WA 83/2006 BEFORE HON’BLE THE CHIEF JUSTICE MR MADAN B. LOKUR HON’BLE MR. JUSTICE A.C. UPADHYAY (MADAN B. LOKUR, CJ) These appeals are directed against a common judgment and order dated 1-2 -2006 passed by a learned Single Judge in WP(C) No.7812/2002, WP(C) No.5369/2002 and WP(C) No.7896/2002. 2. The appellants in two of the appeals are a private limited company which was earlier a partnership concern of Sanat Kumar Dey. The appellant in the thir d appeal is Sanat Kumar Dey. All the appellants, therefore, are really one and t he same. 3. The appellants carry on the business of developing exposed photographic film rolls into negatives and then processing the negatives into positive photog raphs. They also process negatives received by them from customers into positive photographs. The developing and processing is done on a job work basis and, acc ording to the appellants, it does not involve any sale of goods or transfer of p roperty in goods. The appellants, it appears, are not in the business of being c ommissioned to take photographs or processing them. 4. According to the respondents, the appellants’ transactions fall within t he category of works contract as defined in Article 366 (29A) of the Constitut ion of India and the Assam General Sales Tax Act, 1993 (hereinafter referred to as the Act). According to the respondents since the various job works involve a sale of goods (the chemicals used in developing exposed photographic film rolls and processing negatives), the appellants are liable to pay sales tax under the Act to that extent. 5. Show cause notices for payment of sales tax were issued to the appellant s and they denied their liability. However, the respondents did not accept the v iews expressed by the appellants and they raised demands for different financial years. The appellants preferred appeals before the Deputy Commissioner of Taxes (Appeals) but the appeals were rejected and the assessments confirmed. Under th ese circumstances the appellants filed writ petitions before this court which ca me to be dismissed by the learned Single Judge by the judgment under appeal. 6. The question that we are required to answer is whether the transactions entered into by the appellants are works contracts (that is composite contracts having both a service element and a sale element) with deemed sales or mutant sa les of goods for the purposes of liability to sales tax. 7. The concept of works contract was introduced in the Constitution through Article 366 (29A) by the Forty-sixth Amendment. In terms of Article 366 (29A), a tax on the sale or purchase of goods includes a tax on the transfer of propert y in goods (whether as goods or in some other form) involved in the execution of a works contract. Article 366 (12) of the Constitution defines goods as inclu ding all materials, commodities and articles. 8. The Assam General Sales Tax Act, 1993 defines a works contract in Sectio n 2(38). We are concerned with Clause (iv) thereof. Section 2(38)(iv) of the Act reads as follows :- 2. In this Act, unless the context otherwise requires,- (38) works contract means and includes any agreement for carrying out - (i) ..... (ii) ....... (iii) ....... (iv) The fitting out or fabrication, assembling, altering, or reassembling, b lending, furnishing, improving, processing or otherwise treating or adapting any goods Goods has been defined in Section 2(15) of the Act as follows: 2. In this Act, unless the context otherwise requires,- (15) goods means all kinds of movable properties other than newspapers, act ionable, stocks, shares or securities; 9. The first question that we are required to answer is whether exposed pho tographic film rolls and negatives are goods within the meaning of Section 2(1 5) of the Act. If they are not goods then they fall outside the purview of a w orks contract which includes any agreement for processing or otherwise treating or adapting any goods. 10. In Rainbow Colour Lab & Anr s. State of M.P. & Ors, (2002) 2 SCC 385 th e Supreme Court accepted the test of marketability of goods for the purposes of deciding whether a contract is a works contract or not as laid down in Bavens v. Union of India [1995] 97 STC 161. Although Rainbow Colour Lab was overruled on another issue, the marketability of goods remained intact as a proposition of la w. 11. That the test of marketability of goods has not been overrules is clear from BSNL v. Union of India, (2006) 3 SCC 1. In that case, the Supreme Court ref erred with approval to Tata Consultancy Services Ltd v. State of A.P, (2005) 1 S CC 308 where it was held that goods may be tangible property or intangible prope rty. Such property would become goods if it has the attributes thereof having re gard to - (a) Its utility, (b) Its capability of being bought and sold and (c) Its capability of being transmitted, transferred, delivered, stored and poss essed. There is, therefore, no doubt that to qualify as goods an item must have some utility and must be marketable. Applying this test, the Supreme Court held that electromagnetic waves are not goods . They cannot be delivered or possessed and they are not marketable. 12. The question that now arises is whether exposed photographic film rolls and negatives are goods? The answer must be a firm No . Exposed photographic fi lm rolls and negatives per se have absolutely no utility for anyone - not even f or the owner. Furthermore, no one goes to the market (or anywhere else for that matter) to buy an exposed photographic film roll or negatives. It is only when t hey are developed or processed, as the case may be, that they have some personal value for the owner of the photographs. Clearly, therefore, if exposed photogra phic film rolls and negatives are not goods they cannot be the subject matter of a works contract which concerns itself with the processing or otherwise treat ing or adapting any goods as defined in Section 2(38)(iv) of the Act. 13. Alternatively, if the transactions entered into between the appellants a nd their customers are not works contracts, would the utilization of chemicals i n developing exposed photographic film rolls into negatives and then processing the negatives into positive photographs be a sale of such chemicals? 14. Sale has been defined in Section 2(33) of the Act as follows:- 2. In this Act, unless the context otherwise requires,- (33) sale with all its grammatical variations and cognate expressions means any transfer of property in goods by any person for cash, deferred payment or o ther valuable consideration, and includes - (i) ........... (ii) any transfer of property in goods (whether as goods or in some other for m) involved in the execution of a works-contract Again, there must be a transfer of property in goods involved in the execution o f a works contract. 