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Rubber Stamp Works Vs. Deputy Commissioner of Sales Tax and anr. - Court Judgment

LegalCrystal Citation
SubjectSales Tax
CourtMadhya Pradesh High Court
Decided On
Case Number Miscellaneous Petition No. 274 of 1972
Judge
Reported in1979MPLJ483; [1979]43STC335(MP)
AppellantRubber Stamp Works
RespondentDeputy Commissioner of Sales Tax and anr.
Appellant Advocate K.M. Agarwal, Adv.
Respondent Advocate M.V. Tamaskar, Government Adv.
DispositionPetition allowed
Cases ReferredJ. Marcel (Furriers) Ltd. v. Tapper
Excerpt:
.....category may include stamps containing impression like the words 'true copy',etc. it can well be seen that the contract for stitching a jacket of a given style out of cloth selected of a particular colour is really one of sale of chattel, viz. the finished article so prepared could well be sold to any other customer like any other garment in the usual course of the business......a partnership firm, is engaged in the business of manufacture of rubber-stamps. all such sales of rubber-stamps for the period between 22nd october, 1968, to 9th november, 1969, have been assessed to sales tax by the assistant sales tax officer, raipur, vide order dated 30th january, 1970 (annexure p-2). this order has been confirmed in revision by the deputy commissioner of sales tax, raipur, vide order dated 7th february, 1972 (annexure p-l). the petitioner has challenged both those orders by this writ petition.2. the petitioner's contention is that the nature of the business done by it is that of 'works contract'. relying upon the decision in assistant sales tax officer v. b.c. kame a.i.r. 1977 s.c. 1642, the petitioner contends that the turnover has wrongly been held to be 'sales'.....
Judgment:
ORDER

B.C. Verma, J.

1. The petitioner, which is a partnership firm, is engaged in the business of manufacture of rubber-stamps. All such sales of rubber-stamps for the period between 22nd October, 1968, to 9th November, 1969, have been assessed to sales tax by the Assistant Sales Tax Officer, Raipur, vide order dated 30th January, 1970 (annexure P-2). This order has been confirmed in revision by the Deputy Commissioner of Sales Tax, Raipur, vide order dated 7th February, 1972 (annexure P-l). The petitioner has challenged both those orders by this writ petition.

2. The petitioner's contention is that the nature of the business done by it is that of 'works contract'. Relying upon the decision in Assistant Sales Tax Officer v. B.C. Kame A.I.R. 1977 S.C. 1642, the petitioner contends that the turnover has wrongly been held to be 'sales' and the assessment of sales tax on such turnover is, therefore, illegal and without jurisdiction.

3. In order to appreciate the contentions raised by the parties, it shall at this stage be proper to state the process involved in the preparation of a rubber-stamp. The petitioner has filed an affidavit on 19th October, 1978, detailing the process of making a rubber-stamp. Demonstration was also done before us. It appears that the matter to be embossed is first composed out of pica types used in printing press. It is then fixed in a frame which has two parts-a plate and a chase. Plaster of paris is put on the plate. After this, the frame is pressed causing impression of the composed material on the surface of the plaster of paris. The plaster with the desired impression of the type on it is then dried. The plate then is taken out and is kept on iron plate of 'dab' press machine under a particular temperature and the plate is heated. What temperature should be maintained is a matter of experience and skill. Rubber sheet of desired dimension is placed on the heated plate with plaster containing the type-impressions. Some amount of pressure is employed in the two plates of the 'dab' machine. What degree of pressure should be caused at this stage is again a matter of some skill and mostly depends upon experience. The rubber-stamp is then ready to be fixed to a wooden piece before it is finally delivered to the purchaser. From this process of preparation of rubber-stamp narrated above, it is clear that some amount of skill and experience is necessarily required before the finished article is made available to a customer for a price. This price which a customer pays includes the cost of material, labour and also of the skill used. It may also be seen that particular rubber-stamp may be prepared on the asking of a customer and that such rubber-stamp shall serve a particular purpose to that particular customer. It may not be of any use or service in general. There may, however, be rubber-stamps prepared generally and not on the asking of any individual. Such rubber-stamps shall be of use to any buyer and be available for sale and be sold as a commodity in general. In the first type may fall stamps bearing the name of an individual, a particular office and the like ; the latter category may include stamps containing impression like the words 'True copy', etc. The sale of the stamps falling in the second type of stamps involves transfer of commodity for which the price is paid. This is apparently a sale of goods. However, the first type of stamps do not have a general market. The finished article (rubber-stamp) is prepared to a particular liking on specific demand. There the customer pays for the work he wanted to be executed and the sale of material used is only ancillary.

