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AMICUS AI
Citation Codes
Equivalent Citations
citation codes
Case Number
Attorney(S)
  • Phadnis
  • K.A.Chitale
  • Chaphekar
Judges
  • Dixit
  • Samvatsar, JJ.
Acts
  • Section 13 (1) of the Madhya Bharat Sales Tax Act, 1950,
  • Madras General Sales-tax Act, 1939.
  • 1950. Section 2 (k)
  • Section 3 (1), (b)
  • Section 2 (k)
  • Section 2 (g)
  • Section 2 (f)
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Cites
Cited by
Citation Codes
Equivalent Citations
citation codes
Case Number
Attorney(S)
  • Phadnis
  • K.A.Chitale
  • Chaphekar
Judges
  • Dixit
  • Samvatsar, JJ.
Acts
  • Section 13 (1) of the Madhya Bharat Sales Tax Act, 1950,
  • Madras General Sales-tax Act, 1939.
  • 1950. Section 2 (k)
  • Section 3 (1), (b)
  • Section 2 (k)
  • Section 2 (g)
  • Section 2 (f)
See more information ...
Smart Summary

Structured Summary of the Opinion — Reference under Section 13(1) of the Madhya Bharat Sales Tax Act, 1950

Factual and Procedural Background

The reference originates from the Commissioner of Sales Tax under Section 13(1) of the Madhya Bharat Sales Tax Act, 1950 concerning whether Messrs. Sardar Printing Works (the assessee), a printing business in Indore, is liable to pay sales tax on sales of printed stationery for the year 1952-53.

The assessee carried on printing to customer orders (letterheads, bill-books, registers, other business stationery). Customers did not supply paper; they described the goods required and the printer furnished the goods at a fixed price.

For the year 1952-53 the assessee's total turnover in returns was Rs. 24,529-10-6. The assessee claimed taxable turnover was nil, arguing that the sale of paper and the separate printing service were distinct contracts and that separate memos were issued for paper and printing charges.

The assessing authority rejected that contention, treating the separate memos as mere paper transactions and finding no evidence of a prior separate sale of paper before printing. After deducting cost of paper (on which sales-tax had already been paid) and other deductions, the assessing authority determined taxable turnover at Rs. 9,339-1-0 and levied sales tax.

The assessee appealed to the Appellate Judge and lost; he then sought revision before the Sales-tax Commissioner who agreed with the earlier decisions and rejected revision. The Commissioner made a reference to the Court, framing five specific questions for opinion.

Legal Issues Presented

  1. Whether the stationery goods supplied as per orders of the customers are "goods" under the Act and liable to tax?
  2. Whether printed material supplied by the assessee to his customers as per specification of customers be deemed to be "goods" and liable to tax?
  3. Whether printing made on the paper supplied by the assessee himself is "manufacture" under Section 2(k) and whether a dealer carrying on the business of supply of such printed material in execution of orders comes within the definition of "manufacturer" in Section 2(k) of the Sales-tax Act?
  4. Whether such printed material supplied by a dealer is a resale of locally purchased goods and exempted under the Sales-tax Act?
  5. Whether papers and other materials purchased locally on which Sales-tax has been paid and used by the printing press in the production of printed materials become liable to tax again on sale after printing and a different article is produced?

Arguments of the Parties

Assessee's Arguments (as presented by Mr. Chaphekar)

  • The assessee was only a contracting printer who printed under special contracts to the order of each customer; the business was one of work and service, not sale of goods.
  • The work done was suitable and useful for the individual customer alone; the printer did not "manufacture" or "produce for sale".
  • It made little difference whether the paper was supplied by the customer or the printer; the essential contract was for work and labour.
  • The assessee entered into two independent contracts with customers: one for purchase of paper and another for printing; separate cash and credit memos evidenced this, and therefore the printing work charges were not subject to sales-tax.
  • Reliance placed on State of Madras v. S. Vijayaraghavan (1955) 6 STC 237 and D. Ramaswami v. State of Madras (AIR 1954 Mad 980) to support the contention.

Taxing Authorities' Position

  • The assessing authority and the Sales-tax Commissioner treated the separate memos for paper and printing as mere paper transactions in the absence of independent evidence that the customer first purchased paper (i.e., property in paper passed) and then entered a separate contract for printing.
  • Where the printer supplied paper and produced printed stationery to order, the taxing authorities considered that to be a single transaction resulting in a sale of finished goods subject to tax.

