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Commissioner of Sales Tax Vs. L. Vasudeo Rao - Court Judgment

LegalCrystal Citation
SubjectSales Tax
CourtMadhya Pradesh High Court
Decided On
Case Number M.C.C. No. 31 of 1979
Judge
Reported in[1981]48STC447(MP)
AppellantCommissioner of Sales Tax
RespondentL. Vasudeo Rao
Appellant Advocate S. Kulshreshtha, Deputy Government Adv.
Respondent Advocate G.M. Chaphekar and ; L.K. Hingorani, Advs.
Cases ReferredState of Tamil Nadu v. The Hindu
Excerpt:
.....can be raised, it cannot be said that onus shifts exclusively and heavily on him to prove his innocence. conviction of appellant is liable to be set aside. - 1 in holding that block-making also involves labour and skill like that of photographs and therefore the sale of blocks was not assessable to tax. 34, relied upon by the learned counsel for the department are no longer good law in view of the aforesaid decision of the supreme court. the contention of the learned counsel for the state is not well-founded......that block-making also involves labour and skill like that of photographs and therefore the sale of blocks was not assessable to tax. he contended that in the case of the assessee for the assessment year 1963-64 a division bench of this court in commissioner of sales tax v. vasudeo rao (1976) 9 v.k.n. 34 has distinguished b. c. kame's case [1971] 28 s.t.c. 1 and held that the ratio of this decision was not applicable to the assessee's case and relying upon an earlier division bench decision of this court in d. masanda and co. v. commissioner of sales tax [1957] 8 s.t.c. 370, it was held that in block-making and supplying the same to the customer the sale of the block is involved and as such the turnover is liable to sales tax. he therefore contended that the assessee's case has.....
Judgment:

R.K. Vijayvargiya, J.

1. This order shall also dispose of Misc. Civil Cases No. 32 of 1979, (Commissioner of Sales Tax, M.P. v. L. Vasudeo Rao, Indore), No. 33 of 1979 (Commissioner of Sales Tax, M.P. v. L. Vasudeo Rao, Indore), No. 34 of 1979 (Commissioner of Sales Tax, M.P. v. L. Vasudeo Rao, Indore), No. 35 of 1979 (Commissioner of Sales Tax, M.P. v. L. Vasudeo Rao, Indore), No. 36 of 1979 (Commissioner of Sales Tax, M.P. v. L. Vasudeo Rao, Indore) and No. 37 1979 (Commissioner of Sales Tax, M.P. v. L. Vasudeo Rao, Indore).

2. By this reference under Section 44(1) of the M. P. General Sales Tax Act (hereinafter referred to as the Act), the Board of Revenue has referred the following questions of law for the opinion of this Court:

(1) Whether, on the facts and circumstances of the case, the Tribunal was right in holding that the contract for preparation of blocks was a contract for skill and labour and did not involve the sale of materials and as such no tax was leviable on the price of materials used in making the blocks ?

(2) If the answer to question No. (1) above is in the negative whether the price of the materials alone, which is supplied to the customer in the shape of the block is liable to sales tax ?

(3) Whether, on the facts and circumstances of the case, the Tribunal was right in holding that the sale of the offset printing machine consequent upon the closure of that business will not be liable to sales tax ?

3. The first two questions are common to all the references while the third question arises out of the order of the Board of Revenue dated 1st October, 1975, relating to the assessment of the assessee for the year 1971-72.