15. Assuming that the chemicals used in developing exposed photographic film rolls into negatives and then processing the negatives into positive photograph s are goods , these chemicals are not used in the execution of a works contract . Therefore, the respondents cannot urge that there is a sale of chemicals wit hin the meaning of the Act. 16. Finally, it was sought to be urged on behalf of the respondents that Sec tion 8 of the Act provides that the tax leviable under Section 7 thereof shall b e charged on the taxable turnover during the relevant year on the transfer of pr operty in goods. Our attention was drawn to Clause (e) of Section 8(1) of the Ac t and this reads as follows:- 8. (1) The tax leviable under Section 7 for any year shall be charged on the ta xable turnover during such year- (a) ......... (b) ......... (c) ......... (d) .......... (e) in respect of any transfer of property in goods (whether as goods or an y other form) involved in a works-contract of the nature specified in Schedule V I, at the rate or rates specified in that Schedule Schedule VI to the Act gives the description of the goods and the rate of tax on the taxable turnover. Entry 24 of Schedule VI reads as follows:- 24. Processing and supplying of photograph, photoprints, photonegatives incl uding photographing with camera, X-ray and other scanning machines. 17. It is clear from the above that if there is an agreement both for transf er of property in goods and for processing or otherwise treating or adapting any goods, then the agreement is a works contract involving a sale, otherwise not. Therefore, three ingredients are necessary: (i) The existence of goods, (ii) The transfer of property in those goods, (iii) The processing or treating or adapting of those goods. 18. A combined reading of all the provisions suggests that goods for process ing must be in existence. As we have already held that exposed photographic film rolls and negatives are not goods the provisions of Sections 7, 8 and Schedul e VI of the Act do not come into play at all. When a customer goes to the appell ants to have his exposed photographic film rolls developed or negatives processe d, there may be an agreement for the transfer of property in the chemicals used in the processing or otherwise treating or adapting the exposed photographic fil m rolls and negatives. But since they are not goods within the meaning of the Act, the question of taxing the sale of the chemicals does not at all arise. 19. The above discussion undoubtedly leads to only one conclusion which is t hat the conversion of exposed photographic film rolls into negatives and then in to positive photographs or the conversion of negatives into positive photographs is nothing but a rendering of service specific to a customer and is a matter of skill and expertise of the developer - it is not a works contract. 20. Learned counsel for the appellants sought to further buttress her case b y relying on Studio Sujata v. Commissioner of Sales Tax, MANU/OR/0142/2008. In t his case, the question framed for consideration was whether the Sales Tax Tribun al was right in holding that sales tax is leviable on photographs as execution o f works contract. The learned Judges answered the question in the negative (no p un intended) after referring to The Assistant Sales Tax Officer v. B.C. Kame [19 77] 39 STC 237, Photo Emporium v. Addl. District Magistrate [1990] 77 STC 199, B avens v. Union of India [1995] 97 STC 161, Keshoram Surendranath Photo-mag Pvt L td v. Assistant Commissioner of Commercial Taxes [2001] 121 STC 175, Rainbow Col our Lab & Anr s. State of M.P. & Ors, (2002) 2 SCC 385 and BSNL. Reference was a lso made to Imagic Creative Pvt Ltd v. Commissioner of Commercial Taxes & Ors, ( 2008) 10 SCC 236 and it was concluded that contracts for taking photographs are only service contracts and it is difficult to hold that sales tax would be levia ble on them. There is no dispute about this, but that is not the issue here. 21. The issue in our case is whether the exposed photographic film rolls and negatives are goods or not. We have held that they have no utility and are no t marketable. As such, they are not goods . Consequently, a contract for proces sing exposed photographic film rolls and negatives is not a works contract as de fined in Section 2(38) of the Act. Reference to Studio Sujata is not at all appo site. 22. Learned counsel for the appellants also relied upon Rainbow Colour Lab t o contend that the dominant intention of the contract is required to be consider ed as also the marketability of the goods. The learned Additional Advocate Gener al is partially right in submitting that Rainbow Colour Lab was overruled in BSN L. In paragraph 49 of the Report, the Supreme Court held: After the Forty-sixth Amendment, the sale element of those contracts which are covered by the six sub-clauses of clause (29-A) of Article 366 are separable and may be subjected to sales tax by the States under Entry 54 of List II and there is no question of the dominant nature test applying. Therefore when in 2005 C.K . Jidheesh v. Union of India, (2005) 13 SCC 37 held that the aforesaid observati ons in Associated Cement, (2001) 4 SCC 593 were merely obiter and that Rainbow C olour Lab was still good law, it was not correct. It is necessary to note that A ssociated Cement did not say that in all cases of composite transactions the For ty-sixth Amendment would apply. The Supreme Court made it clear that there are two categories of composite contr acts, one covered by Article 366 (29A) of the Constitution - to which the domina nt nature test did not apply. To this extent Rainbow Colour Lab was overruled. T he other category is those not covered by Article 366 (29A) of the Constitution. The applicability of the dominant nature test to the second category of contrac ts was not decided. The marketability test (which was accepted in Rainbow Colour Lab after referring to Bavens) was approved in BSNL after referring to Tata Con sultancy Services Ltd. Therefore, to contend that Rainbow Colour Lab was complet ely overruled is not correct. We are mentioning this only for the record, althou gh in our opinion this controversy does not arise. 23. The case of the appellants is fully covered in their favour by the law l aid down by the Supreme Court in BSNL. The appeals are allowed and the judgment and order of the learned Single Judge is set aside. 24. There will be no order as to costs.