Table of Precedents Cited

Precedent Rule or Principle Cited For Application by the Court
State of Madras v. S. Vijayaraghavan, (1955) 6 STC 237; AIR 1956 Mad 191 Authority relied upon by the assessee regarding characterization of contracts as work contracts. The Court found this decision inapplicable because it turned on the definition of "work contract" in the Madras General Sales-tax Act, 1939, which differs from the relevant provisions in the present Act.
D. Ramaswami v. State of Madras, AIR 1954 Mad 980 Consideration of cases where separate contracts for sale of paper and for printing were recognized. The Court held this case was not of much assistance to the assessee because it involved separate contracts; the case acknowledged that if sale and printing are one transaction the printer would be liable to sales-tax.
Hiralal Jitmal v. Commissioner of Sales-tax, Civil Ref. No. 45 of 1955; AIR 1957 MP 37 Clarification and test for the definition of "manufacturer" under Section 2(k). The Court applied the test explained in this authority and concluded that a printer who produces stationery to customer order is a manufacturer within Section 2(k).
Kanpur Journals Ltd. v. Commissioner of Sales-tax, U.P., (1956) 7 STC 661 Principle that the substance of the contract determines whether it is a sale of goods or a contract for work and labour. The Court relied on the Allahabad High Court's reasoning, which rejected the contention that such contracts are for labour only and supported the Court's view of the transaction's nature here.
Robinson v. Graves, (1935) 1 KB 579 English authority cited for the proposition that the substance of a contract decides its nature; distinguished examples of sale vs. work contracts (e.g., suit of clothes v. oil painting). The Kanpur Journals decision (quoted by this Court) relied on this authority to support the proposition that where production of something for sale is the substance, the transaction is a sale of goods.
Clay v. Yates, (1856) 25 LJ Ex 237 Earlier case considered in Robinson v. Graves concerning distinctions between sale and work contracts. This older authority was discussed in Robinson v. Graves and, through that chain, was referenced as part of the line of reasoning supporting the "substance of the contract" test relied upon by the Court.

Court's Reasoning and Analysis

The Court's analysis proceeded from the statutory definitions and the factual character of the assessee's business as found by the taxing authorities.

  1. Statutory starting point: The Court noted Section 3(1)(b) (liability of manufacturers above turnover threshold), Section 2(k) (definition of "manufacturer" as a dealer who from materials produces goods by manual or other labour and includes a processor), Section 2(g) (definition of "goods" as movable property), and Section 2(f) (definition of "dealer"). The Court also noted a government notification (22 May 1950) taxing stationery goods including pens, pencils, pads, and office materials.
  2. Characterization of the transaction: Applying the statutory definitions and the test for "manufacturer" explained in Hiralal Jitmal, the Court concluded that when the assessee prints stationery to individual customer orders he is producing a commercial commodity capable of being sold and therefore qualifies as a manufacturer under Section 2(k).
  3. Substance-over-form test: The Court applied the "substance of the contract" test (as articulated by the Allahabad High Court in Kanpur Journals and derived from Robinson v. Graves). If the substance is production of something for sale (e.g., a suit of clothes), that is a sale of goods; if the substance is provision of skill and labour where materials pass incidentally (e.g., an oil painting), the contract is for work and labour. The Court found the substance here to be production for sale.
  4. Evaluation of separate memos: The taxing authorities had regarded separate cash and credit memos for paper and printing as mere paper transactions. The Court held that issuing such memos, without independent evidence that customers first purchased paper and only then entered a separate contract for printing (i.e., proof of passage of property in paper prior to printing), is of little value. The assessee produced no aliunde evidence to establish two distinct transactions; therefore the taxing authorities' factual finding that supply of paper and printing were one transaction could not be successfully challenged.
  5. Application to the reference questions: On the basis of the above reasoning and authorities, the Court concluded that printed stationery supplied to customers who ordered and received finished printed stationery produced by the assessee is "goods" and that the activity amounts to manufacture for purposes of the Act.

Holding and Implications

Holding (Core Ruling):

The Court answered the reference questions as follows:

  • Questions 1, 2, 3 and 5 — Answered in the affirmative.
  • Question 4 — Answered in the negative.

Practical consequences and implications:

  • The Court's answers mean that printed stationery produced and supplied by the assessee to customers in the factual circumstances found is treated as "goods" and the assessee, when producing such stationery to order, is a "manufacturer" under Section 2(k) and therefore liable to pay sales-tax on such sales (subject to statutory thresholds and deductions already applied by the assessing authority).
  • The Court accepted the taxing authorities' factual finding that the separate memos did not prove distinct contracts in the absence of further evidence; accordingly the assessee cannot avoid tax liability by the mere issuance of separate memos without proof of separate transactions.
  • There will be no order as to costs in this reference.
  • The opinion does not state that it establishes any broader novel precedent beyond applying existing definitions and the substance-over-form test; the decision is framed as application of statutory definitions and previously explained tests (including the test in Hiralal Jitmal and reasoning in Kanpur Journals) to the facts of this case. Therefore, the direct effect is on the parties (taxability of the assessee's printed stationery sales) rather than an announcement of a new general rule in addition to the authorities already cited.

