MIS. EVEREST COPIERS THROUGH R.A. PARTNER ETC. v. STATE OF TAMIL NADU JULY 25, 1996 [S.P. BHARUCHA AND K.T. THOMAS, JJ.] Tamil Nadu Ge11eral Sales Tax Act, 1959: Sectio11 2(11). Sales Ta:i.-Sa/e !11gredie11ts of-Work or Seivice co11tract and co11tract of sa/.,-Disti11ctio11 betwee11-Maki11g Photostat copies with use of a xerox or C other machi11e–Deli1•e1y of copies to customers 011 payme11t-Levy of sales tax-Chal/e11ge–Held the object of the w01k u11dC11ake11 by the operator of xerox machi11e is 11ot the tra11sfer of pape1~17ie purpose is to make a xerox copy for which the customer pays p1ice–171e paper upon which duplication takes place is only incidental to the transactio1t-Object of payment is to get the docunzent duplicated and not to receive the pape~Held it is a contract of work or service and not a contract of sale-Held not exigible to sales tax. B. Gi1ija and Anr. v. State of Kamataka, (1984) 56 STC 297, approved. Hi11dusta11 Aeronautics Ltd. v. State of Kamataka, (1984) 55 STC 314 E = [1984) 2 SCR 248, referred to.
Assistant Sales Tax Officer & Ors. v. B.C. Kame, (1977) 39 STC 237 = (1977) 2 SCR 435, relied on. CIVIL APPELLATE JURISDICTION: Civil Appeal No. 2672 of F 1992 Etc. From the Judgment and Order dated 12.11.91 of the Madras High Court in T.C. No. 1416 of 1982.
T.L. Viswantha Iyer and R. Mohan, Ms. Indu Malhotra, V. Balaji, G P.N. Ramalingam, V. Balachandran, A. Subba Rao, V. Krishnamurthy, T. Harish Kumar and A. Mariarputham for the appearing parties. The following Order of the Court was delivered :
The appellant runs a photocopying business. It has been assessed to H sales tax for the Assessment Year 1978"79 (in Civil Appeal No. 5339/92) and the Assessment Year 1979-80 (in Civil Appeal No. 2672/92) on the basis that there was a sale by it of the photocopied or xeroxed document to the customer. The question that we are concerned with, therefore, is whether the making of photoslat copies with the use of a xerox or other c
machine and delivering the copies so taken to the customer on receipt of payment amounts to a sale of goods exigible to lax under the Tamil Nadu General Sales Tax Act, 1959. Section 2(n) of the Tamil Nadu General Sales Tax Act, 1959 read as under at the relevant time :
~ale' \Vith all its grammatical variations and cognate expressions means every transfer of the property in goods by person to another in the. course of business for cash or for deferred payment or other valuable consideration, but does not include a mortgage,
hypothecation, charge or pledge." It is the case of the appellant that no sales tax is involved in that the contract that he enters into with the customer is only a works contract. It is the case of the respondents that the contract is of sale of the photocopies. The Karnataka High Court, in B. Girija and Anr. v. State of Kar- nataka, {1984) 56 STC 297, considered the question that arises in these appeals and observed that the turnover of the assessee WdS made up of amounts collected from customers as labour charges towards developing and printing of photostat copies and the cost of the material used for taking such copies. It was a matter of common experience that persons went to a xerox establishment not with a view to buy duplicates of their documents but to get copies made of their documents. It was no less true in the case of the assessee. The assessee utilised her own papers and ink and, by the use of the xerox machine, turned out copies of documents brought to her. The assessee charged for the service rendered in addition G to the cost of the material used. On these facts, it had to be found what the primary, object of the transaction was and the intention of the parties, namely, whether it was a contract purely of work or service or a contract of sale. The High Court noticed the decision of this Court in Hindustan Aeronautics Ltd. v. State of Kamataka, (1984) 55 STC 314 = (1984) 2 SCR H 248, wherein it was held :
EVEREST COPIERS v. STATE " …….. Mere passing of property in an article or commodity during A . the course of performance of the transaction in question does not render the transaction to be transaction of sale. Even in a contract purely of work or service, it is possible that articles may have to be used by the person executing the work, and property in such articles or materials may pass to the other party. That would not necessarily convert the contract into one of sale of those materials. In every case, the court would have to find out what was the primary object of the transaction and the intention of the parties while entering into it ………. "
As ~as been noticed, the High Court stated that no person went to the C assessee for buying duplicates of his documents. He went to ask whether he could get xerox copies of his documents. The assessee undertook to get the documents duplicated and collected a certain charge. This was essen- tially a contract of work or labour or service and not a contract of sale. The distinction had been explained in the Hindustan Aeronautics's case D (supra) thus :
" …. A contract of sale is a contract whose main object is the transfer of the property in, and the delivery of the possession of a chattel as a chattel lo the buyer. Where however the main object of work undertaken by the payee of the price was not the transfer of chattel qua chattel, the contract is one of work and labour. The test is, whether or not the work and labour bestowed and in anything that can properly become the subject of sale; neither the ownership of the materials, nor the value of the skill and labour as compared with the value of the materials, is conclusive, although such matters may be taken into consideration in determining, in the circumstan- ces of a particular case whether the contract was in substance one for work and labour and one for the sale of a chattel".
