1. The State is the petitioner in both these cases. The respondents are producers and suppliers of advertisement films having their place of business at No. 14, Ratna Chetty Street, Madras-14. Their place of business was inspected by the Special Deputy Commercial Tax Officer (Intelligence) III, on 17th October, 1964, and one file containing correspondence with one Messrs. Lintas Limited, Bombay, an advertising firm, regarding the production and supply of advertisement films for the latter relating to Lux Toilet Soaps had been recovered. A verification of the said file with the books of account of the respondents, hereinafter referred to as the 'assessees', revealed that they had entered into a contract with Messrs. Lintas Limited, hereinafter called the 'Advertiser', for production of four advertisement films in colour, that the said four ultra short films in colour including their dubbed versions in Telugu, Malayalam and Canarese were produced and processed, that the printed copies required by Messrs. Lintas Limited, Bombay, were supplied to them or to their representatives or distributors and that the invoices submitted by the assessees included the value of the negatives, the colour positive films for taking the prints and all other expenses incurred such as processing charges, costume, hire, etc., and also the cost of production of the exposed advertisement films numbering 250. The names of the four films produced by the assessees in pursuance of their contract with the advertiser were: (1) Vannapurah, (2) Solaikumari, (3) Malai Pozhudinilay and (4) Azhagu Chelvam. The total receipts for the assessment years 1961-62 and 1962-63 by the assessees from the said Messrs. Lintas Limited towards the said contract were Rs. 13,950 and Rs. 45,447.08 respectively. The assessing authority assessed the transactions of the supply of advertisement films under the Madras General Sales Tax Act, 1959, on the ground that they were sales of advertisement films by the assessees. It also levied a penalty of Rs. 1,464 for 1961-62 and Rs. 4,772.00 for 1962-63 under Section 12(3) of the Act.
2. Aggrieved against the assessment orders, the assessees preferred appeals before the Appellate Assistant Commissioner. But they did not meet with success. There were further appeals to the Sales Tax Appellate Tribunal. The Tribunal by a majority found that the transactions were works contracts and that they were not sales as defined in the Act. Aggrieved against the decision of the Tribunal, the State has come before this court. The question is whether the contract entered into by the assessees with Messrs. Lintas Limited, Bombay, the advertiser, is a works contract as found by the Tribunal or whether it is a contract of sale.
3. The facts as found by the Tribunal from the correspondence that passed between the assessee and the advertiser are these: The advertiser has entrusted the work of production of Lux Toilet Soap advertising films to the assessees from the year 1962. At first the assessees were asked to produce two films entitled Solaikumari and Vannapurah at the following rates:
(a) Production of original version in Tamil entitled'Solaikumari' including the recording of specialmusic, sound commentary/dialogue, censoring andone finished print. Rs. 4,000(b) Shooting and dubbing in Telugu, Canarese andMalayalam languages and supplying the picturenegative for the complete film with recordedsound track and censor certificate and firstprint. Rs. 1,300(c) Charges towards technical supervision, handling,joining of censor certificates, storing andother incidentals. Rs. 5 per print.
