Vyas, J.:— This is an application under art. 226 of the Constitution of India by the petitioner press, Messrs Saraswati Printing Press, wherein the petitioner has prayed for the setting aside of the order dated September 7, 1956, of the Hyderabad Sales Tax Tribunal, by which order the Tribunal confirmed the order dated July 22, 1955, passed by the Deputy Commissioner, Sales Tax, Hyderabad.

2. The circumstances which have given rise to this application may be briefly stated. The Marathawada Prakashan Limited, a public limited company, which was registered under the Hyderabad Companies Act, was running a printing press known by the name of the Saraswati Printing Press. This press is situated in Aurangabad. The above-mentioned public limited company sold this press to Messrs Parmanand Bapuji Muley on March 1, 1954. The petitioner press contends that it accepts contracts for printing works and for the supply of printed goods. On March 10, 1955, the Sales Tax Authority under the Hyderabad General Sales Tax Act took accounts of the petitioner press for the years 1950–1951, 1951–1952, 1952–1953 and 1953–1954. The Authority found that for the years 1950–1951 and 1952–1953, the turnover of the press was not of such an amount as to make it chargeable to sales tax. However, the Authority found that the turnover of the press for the years 1951–1952 and 1953–1954 was chargeable to sales tax. Accordingly, the Authority made an assessment order on March 31, 1955 charging the petitioner press to sales tax for its turnover for the years 1951–1952 and 1953–1954. The assessment order was communicated on the same day (March 31, 1955) to the petitioner press. The petitioner press appealed from that order to the Deputy Commissioner, Sales Tax. The Deputy Commissioner modified the order of the Authority. The Deputy Commissioner treated the printing work done by the petitioner press as works contract under the Act and allowed a reduction of 30 per cent, on the total turnover on the ground that the said 30 per cent, represented the cost of labour involved in the printing work. Due to this reduction of 30 per cent., the turnover for the year 1953–1954 went down so low that it did not become chargeable. After the reduction of 30 per cent., the turnover for the year 1951–1952 only remained chargeable to sales tax. From this order made in appeal by the Deputy Commissioner, Sales Tax, the petitioner press made a second appeal to the Sales Tax Tribunal of the Hyderabad State. The Sales Tax Tribunal rejected the petitioner's appeal on September 1, 1956. It is these orders of the Sales Tax Tribunal and the Deputy Commissioner, Sales Tax, made by them on September 9, 1956, and July 22, 1955, respectively, that are sought to be quashed by the petitioner in this application. Now, the learned advocate Mr. Deshpande appearing for the petitioner press has raised the following contentions before us:

(1) Section 2, cl. (m) Explanation I, cl. (i), of the Hyderabad General Sales Tax Act, 1950, and r. 5, sub-r. (3), of the Hyderabad General Sales Tax Rules framed under the Act were ultra vires the legislative competence of the Legislature of the former State of Hyderabad.

(2) The provisions of r. 5, sub-r. (3), of the Hyderabad General Sales Tax Rules are ultra vires the Constitution, in that they are arbitrary and not based upon any rational basis.

(3) Even if the Court holds that s. 2, cl. (m), Explanation I, cl. (i), of the Hyderabad General Sales Tax Act, 1950, and r. 5, sub-r. (3) of the Hyderabad General Sales Tax Rules, 1950, were intra vires the legislative competence of the Hyderabad State Legislature and the Constitution respectively, even so the petitioner's case would be covered by cl. (iv) of Explanation I to s. 2, cl. (m) of the Act, and

(4) The supply of the printed material to the customers by the petitioner press would not amount to a sale of goods and, therefore, the turnover which would result from the said supply would not be chargeable to sales tax.

3. Now, so far as the first point out of the points raised by Mr. Deshpande is concerned, Mr. Deshpande's contention is that the provisions of s. 2, cl. (m), Explanation I, cl. (i), of the Hyderabad General Sales Tax Act and r. 5, sub-r. (3), of the Hyderabad General Sales Tax Rules were ultra vires the legislative competence of the State Legislature, in so far as they were hit by item No. 54 of List II mentioned in the VIIth Schedule to the Constitution. Section 2, cl. (m) of the Act provides that “turnover” means the aggregate amount for which goods are either bought by or sold by a dealer, whether for cash or for deferred payment or other valuable consideration. Explanation I, cl. (i) at the foot of s. 2, cl, (m) provides:

“Subject to such conditions and restrictions, if any, as may be prescribed in this behalf, the amount for which goods are sold shall, in relation to a works contract, be deemed to be the amount payable to the dealer for carrying out such contract, less such portion as may be prescribed of such amount representing the usual proportion of the cost of labour to the cost of materials used in carrying out such contract.”

4. Rule 5, sub-r. (3) of the Hyderabad General Sales Tax Rules, 1950, provides:

“For the purpose of sub-rule (1) the amount for which goods are sold by a dealer shall in relation to works contract be deemed to be the amount payable to the dealer for carrying out such contract less a sum not exceeding such percentage of the amount payable as may be fixed by the Commissioner from time to time for different areas representing the usual proportion in such areas, of the cost of labour to the cost of materials used in carrying out such contract, subject to the following maximum percentages:

(a) in the case of an electrical contract…20 per cent;

(b) in the case of a structural contract…30 per cent;

(c) in the case of a sanitary contract…33-1/3 per cent;

(d) in the case of other contracts…30 per cent.”