4. The question whether a contract is a contract for work and labour or a contract for sale came up for consideration before the Supreme Court in Assistant Sales Tax Officer v. B.C. Kame A.I.R. 1977 S.C. 1642. Their Lordships said :

A contract of sale is one whose main object is the transfer of property in, and the delivery of the possession of, a chattel as a chattel to the buyer. Where the principal object of work undertaken by the payee of the price is not the transfer of a chattel qua chattel, the contract is one of work and labour...

It is, therefore, necessary in all such cases to determine the nature of the contract involved in order to ascertain whether it constitutes a contract of sale or a contract of work or service. The primary object of the contract and the intention of the parties making it shall have to be ascertained. Their Lordships referred to the decision in Robinson v. Graves [1935] 1 K.B. 579 and quoted the following passage from that judgment :

If the substance of the contract...is that skill and labour have to be exercised for the production of the articles and...it is only ancillary to that that there will pass from the artist to his client or customer some materials in addition to the skill involved in the production of the portrait, that does not make any difference to the result, because the substance of the contract is the skill and experience of the artist in producing the picture.

Earlier also the Supreme Court in Chandra Bhan Gosain v. State of Orissa [1963] 14 S.T.C. 766 (S.C.) emphasised the test to determine whether a given transaction is a sale or a contract for work is to ascertain if the transaction involved transfer of chattel qua chattel for price. Their Lordships were considering the supply of bricks which had to be prepared according to certain specifications and would require certain amount of skill and labour. It was held that as the essence of the contract was the delivery of bricks, it was a transfer of chattel qua chattel and, therefore, a sale.

5. There may, however, be cases where a particular contract can be reasonably divided into two parts: one for sale of material qua material and the other for charges for work or labour done. To infer such a division of a contract into two parts shall depend upon the intention of both the parties and the nature of the contract. If the use of the material was only ancillary to the execution of the work, then it may not be possible to split up the contract and to divide it into two separate agreements. Such was the view taken by a Division Bench of the Bombay High Court in Vasani Cloth Stores v. State of Maharashtra [1968] 22 S.T.C. 179. Applying the aforesaid principles to the facts of the case in hand, we can easily classify the petitioner's business into two categories, viz., the one when it obtains an order from a customer to prepare a particular rubber-stamp to be made specially for the customer. Here the sale is not of the rubber-stamp but the task is to carry out a works contract. The customer does not pay for the rubber or the wood used but for the particular finished stamp. It cannot be termed as a sale of chattel. In the other class may fall the sale of rubber-stamps prepared generally and not to any particular order or taste. Here what is sold is the finished goods and is a sale of chattel qua chattel, a sale of a commodity to buyers in general. The sale of material (rubber-stamps) falling under this second category alone can be made the subject-matter of sales tax. We, therefore, find that the entire turnover of the petitioner is not liable to be assessed to sales tax. Instead the proceeds obtained as a result of execution of any particular work order shall not be liable to be taxed.

6. A decision in J. Marcel (Furriers) Ltd. v. Tapper [1953] 1 All E.R. 15 relied on by the respondents only remains to be considered. In that case, the retail furriers, who prepared furs and fur garments, stitched a mink jacket of a selected style and colour. It was held that the contract for preparing that jacket was not a works contract but was a contract for sale of goods. It can well be seen that the contract for stitching a jacket of a given style out of cloth selected of a particular colour is really one of sale of chattel, viz., the fur garment, which it was the ordinary business of the furriers. It was a contract for sale of chattel. It cannot be said that the contract in that case was for use of skill and labour to bring about the desired result. The finished article so prepared could well be sold to any other customer like any other garment in the usual course of the business. That case, therefore, is quite distinguishable.

7. In the result, the petition is allowed. The orders dated 7th February, 1972 (annexure P-1), passed by the Deputy Commissioner of Sales Tax, Raipur, in Revision Case No. 256/RYP/ 197 1-72 and the one dated 30th January, 1970 (annexure P-2), passed by the Assistant Sales Tax Officer, Raipur, in Case No. 241 of 1969-70 are hereby quashed. The Assistant Sales Tax Officer, Raipur, shall now proceed to assess the turnover to sales tax afresh in the light of this order. The parties shall bear their own costs of this petition. The security amount shall be refunded to the petitioner.


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