4. The contract between the assessees and the advertiser was on the basis of principal to principal. The clients of the advertiser, namely, Hindustan Lever Ltd., the manufacturers and sellers of the products advertised through the said films and who are the owners of the trade marks relating to such products were not parties to the said contract. The production was to be as per the instructions given by the advertiser, namely, Messrs. Lintas Limited. For executing the contract, the assessees were to get raw films, engage actors and actresses acceptable to the advertiser, shoot the film up to a fixed length in conformity with the shooting script or a rough synopsis of the film given by the advertiser, exhibit the rough cuts in colour to the advertiser for approval, and secure the necessary certificate from the Censor Board. If the advertiser, on seeing the rough cuts in colour is of the opinion that the assessees had not adequately interpreted the shooting script, visual, etc., he can reject the same and ask the assessees to reshoot the film at their cost. Similarly, the advertiser had the right to reject the finished prints or to have them rectified, if they are not, in his opinion, of good and proper standard. If cuts become inevitable during the censorship of the film, the assessees at the option of the advertiser, had to reshoot so as to substitute the rejected portion with film of equal footage to the satisfaction of the Censor Board and all expenses of such reshooting is to be borne by the assessees. If the advertiser chooses to accept the censored version, he is to pay to the assessees the agreed charges in proportion to its length. The assessees had accepted the exclusive responsibility for any infringement of copyrights, patent rights, trade marks, etc., suffered by the advertiser. These terms indicate that the nature of the work undertaken by the producers (assessees) was purchasing the necessary raw films from the market, producing negatives as per the shooting script and direction given by the advertiser, sending the negatives to the Film Centre, Bombay, for processing such as recording dialogue, commentary and special music, and, ultimately, getting the certificate from the Censor Board. In pursuance of the contract, the producer had obtained the necessary release prints for 30,000 feet of Eastman colour and 7,000 feet of black and white to be delivered to the Film Centre at Bombay for processing and printing and receive payments therefor from the advertiser.
5. The further work of shooting two other films, Azhagu Chelvam and Malai Pozhudinilay was entrusted to the producers at the following rates:
(a) Production of original version in Tamilentitled Azhagu Chelvam including therecording of special music, soundcommentary/dialogue, censoring and onefinished print. Rs. 4,000(b) Shooting and dubbing in Telugu withtitle in Telugu Srishti Sobagu andsupplying the picture negative andfirst print. Rs. 1,300(c) Dubbing commentary and lip synchroniseddialogue in Malayalam on the Tamilpicture negative, and in Canarese onthe Telugu picture negative, inclusiveof censor certificate charges and firstprint at Rs. 425 per language. Rs. 850(d) Charges towards technical supervising,handling, joining of censor certificates,storing and other incidentals. Rs. 5 per print.
6. The ultimate invoices prepared by the producers indicate that they charged only for the services rendered by them in the production of the four advertising films. The Tribunal took the view that the work entrusted to the producers (assessees) was mere works contract as the purchase of raw films was only for and on behalf of the advertiser and the services of the producers were required because of the special technical skill and labour involved in the matter of production of the films.
7. Before us it is contended by the revenue that the Tribunal has erroneously proceeded on the basis of the invoices prepared by the assessees that they are charging only for their services while in fact they have charged a lump sum towards the contract for the production and supply of the advertising films and that the mere fact that the assessees have chosen to separate the cost of services from the cost of raw materials will not alter the nature of the transaction which is really one of sale. The learned Government Pleader refers to the fact that the assessees alone had the necessary licence to obtain raw films, that they alone could use the raw materials to produce the films and that the property in the raw films was always with them till the exposed films are delivered by them to the advertiser. It is also pointed out that there is no essential difference between the impugned transactions and transactions in which artistic goods are manufactured and sold in the market, that the turnover in question represented payments for the manufacture and supply of exposed films, and that the mere fact that the advertiser had exercised some supervision to see that the films are made according to its specifications cannot change the nature of the transaction.
8. On a due consideration of the matter we are of the view that on the facts, the Tribunal's view has to be upheld. The Tribunal has proceeded on the basis that raw films had been purchased by the assessees for and on behalf of the advertiser and they have been paid for separately by the advertiser, that only charges for services have been received by the assessees in respect of the production and supply of the four advertising films undertaken by the assessees under the contract and that the property in the raw films was with the advertiser even during the process of production of the advertising films. But we are of the view that it is unnecessary for us to go into the question as to whether the purchase of raw films by the assessees was for and on behalf of the advertiser or not. Even on the assumption that the raw films had been purchased by the assessees on their own account and they were the owners of the raw films so purchased before the actual production of the films commenced, the assessees cannot, in our view, be said to have sold the advertising films to the advertiser so as to make them liable under the Sales Tax Act in view of certain provisions of the Copyright Act, 1957.