4. The facts giving rise to these references briefly stated are as follows : The assessee, M/s. L. Vasudeo Rao, is engaged in the business of block-making and was assessed to tax under the Act, for the Diwali years 1965-66, 1966-67, 1967-68, 1968-69, 1969-70, 1970-71 and 1971-72. The assessing authority, after negativing the contention of the assessee that block-making was a works contract involving labour and skill and, therefore, the turnover of the assessee was not liable to sales tax, held that there was a sale of materials utilised by the preparation of the block and estimating the value of the materials assessed it to tax. During the year 1971-72 the assessee sold an offset printing machine for Rs. 60,000. The contention of the assessee was that the machine was sold by him because it was no longer required as the assessee had closed that branch of his business. The assessee contended that the sale of the off-set machine was not liable to sales tax. The assessing authority did not accept the contention of the assessee and assessed the sale of the printing machine to sales tax. The appeals preferred by the assessee against the assessment orders were dismissed and the appellate authority affirmed the findings of the assessing authority on the two contentions raised by the assessee. On further appeals by the assessee the Board of Revenue upheld the contentions of the assessee and held that block-making was works contract involving labour and skill and, therefore, the turnover of the assessee was not liable to tax. It was further held that the sale of the offset printing machine by the assessee was also not assessable to tax because it was a sale of fixed assets by the assessee on the closure of that branch of the business of the assessee. The department submitted applications to the Board of Revenue for referring the questions of law arising out of the order of the Board and that is how at the instance of the department, the Board of Revenue has referred the aforesaid questions of law for the opinion of this Court.

5. As regards the first question the learned Deputy Government Advocate appearing for the department contended that the Board of Revenue committed an error in placing reliance upon a decision of this Court in B. C. Kame v. Assistant Sales Tax Officer, Circle No. 2, Jabalpur [1971] 28 S.T.C. 1 in holding that block-making also involves labour and skill like that of photographs and therefore the sale of blocks was not assessable to tax. He contended that in the case of the assessee for the assessment year 1963-64 a Division Bench of this Court in Commissioner of Sales Tax v. Vasudeo Rao (1976) 9 V.K.N. 34 has distinguished B. C. Kame's case [1971] 28 S.T.C. 1 and held that the ratio of this decision was not applicable to the assessee's case and relying upon an earlier Division Bench decision of this Court in D. Masanda and Co. v. Commissioner of Sales Tax [1957] 8 S.T.C. 370, it was held that in block-making and supplying the same to the customer the sale of the block is involved and as such the turnover is liable to sales tax. He therefore contended that the assessee's case has been finally decided by this Court against him and, therefore, question No. (1) has to be answered in favour of the department. The learned counsel for the assessee contended that the decision of this Court in B. C. Kame v. Assistant Sales Tax Officer, Circle No. 2, Jabalpur [1971] 28 S.T.C. 1, has been affirmed by the Supreme Court in Assistant Sales Tax Officer v. B.C. Kame [1977] 39 S.T.C. 237 (S.C.) and the matter is now concluded by the decision of the Supreme Court and the Board of Revenue has not committed any error of law in holding that the turnover of the assessee regarding the making and supply of blocks was not liable to sales tax.

6. Before considering the rival contentions of the learned counsel for the parties it would be useful to reproduce the finding of the Board of Revenue regarding the nature of the business of the assessee. In para 8 of the order the Board of Revenue has held as follows :

8. Viewed in this light it must be said that the principal object of work undertaken by a block-maker is not the transfer of block as block, but the contract is one of preparation of a block of the subject desired by the customer which involves considerable skill and labour. In fact the degree of skill and labour required in the preparation of a block is more than that required in the preparation of a photo print. A photographer takes a photograph on a negative, develops it with the help of chemicals and then either prints it to the same size or enlarges it. Thus the process consists in the taking of a photograph with the help of a camera, developing a negative and printing a positive. The preparation of a block involves a number of processes. Thus, the block-maker should first take a photograph of the subject, develop the negatives, then he must enlarge it to the corresponding size of the desired block. Again prepare a negative and finally engrave it on 'a zinc plate-the processes require the aid of chemicals-zinc plate is then affixed to a hard wooden block. Thus the degree of labour and skill involved in block-making is more than in taking a photograph. The value of materials contained in the block and the price of the block are also relevant considerations though not conclusive of the question as has been held by the High Court. The value of materials is only about 20 per cent of the total price of the block. It is also relevant that the block has use only for the particular customer and not for any other person.

Thus, the Tribunal has found that the degree of skill and labour required in the preparation of the block is more than that required in the preparation of photo print.

