the present case and in the absence of any written contract, the Tribunal was justified in holding that the nature of the contract could not be in any manner different from the contracts which were the subject-matters of Messrs Cine Graphic Arts vs. The State of Bombay and Messrs Ama Advertising Films Private Ltd. vs. The State of Maharashtra ?'
2. This Reference has had a chequered history. It first reached before us on February 17, 1975. On that day after hearing the Reference for some time we found the statement of the case so inadequately drawn up as to leave us totally mystified about the facts of the case which have given rise to this Reference. Accordingly, in exercise of our powers under S. 61(3) of the said Act we referred the case back to the Tribunal, directing it to draw up a proper supplemental statement of the case. A supplemental statement of the case has been drawn up and the matter now again comes before us for hearing.
3. Even now there are certain lacunae in the facts, and we have tried our best to understand them from the record of the case. From the record it appears that the Respondents carry on the business of producing advertisement films. In respect of certain films produced by them during the assessment year April 1, 1962 to March 31, 1963 the Respondents inter alia claimed a deduction in the sum of Rs. 17,125 received by them from those for whom they had produced the films on the ground that this was for labour charges. The Sales Tax Officer by his assessment order dated February 24, 1964 negatived this claim holding, 'Similarly, no deduction on account of manufacturing charges of negatives of prints is allowed, as these form part and parcel of the composite contract of supply of positive prints to the customers. Such claim for labour charges amounts to Rs. 17,125/-'. In first appeal the Appellate Commissioner of Sales Tax by his order dated January 9, 1965 upheld the rejection of this claim. He held that the amounts paid by the Respondents for the services of various artists and technicians for making the films could not be allowed to be deducted because the levy of tax had nothing to do with the various costs incurred in getting the goods which the Respondents sold, but the levy was on the sale price of the goods sold. In second appeal to the Tribunal the Tribunal by its order dated April 25, 1966 held that the contract which the Respondents had entered into with their clients could not be in any manner different from the contracts which were the subject-matter of M/s. Cine Graphic Arts vs. The State of Bombay decided by the Tribunal on July 8 1959 and Ama Advertising Films Private Ltd. vs. The State of Maharashtra decided by the Tribunal on September 16, 1965, and on the basis of these two judgments the said sum of Rs. 17,125 would have to be deducted from the turnover of sales. Now, in the two appeals referred to by the Tribunal in its judgments the Tribunal had held, on the terms of the contracts between the parties thereto and the facts and circumstances of those cases, that the contract for the production of the films required by the producers' clients was a contract of work and labour, the supply of materials being merely ancillary thereto. In the present case there is no written contract between the parties. The Tribunal appears in its judgment to have proceeded upon the basis that the terms of this contract, which was oral, would be similar to the terms of, the contracts in the said two appeals. It is on this part of the judgment of the Tribunal that the second question set out above is referred to us.
4. When, however, we directed the Tribunal to draw up a proper supplemental statement of the cases, the partner in the Respondent firm who appeared at the hearing for drawing up such supplemental statement of the case stated that the Respondents had no documents relating to the contract in question and that the said contract was oral. He further stated that the said contract was similar to the one which was produced in the said Appeal No. 5 of 1963. This position was not controverted on behalf of the Department, and the Assistant Commissioner of Sales Tax (Legal) who represented the Department at the said hearing before the Tribunal admitted that the judgment of the Tribunal was given by it on the footing that the agreement in question was similar to the one produced in the said Appeal No. 5 of 1963. Thus, the admitted position between the parties in order to enable the Tribunal to draw up a supplemental statement of the case was that the terms of the oral contract which the Respondents had entered into with their clients were the same as the terms of the contract which the appellants in the said Appeal No. 5 of 1963, namely, Ama Advertising Films Private Ltd., had entered into with their clients. The second question submitted to us does not, therefore servive. The terms of the contract in the said Appeal No. 5 of 1963 have been reproduced in the said supplemental statement of the case. These terms show that what was agreed to be paid to the said Ama Advertising Films Private Ltd. was for the work, labour and services to be rendered by it. Accordingly, it would also follow in the present case that here too what was being paid to the Respondents was for the work, labour and services to be rendered by them, and just as in the case of the appellants in the said two appeals, in the case of the Respondents in the present case too the contracts would be works contracts. The Respondents appear, however to have proceeded upon the basis not that these contracts were works contracts simpliciter but that they were composite contracts, one part thereof being for the supply of goods and the other part for work and labour, and it is on this footing that the Respondents have claimed deduction of the said sum of Rs. 17,125.
5. Mr. Sukhthankar on behalf of the Department has submitted that it was never the case of the Respondents that this was a composite contract, and this contention was never urged by the Respondents before either the Tribunal or any of the lower authorities. We are unable to accept this submission of Mr. Sukhthankar. We have set out above the relevant passage from the assessment order. The Sales Tax Officer has himself categorized this contract as a composite contract. Further, in their memorandum of appeal to the Tribunal the Respondents have urged as follows :
'The Appellate Commissioner erred in holding that the bills amounting to Rs. 17,180 were sales, while in fact the amount was labour charges charged separately as such to various parties.'
The record shows that in respect of this sum of Rs. 17,125, mentioned in the said memorandum of appeal as Rs. 17,180, the Respondents have submitted separate bills to their clients and have received payments in respect of such bills. They have thus treated the amounts paid by them for manufacturing charges of negatives of prints and to artists as the works part of the composite contract, and the Tribunal was correct in law in holding that this sum should be deducted from the Respondents' turnover of sales.
6. We accordingly answer the questions submitted to us as follows :
Question No. 1 in the affirmative.
Question No. 2 does not survive in view of the admitted position of facts as recorded in the supplemental statement of the case.
7. The Applicant will pay to the Respondents the costs of this Reference fixed at Rs. 300.