Signed by Samvatsar, J. — "I agree." (Concurring remark recorded in the opinion.)

Show full summary ...

    Sardar Printing Works, Ada-Bazar, Indore v. Sales Tax Commissioner Opponent.

    1. This reference by the Commissioner of Sales Tax under Section 13 (1) of the Madhya Bharat Sales Tax Act, 1950, arises out of the matter of liability of Messrs. Sardar Printing Works to pay sales tax on the sales of printed stationery during the year 1952-53.

    2. The assessee carries on business in Indore as printers. That business consists in printing to the order of individual customers letterheads, bill-books,, registers etc., and other stationery of business character. The Customers did not supply the paper for the stationery required by them. They merely explained to the printer exactly the goods they desired and the printer furnished the goods at a fixed price.

    For the year 1952-53, the total turnover of the assessee, as shown in his returns, was Rs.

    24529-10-6. He claimed before the assessing authority that this taxable turnover was nil as the transactions of sales of paper were distinct and separate from the printing work done by him and the charges recovered for that work, and that he had from time to time issued separate cash and credit memos for the sale of the paper used by him and the printing charges.

    The assessing authority took the view that the cash and credit memos issued by the assesses for the paper were merely paper transactions & that there was nothing to show that the paper used by the assessee printer was sold by him separately to the customers before executing the printing work thereon. The assessing authority, therefore, after deducting the cost of the paper on which sales-tax had already been paid by the assessee and after making other permissible deductions determined the taxable turnover of the assessee at Rs 9,339-1-0 and levied sales tax accordingly.

    The assessee then preferred an appeal before the Appellate Judge which was rejected. He then took the matter in revision before the Sales-tax Commissioner who agreeing with the decisions of the assessing authority and the Appellate Judge rejected the revision petition. The Sales-tax Commissioner has how, at the instance of the assessee, made this reference stating the following questions for the opinion of this Court :

    "1. Whether the stationary goods supplied as per orders of the customers be deemed to be goods under the Act and be made liable to tax?

    2. Whether printed material supplied by the assessee to his customers as per specification of customers be deemed to be "goods" and liable to tax?

    3. Whether printing made on the paper supplied by the assessee himself is manufature under Section 2 (k) and whether a dealer carrying on the business of supply of such printed material in execution of the orders secured from customers comes within the purview of a 'manufacturer' as defined under Section 2 (k) of the Sales-tax Act?

    4. Whether such printed material supplied by a dealer is a resale of locally purchased goods and exempted under the Sales-tax Act?

    5. Whether papers and other materials purchased locally on which Sales-tax has been paid and used by the printing press in the production of printed materials become liable to tax again on sale after printing has been made on them and a different article is produced from such locally purchased materials?"

    3. Under Section 3 (1), (b) every manufacturer whose turnover exceeds Rs. 5,000/.- is liable to pay tax under the Act on his taxable turnover in respect of the sales or supplies of goods effected in Madhya Bharat from the 1st day of May, 1950. Section 2 (k) defines 'manufacturer' as a dealer who from materials produces goods by manual or animal labour or by machinery, and also includes a processor. "Goods" have been defined in Section 2 (g) as meaning all kinds of movable property other than certain things specified in the section. 'Dealer' has been defined in Section 2 (f) as "any person or association of persons carrying on the business of selling or supplying of goods....." Under a notification issued by the Government on 22nd May. 1950, in exercise of its powers under Section 5 of the Act. sales-tax at the rate of Rs. 3/2/- per cent is liable on stationery goods of every kind which include ink, penci), holders, pad and things required in an office excluding exercise books. The relevant item in the notification is No. 34 which runs as follows :

    ‘‘हर किस्म का स्टेशनरी सामान जिसमें शाही, कलम, पेन्सील, पेड तथा कायर्ालय में लगने वाला सामान संम्भालात है। (शिवाय एक्साईज बुक के)’’ The tax is payable by am importer or a manufacturer of these goods.