7. In Assistant Sales Tax Officer v. B.C. Kame [1977] 39 S.T.C. 237 (S.C.) the question for determination before the Supreme Court was whether sales tax is payable by a photographer under the M. P. General Sales Tax Act when the photographer takes photographs or does other photographic work and thereafter supplies the photographic prints to his client or customer. This Court had answered the said question in the negative and the judgment of this Court was affirmed by the Supreme Court in appeal. The Supreme Court approved of the following passage at page 10 of the 4th edition of 'Sale of Goods' by P.S. Atiyah :

The distinction between contracts of sale and contracts for skill and labour has agitated the courts for many years, and though its importance has been greatly diminished by the repeal of Section 4 of the Act, it still cannot be ignored. It was thought for many years that Lee v. Griffin (1861) 1 B. & S. 278 laid down that, if a contract would result in the transfer of the property in goods from one party to another, then it must be a contract of sale. This view was exploded in Robinson v. Graves [1935] 1 K.B. 579 at 587, where it was held that a contract to paint a portrait was a contract for skill and labour and not a contract for the sale of goods, despite the fact that it was the object of the contract to transfer the property in the completed portrait to the defendant. Greer, L. J., stated the law as follows :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.

The Supreme Court has further held that:

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.

In view of the clear pronouncement of their Lordships of the Supreme Court in the case of a photographer which equally applies to the case of block-maker because as found by the Board of Revenue the degree of skill and labour required in the preparation of a block is more than that required in the preparation of a photo print, the Board of Revenue has not committed any error of law that the turnover of the assessee in the present case was not exigible to sales tax. The Division Bench decisions of this Court in D. Masanda and Co. v. Commissioner of Sales Tax [1957] 8 S.T.C. 370 and Commissioner of Sales Tax, M.P. v. Vasudeo Rao, Block-maker, Indore (1976) 9 V.K.N. 34, relied upon by the learned counsel for the department are no longer good law in view of the aforesaid decision of the Supreme Court.

8. The learned counsel for the department sought to distinguish the aforesaid Supreme Court decision on the ground that in that case the court was not called upon to go into the question whether the material used in preparing the photograph is sold and therefore taxable and contended that in the circumstances the Supreme Court decision is not applicable to the present case. The contention of the learned counsel has no merit. The judgment of the Supreme Court has not turned on this fact. Their Lordships of the Supreme Court have approved of the statement of the law made by L. J. Greer to the effect that if the substance of the contract is that skill and labour have to be exercised for the production of the article 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 portrait. In the present case the Board of Revenue has found that the value of the material is only 20 per cent of the total price of the block and the block is used only for the particular customer and not for any other person. Thus the, substance of the contract between the purchaser and the assessee is skill and experience of the assessee in making the block and not the material used in making the same. Relying upon the aforesaid decision in Assistant Sales Tax Officer v. B.C. Kame [1977] 39 S.T.C. 237 (S.C.) our answer to question No. (1) is in the affirmative and against the department.

9. In view of our answer to question No. (1), question No. (2) does not arise.

10. As regards question No. (3) the Board of Revenue has held that the assessee closed his business of printing and the sale of the said printing machines was effected as a consequence of the closure of that business. The sale was of a fixed asset of the assessee and was not exigible to tax.

11. In State of Gujarat v. Raipur . [1967] 19 S.T.C. 1 (S.C.) the assessee carried on the business of manufacturing and selling cotton textiles. The assessee disposed of miscellaneous old and discarded items such as stores, machinery, iron scrap, cans, boxes, cotton ropes, rags, etc. The assessee did not carry on the business of selling these items of goods. The question arose whether the sale of miscellaneous old and discarded items by the assessee was liable to sales tax. The Supreme Court held that the sale of discarded material was not liable to tax. The Supreme Court held as follows :

We are unable to hold that in disposing of miscellaneous old and discarded items such as stores, machinery, iron scrap, cans, boxes, cotton ropes, rags, etc., the company was carrying on business of selling those items of goods. These sales were frequent and the volume was large, but it cannot be presumed that when the goods were acquired there was an intention to carry on the business in those discarded materials; nor are the discarded goods by-products or subsidiary products of or arising in the course of the manufacturing process. They are either fixed assets of the company or are goods which are incidental to the acquisition or use of stores or commodities consumed in the factory. Those goods are sold by the company for a price which goes into the profit and loss account of the business and may indirectly be said to reduce the cost of production of the principal item, but on that account disposal of those goods cannot be said to become part of or an incident of the main business of selling textiles. In order that receipts from sale of a commodity may be included in the taxable turnover, it must be established that the assessee was carrying on business in that particular commodity, and to prove that fact it must be established that the assessee had an intention to carry on business in that commodity. A person who sells goods which are unserviceable or unsuitable for his business does not on that account become a dealer in those goods, unless he has an intention to carry on the business of selling those goods.