5. Since there is a reference to sub-r. (1) in sub-r. (3), it would be convenient to set out the provisions of sub-r. (1) of r. 5 as well in this context. sub-rule (1) provides:

“Save as provided in sub-rule (2), the turnover of a dealer for the purpose of these rules shall be the amount for which goods are sold by the dealer.”

6. Now, as I have stated above, the contention of Mr. Deshpande for the petitioner press is that the aforesaid provision of s. 2, cl. (m), Explanation I, cl. (i), of the Act and the provisions of r. 5, sub-r. (3) of the Rules are in violation of the Constitution of India, in that they are hit by item No. 54, List II, mentioned in Schedule VII to the Constitution. Now, if we turn to item No. 54, it relates to “taxes on the sale or purchase of goods other than newspapers, subject to the provisions of entry 92-A of List I.” Mr. Deshpande's contention is that the transactions of the petitioner press with its constituents are not sales so as to fall within the ambit of item No. 54 mentioned in List II of the VIIth Schedule to the Constitution. It is Mr. Deshpande's contention that the dealings done by the petitioner press are contracts for services, in other words works contracts and, says Mr. Deshpande, the charges levied by the petitioner press from its constituents are in respect of the services rendered by the press to the constituents. In these circumstances, Mr. Deshpande says that the transactions of the petitioner press would not amount to sales within the meaning of entry No. 54. We have considered this contention of Mr. Deshpande, but Ave are unable to see force in it. There is no doubt that the essential character of the work done by the petitioner press is the supply of stationery. It is no doubt true that upon the stationery supplied by the press to its constituents, a certain amount of printing work is done by the press. But that is not the essential character of the business done by the press. It cannot be disputed that the petitioner press brings into existence printed stationery according to the orders of the individual customers, and when the press brings into existance such stationery, it produces a commercial commodity which is capable of being sold or supplied. Therefore, when the press sells printed material to its constituents, it sells goods to the constituents upon which sales tax is leviable. The learned advocate Mr. Deshpande also fairly concedes that when the printed material is sold by the press to its costomers, there is a sale of finished goods to the customers. “What Mr. Deshpande centends for, however, is that the essence of the work done by the press is not production of finished goods, but the printing work. It is in this manner that Mr. Despande contends that the transactions done by the petitioner press with its constituents are in the nature of works contracts. Now, the nature of a contract must be determined by the substance of the contract. As the learned Judges of the Allahabad High Court pointed out in Kanpur Journals Ltd. v. Commr. of Sales Tax, U.P . 1956 7 S.T.C 661. (p. 664):

“…We think it now to be established that in order to determine the nature of a contract the Court has to look at its substance. If the substance of the contract is the production of something to be sold to the customer,—such as a suit of clothes—then that is a sale of goods. If, on the other hand, the substance of the contract is that skill and labour have to be exercised for the production of the article, and that it is only ancillary to that there will pass to the customer some materials in addition to the skill involved—as in the case of an oil painting—the contract will be one of work.”

7. In our opinion, there can be no doubt that the substance of the transactions which the petitioner press enters into with its constituents is the production of something to be sold to the constituents. It is no doubt true that a certain amount of printing work which requires skill and labour is done on the stationery. But unless there is the base of the stationery itself, there would be nothing upon which the skill of the petitioner press could be used. It would have been a different matter if the stationery were to be supplied by the constituents to the press. But that is not the case here. It is a conceded position that the petitioner press itself purchases stationery, and having purchased the stationery, it does printing work upon it. In these circumstances, the essential character of the business done by the petitioner press is the supply of the stationery itself to the constituents with the printing work done upon that stationery. It would not matter where the press would purchase the stationery from. So far as the relations of the press with its constituents are concerned, the constituents purchase the stationery itself together with the printing material upon it from the press. Therefore, we have no doubt that this is a case in which a commercial commodity, which is a finished product, viz. the printed stationery etc. is sold by the press to its constituents.

8. Mr. Deshpande has invited our attention to a decision of the Hyderabad High Court in Jubilee Engineering Co. v. S.T Officer . [1956] A.I.R Hyd. 79.. In this case, and be it noted that it was a case of a building contract, it was observed by the Court, agreeing with the view of the Madras High Court, that the power of the provincial Legislature to levy a tax on sale of goods was confined and restricted only to the transaction of sale as understood by the Parliament of the United Kingdom in the law relating to the sale of goods, and any attempt of the Legislature to tax under the guise or under the pretence of such a power transactions which were wholly outside would be ultra vires and must be declared invalid. Now, it is to be remembered that a building contract is one entire indivisible contract and in such a contract there is no sale of goods. One fundamental difference between a building contract and the work done by the petitioner press is that in a building contract, the various materials which are used in the process of constructing a building lose their original character, viz. the character of moveable property and get converted into parts of immoveable property by being fixed to a building. It is this important aspect of a building contract which distinguishes it from the work done by the petitioner press. As I have mentioned above, the press purchases stationery and brings into existence a finished product, viz. the printed material and, therefore, when it supplies that product to its constituents, it sells it to the constituents. We are, therefore, unable to accept the contention of Mr. Deshpande that the provisions of s. 2, cl. (m), Explanation 1, cl. (i) of the Hyderabad General Sales Tax Act and r. 5, sub-r. (3), of the Hyderabad General Sales Tax Rules were ultra vires the legislative competence of the Legislature of the former State of Hyderabad.