9. Section 2(f) of that Act defines 'cinematograph films' as including the sound track, if any, and 'cinematograph' as including any work produced by any process analogous to cinematography. Section 14 which defines 'copyright' says that in the case of cinematograph films copyright includes the exclusive right to do or authorise the doing of any of the following acts, namely: (i) to make a copy of the film, (ii) to cause the film, in so far as it consists of visual images, to be seen in public, and, in so far as it consists of sounds to be heard in public, (iii) to make any record embodying the recording in any part of the sound track associated with the film by utilising such sound track, and (iv) to communicate the film by radio-diffusion. Section 17 dealing with the ownership of copyright, by clause (b) provides that in the case of a cinematograph film made, for valuable consideration at the instance of any person, such person shall, in the absence of any agreement to the contrary be the first owner of the copyright therein. The above provisions of the Copyright Act clearly indicate that the right to exploit the cinematograph film is only with the person at whose instance the film was made or produced. It is not in dispute that the four advertising films have been produced by the assessees at the instance of the advertiser who has acted on behalf of the Hindustan Lever Limited producing the goods advertised in the four films in question and that the story and shooting script are given only by the advertiser and the filming, recording of dialogue/commentary and special music are all done as per the instructions of the advertiser and the ultimate film is also subject to the approval of the advertiser and if it is found that any portion of the film is not acceptable to the advertiser or the Censor Board, the assessees have to cut out that portion and reshoot it at their cost to the ultimate satisfaction of the advertiser or the Censor Board. Therefore, even if it is taken that the assessees who produced the advertising films were the owners of the raw film, the ownership and the right of exploitation of the finished product cannot be said to be with them as they have no copyright in the ultimate product. According to Section 17, the advertiser at whose instance the films were produced is the owner of the copyright and it is he who can exploit the film. In State v. Prasad Production  25 S.T.C. 423, a Division Bench of this Court to which one of us was a party, had to deal with a somewhat similar situation. In that case, an assessee was entrusted by a producer with the work of producing the Hindi version of a Telugu film with all assistance including cost of the raw films. After the completion of the Hindi film, the assessee was to hand over the negative to the producer along with the accounts showing the expenses incurred, in return of a fixed remuneration for the services rendered. That transaction was treated only as a service agreement and not as a sale of the finished film and it was held that no element of sale was involved because there was nothing for the assessee to sell to the producer. The court said:
It is well-known that the insignia of owership in a censored film fit for exhibition lies in the person who has the right to exploit the same by exhibiting it in the usual way. In the instant case, such right in the film vested in the producer at all times. If, therefore, the producer was the owner of everything concerning the cinematographic film under consideration, the fact that the raw film was supplied by the assessee and it rendered services by getting the film shot in its studio and providing other contemporaneous assistance for the production of the picture cannot make the contract of service entered into one of sale. No element of sale is involved, because there is nothing for the assessee to sell to the producer.
10. The learned counsel for the revenue would, however, contend that the transactions in question are analogous to the case of a photographer taking photographs, making copies of the same and supplying them for a price. He refers in this connection to the decision of a Bench of this Court in B.V. Bhatta v. State of Madras  16 S.T.C. 441. In that case, it was held that where a customer goes to a photographer's studio and engages the photographer's services to take a picture, he is bargaining not merely for the special skill which the photographer has, to produce a negative but also to supply from that negative as many copies of the finished positives as the customer may require and that the contract in such a case is a contract for sale of goods and not a contract for work and labour. But the principle of that decision will not apply to the facts of this case, where under the provisions of the Copyright Act a right to own and exploit the finished product is always with the advertiser and not with the assessee. We, therefore, agree with the view taken by the Tribunal in this case. The tax cases are, therefore, dismissed with costs. Counsel's fee Rs. 150 in T.C. No. 357 of 1969 alone. There will, however, be no order as to costs in T.C. No. 441 of 1969.