12. The learned counsel for the department referred to the definition of the term 'business' as amended by Act No. 19 of 1979 with retrospective effect from 16th April, 1965, and contended that in view of the enlarged definition of the word 'business' the transaction in question was liable to sales tax. The contention of the learned counsel for the department has no force and even under the amended definition of the term 'business' the sale in question in our opinion is not liable to sales tax. The amended definition of the term 'business' is as follows:

(bb) 'Business' includes-

(i) any trade, commerce, manufacture or any adventure or concern in the nature of trade, commerce or manufacture, whether or not such trade, commerce, manufacture, adventure or concern is carried on with a motive to make gain or profit and whether or not any gain or profit accrues from such trade, commerce, manufacture, adventure or concern and irrespective of the volume, frequency, continuity or regularity of such trade, commerce, manufacture, adventure or concern; and

(ii) any transaction of sale or purchase of goods in connection with or incidental or ancillary to the trade, commerce, manufacture, adventure or concern referred to in Sub-clause (i), this is to say,-

(a) goods of the description referred to in Sub-section (3) of Section 8 of the Central Sales Tax Act, 1956 (No. 74 of 1956), whether or not they are specified in the certificate of registration, if any, of the dealer under the said Act and whether or not they are in their original form or in the form of second-hand goods, unserviceable goods, obsolete or discarded goods, mere scrap or waste materials; and

(b) goods which are obtained as waste products or by-products in the course of manufacture or processing of other goods or mining or generation of or distribution of electricity or any other form of power.

By the amended definition under the term 'business' any trade, commerce, manufacture or any adventure or concern in the nature of trade, commerce or manufacture is included whether or not such trade, commerce, manufacture, adventure or concern is carried on with a motive to make gain or profit and whether or not any gain or profit accrues from such trade, commerce, manufacture, adventure or concern and irrespective of volume, frequency, continuity or regularity of such trade, commerce, manufacture, adventure or concern. The learned counsel for the department contended that in view of this amended and enlarged definition of the word 'business' the ratio of the Supreme Court decision referred to above has no application and even if the sale of the printing machine was an isolated transaction and was made without any profit-motive it is exigible to tax. The contention of the learned counsel for the State is not well-founded. As held by the Board of Revenue the printing machine sold by the assessee was a fixed asset of the assessee and it was sold on account of the closure of the printing business by the assessee. The printing machine was not purchased with the intention of carrying on business by selling the said machine whether with profit or without profit. In order that a particular transaction of sale may be termed as forming part of the business activity of an assessee it must be found that it was made in the course of trade, commerce, or adventure in the nature of trade or commerce by the assessee. This is not so in the present case. In our opinion, therefore, the Board of Revenue did not commit any error of law in holding that the transaction of sale of the said printing machine by the assessee was not exigible to sales tax. The decision in State of Tamil Nadu v. The Hindu [1978] 41 S.T.C. 105 relied upon by the learned counsel for the department is distinguishable on facts and is not applicable to the present case. In that case the newsprint sold by the assessee and held as exigible to tax was stock-in-trade of the assessee. Ordinarily it was to be sold in the shape of the newspaper printed and published by the assessee and after discontinuance of the said paper it was sold in the form of newsprint. In the present case the assessee sold his fixed assets on the closure of his business and it cannot be said that this transaction was in the course of trade, commerce or adventure in the nature of trade and commerce and so it cannot be included in the term 'business'. Our answer to question No. (3), therefore, referred to us is in the affirmative and against the department.

13. The reference is answered accordingly. In the circumstances the parties shall bear their own costs of this reference.


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