Case Note & Summary
The dispute arose from sales tax assessments on a photocopying business under the Tamil Nadu General Sales Tax Act, 1959. The assessee, running a photocopying business, was assessed to sales tax for Assessment Years 1978-79 and 1979-80 on the basis that the supply of xerox copies to customers constituted a sale of goods. The assessee contended that the contract with customers was a works contract, not a sale. The High Court of Tamil Nadu, in a judgment reported in 83 STC 420, held that the supply of a xerox copy manufactured by the use of a machine for a price consisted of an indivisible contract of sale and upheld the assessments. The assessee appealed to the Supreme Court. The Karnataka High Court had earlier in B. Girija and Anr. v. State of Karnataka, (1984) 56 STC 297 taken a contrary view, holding that photocopying was a contract of work and labour, not sale. The Supreme Court examined the nature of the transaction under Section 2(n) of the Tamil Nadu General Sales Tax Act, 1959, which defined 'sale' as every transfer of property in goods for consideration. The Court applied the test laid down in Hindustan Aeronautics Ltd. v. State of Karnataka, (1984) 55 STC 314 and Assistant Sales Tax Officer v. B.C. Kame, (1977) 39 STC 237: the primary object of the transaction and the intention of the parties determine whether a contract is for sale of goods or for work and labour. Mere passing of property in an article during performance does not convert a works contract into a sale. In the case of photocopying, the main object of the work undertaken by the operator is not the transfer of paper as a chattel; it is to duplicate the document. The paper is only incidental. The customer pays for duplication, not for the bare paper. The customer has no interest in the paper unless it bears the duplication. Therefore, the contract between the assessee and the customer is a contract of work or service, not a sale, and no sales tax is exigible. The Supreme Court set aside the judgments and orders under appeal and allowed the appeals, with no order as to costs. Connected appeals by South Indian Photographic and Allied Trades Association and others were dismissed as withdrawn.
Headnote
A) Sales Tax - Works Contract vs Sale of Goods - Primary Object Test - Tamil Nadu General Sales Tax Act, 1959, Section 2(n) - The court considered whether making xerox copies and delivering them to customers for payment constituted a sale of goods exigible to sales tax - Held that the main object of the transaction is duplication service, not transfer of paper as chattel; paper is incidental, customer pays for duplicated document, not bare paper - The contract is works contract, not sale, following Hindustan Aeronautics, B.C. Kame, and Karnataka High Court's B. Girija; appeals allowed and assessments set aside (Paras not mentioned).
Issue of Consideration
Whether the making of photostat copies with the use of a xerox or other machine and delivering the copies so taken to the customer on receipt of payment amounts to a sale of goods exigible to tax under the Tamil Nadu General Sales Tax Act, 1959.
Final Decision
Appeals allowed; judgments and orders under appeal set aside; no order as to costs; connected appeals dismissed as withdrawn.
Law Points
- Primary object of transaction determines whether contract is sale or works contract
- Passing of property incidental to service does not convert works contract into sale
- Where main object is not transfer of chattel qua chattel but work and labour
- contract is not sale
- In photocopying
- paper is incidental and customer pays for duplication service
- Sales tax under Tamil Nadu General Sales Tax Act
- 1959 Section 2(n) applies only to sale of goods
- not works contract.