    4. Mr. Chaphekar, learned counsel appearing for the assessee, argued that the assessee was only a contracting printer who printed by special contract to the order of each individual customer; that the work done by the printer was suitable and useful for the purposes of individual customer alone; and that he in no sense manufactured or produced for sale, nor did he sell any goods inasmuch as the business carried on by him was one of work and service and not one of the sale of goods. It was further stated that as the contract was essentially for work and labour, it made very little difference whether the paper for printing was supplied by the customer himself or by the printer and that in any case as the assesses entered into two independent contracts which his customers, one for the purchase of paper and the other for printing, the assessee was not liable to pay any sales-tax on the printing work done by him. Learned counsel placed, reliance on State of Madras v. S. Vijayaraghavan, (1955) 6 STC 237: (AIR 1956 Mad 191) (A) and D. Ramaswami v. State of Madras, AIR 1954 Mad 980 (B).

    5. I am unable to accede to this contention of the learned counsel. Having regard to the definition of 'goods' and of the manufacturer' given in the Act, it cannot be denied that the stationery sold by the assessee to his customers is goods and that when the assessee brings into existence printed stationery to the order of individual customer, he produces a commercial commodity which is capable of being sold or supplied. The definition of the expression 'manufacturer' has been explained by this Court recently in Hiralal Jitmal v. Commissioner of Sales-tax, Civil Ref. No. 45 of 1955: (AIR 1957 MP 37) (C), and applying the test indicated therein for determining whether a person is or is not a manufacturer, there can be no doubt that the assessee is a manufacturer when his business consists in printing to the order of individual customer stationery of business character.

    Therefore, when the printed material is sold to the customers there is a sale of finished goods to the customers. The essential feature of the business of the assessee is the production of stationery of a particular kind for sale. This a clearly not a case where it can be argued with any degree of force that the essential character of the work is the printing and not the supply of stationery and that in executing the printing work the paper comes into existence and becomes the property of the client or customer only incidentally. The substance of the contract when a customer places an order with the assessee for doing certain printing work on paper to be supplied by the printer is the production of something to be sold to the customer. The contention, therefore, that the orders placed by the customers with the assessee were contracts for the sale of goods, is untenable.

    The decision in (1955) 6 STC 237: (AIR 1956 Mad 191) (A), has no applicability here for it turned on the definition of the expression 'work contract' given in Madras General Sales-tax Act, 1939. The other Madras case AIR 1954 Mad 980 (B), is also not of much assistance to the assessee for that was a case where there were separate contracts for the sales of paper and the printing work. In that case, it was, on the other hand, recognised that if the transaction of the sale of paper and printing the paper is one transaction, the printer who sold the printed stationery to his customers would be liable to sales-tax.

    The question whether, when a printer accepts orders from his customers for job work such as receipt-books, registers, forms, letter-heads, etc. and prints them in accordance With the requirements of his customers on paper supplied by him, that is by the printer himself, the orders placed by the customers for such job work are contracts for the sale of goods or whether they are contracts for work and labour was considered by the Allahabad High Court in the Kanpur Journals Ltd. v. Commissioner of Sales-tax, U. P., (1956) 7 STC 661 (D). Rejecting the contention of the assessee that in such a case the contract is one for labour and work, the learned Judges of the Allahabad High Court observed:

    "We think this argument to be misconceived. 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 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 This was so laid down in Robinson v. Graves, (1935) 1 KB 579 (E), where the earlier cases including Clay v. Yates, (1856) 25 LJ Ex 237 (F), relied upon by the assessees were considered".

    Allahabad case supports the view I have taken of the nature of the transaction.

    6. In regard to the submission that the assessee issued separate cash and credit memos for the paper and printing charges and that this indicated the existence of two distinct contracts, one for the sale of paper and the other for printing work, it is sufficient to say that the taxing authorities have regarded the issue of such memos as mere paper transactions. The issue of such memos by itself is of very little value when there is no evidence to show that the customer in fact first purchased paper from the assessee and that when the property in the paper passed to him a contract for the printing work was entered into between the customer and the assesses. The assessee made no attempt before the taxing authorities to prove by the evidence aliunde that the customers in fact entered into two transactions with him, one for the purchase of paper, and that this was followed by a contract for printing. In the absence of such evidence it is not open to the assessee to assail the finding of fact arrived at, by the taxing authorities that the supply of paper and the printing was but one transaction.

    7. For all these reasons, I would answer questions Nos. 1, 2, 3 and 5 in the affirmative and question No. 4 in the negative. There will be no order as to costs of this reference.

    Samvatsar, J.

    8. I agree.

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    Comments

    Sardar Printing Works, Ada-Bazar, Indore v. Sales Tax Commissioner Opponent.
    (Feb 5, 1957)