9. The next point which has been canvassed before us by Mr. Deshpande is that r. 5, sub-r. (3) of the Hyderabad General Sales Tax Rules is ultra vires the Constitution as it is arbitrary and not based upon any rational basts. Now if we turn to r. 5, sub-r. (3), it virtually provides that the sale price of the goods shall be calculated at 70 per cent, of the price paid by the customers. Under sub-r. (3), a deduction of 30 per cent, is to be made towards the cost of labour in case of contracts other than electrical contracts or structural contracts or sanitary contracts. The fixation of the cost of labour at 30 per cent, and the fixation of the sale price at 70 per cent, of the amount realised from the customers are both arbitrary. The learned counsel Mr. Joshi appearing for the respondents in this case has not been able to point out to us any rational basis upon which the above-mentioned percentages were fixed. We are not told that these percentages were fixed upon any enquiry made by the State of Hyderabad or upon the recording of any evidence. Apart from this infirmity which attaches to sub-r. (3) of r. 5 of the Hyderabad General Sales Tax Rules, 1950, it is also to be borne in mind that sub-r. (3) could only be attracted in case of a works contract. Sub-rule (3) provides:

“For the purpose of sub-r. (1), the amount for which goods are sold by a dealer shall in relation to works contract be deemed…”

10. Now, for the reasons stated in the earlier part of this judgment, we have come to the conclusion that the transactions which are done by the petitioner press for its constituents are not in the nature of works contracts. They are sales of goods. That being so, a recourse to sub-r. (3) of r. 5 of the Hyderabad General Sales Tax Rules, 1950, could not validly avail the respondents. Therefore, on both the grounds, viz. the ground that sub-r. (3) of r. 5 is ultra vires the Constitution in that it is arbitrary and is lacking in any rational basis and also upon the ground that the provisions of this sub-rule could not be attracted in the present case which is not a case of works contract, the levy of sales-tax upon the petitioner press could not be justified.

11. The third point which Mr. Deshpande has pressed before us is that even in case the Court holds that s. 2, cl. (m), Explanation I, cl. (i), of the Hyderabad General Sales Tax Act and r. 5, sub-r. (3) of the Hyderabad General Sales Tax Rules were intra vires the legislative competence of the Legislature of the former State of Hyderabad, even so the petitioner's case would fall within the ambit of cl. (iv) of Explanation I to s. 2, cl. (m) of the Act. We are unable to agree with Mr. Deshpande. Clause (iv) of Explanation I provides:

“Where for accommodating a particular customer, a dealer obtains goods from another dealer and immediately disposes of the same to the said customer, the sale in respect of such goods shall be included in the turnover of the latter dealer but not in that of the former.”

12. Mr. Deshpande says that in the present case, for accommodating its customers, the petitioner press obtains goods from other dealers in the market and disposes of the said goods in favour of its own constituents and, therefore, the sale in respect of such goods should be included in the turnover of the constituents and should not be included in the turnover of the press itself. Mr. Deshpande appears to overlook the importance of the word “immediately” which the Legislature has used in cl. (iv) of Explanation I to s. 2, cl. (m). Had this been a case in which the press, after purchasing the stationery from the market, were to hand over the said stationery immediately to the constituents, it would have been a different thing. Here the press does not immediately dispose of the stationery purchased by it in favour of its constituents. It keeps it in the press. It prints letter-heads etc. upon the stationery and then supplies the finished product to the constituents. That being so, the provisions of cl. (iv) of Explanation I at the foot of cl. of s. 2 would not be attracted in this case.

13. The last point of Mr. Deshpande is that the supply of the printed material to the constituents by the press would not amount to a sale. We have, already dealt with this point while dealing with point No. 1 of the points pressed before us by Mr. Deshpande. Therefore, it is not necessary to add any more observations in respect of this point.

14. As, in our view, the transactions done by the petitioner press with its constituents are sales of goods, and are not in the nature of works contracts, r. 5, sub-r. (3) would not be attracted in the present case, and as this sub-rule itself is arbitrary as held by the Hyderabad High Court in Jubilce Engineering Co. v. S.T Officer, the turnover of the petitioner press would not be chargeable to sales tax.

15. Accordingly, the order made by the Sales Tax Tribunal on September 7, 1956, whereby it confirmed the order of the Deputy Commissioner, Sales Tax dated July 22, 1955, must be reversed and the application must be allowed. The respondents will bear their own costs and also pay the costs of the petitioner. The respondents are hereby restrained from recovering the sales tax from the petitioner press for the year 1951–1952, for which a notice of demand was issued upon the petitioner.

16. Application allowed.