The High Cour~ therefore, held that what was involved was not a contract of sale, but a contract of work or service. The principles enunciated in Hindustan Aeronautics' case (supra), quoted by the High Court, also find expression in the earlier decision of this Court in Assistant Sales Tax Officer & 01>. v. B.C. Kame, (1977) 39 STC 237 = [1977] 2 SCR 435. In Kame's case the respondent carried on the business of supplying photographs to those who got themselves H photographed at his studios. It was held that he did not enter into a contract of sale.
c The judgment of the Karnataka High Court was cited before the Division Bench that wrote the judgment and order under appeal (reported in 83 STC 420). It was distinguished on the ground that it "proceeded upon an erroneous understanding of the nature of the transaction and was apparently carried away by the corporeal rights over the contents or subject-matter of the copies with the material turned out, namely, the duplicate copies made. If an author or a publisher of a text orders for the printing and supply of a. specified number of copies of the literature concerned, it could not be said that the work merely is a contract for work and labour or service and not a contract for sale. Duplication or making out copies does not get its character altered merely on account of the proprietary ownership of the material which was sought to be duplicated or multiplied". The Division Bench held that the supply of a xerox copy manufactured by the use of a xerox machine for a price consisted of an D indivisible contract of sale and, consequently, the turnover relating to the same had rightly been subjected to tax by the assessing authority.
As we see it, the view taken by the Karnataka High Court is right and is based upon the decisions of this Court. Where the main object of the work undertaken by the person to whom the price is paid is not the transfer of a chattel as a chattel, the contract is one of work and labour. The main object of the work undertaken by the operator of the photocopier or xerox machine is not the transfer of the paper upon which the copy is produced; it is to duplicate or make a xerox copy of the document which the payer of the price wants duplicated. The paper upon which the duplica- tion takes place is only incidental to this transaction. The object of the payment of the price is to get the document duplicated, not to receive the paper. The payer of the price has no interest in the bare paper upon which his document is duplicated. He is interested in it only if it bears such duplication.
The case is very similar to Kame's case. The tests laid down by this Court as aforestated are satisfied; the contract between the appellant and the payer of the price to him is a contract of work or service, not a contract of sale upon which sales tax is exigible.
In the result, the appeals are allowed and the judgments and orders …. EVEREST COPIERS v. STATE under appeal are set aside. There shall be no order as to costs. ORDER Learned counsel for the appellants seeks leave to withdraw these appeals. He states that in an appropriate case where the judgment under appeal is relied upon in assessment proceedings or proceedings subsequent thereto, a challenge to the judgment shall be made.
The appeals arc dismissed as withdrawn. CIVIL APPEAL NO. 11903 OF 1995 Learned counsel for the appellant seeks leave to withdraw this c appeal. He states that in an appropriate case where the judgment under appeal is relied upon in assessment proceedings or proceedings subsequent D thereto, a challenge to the judgment shall be made. Learned counsel adds that in this matter the agreement of inapplicability of the statute to the commodities used by the appellants was urged before the High Court, but was not considered in the judgment.
The appeal is dismissed as withdrawn. CIVIL APPEAL NO. 11294 OF 1995 : Learned counsel for the appellant seeks leave to withdraw this appeal. He states that in an appropriate case where the judgment under F appeal is relied upon in assessment proceedings or proceedings subsequent thereto, a challenge to the judgment shall be made. The appeal is dis- missed as withdrawn.
T.N.A. Appeals allowed.