IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 05.04.2010 CORAM: THE HON'BLE MRS. JUSTICE PRABHA SRIDEVAN AND THE HON'BLE MR.JUSTICE P.P.S. JANARTHANA RAJA W.P. Nos.30036 to 30038 OF 2002, 25391/02 and 9552 of 2005 and WP. MP. Nos.34890 and 34891 of 2002 Tvl.Bharat Offset, rep. By its partner G.K.Rathnavel ...Petitioners in W.P.Nos.30036 and 30037 of 2002 Tvl.Zig Zag Desigers & Printers rep. By its Proprietor T.Rathnavel ...Petitioner in W.P.No.30038 of 2002 Tvl.Auto Print rep. By its Proprietrix Mrs.Rajashree Ashok ...Petitioner in W.P.No.25391 of 2002 The State of Tamil Nadu rep. By The Deputy Commissioner(CT) Chennai East Division Chennai ...Petitioner in W.P.No.9552 of 2005 Vs. 1. The Tamil Nadu Taxation Special Tribunal rep. By its Registrar Singaravelar Maligai Collectorate Compound Chennai 600 001. 2. State of Tamil Nadu rep. By its Secretary to Government, Commercial Taxes & Religious Endowment Department, https://hcservices.ecourts.gov.in/hcservices/ Fort St.George, ...Respondents in all Chennai 600 009. the W.Ps. . . . . . Petitions filed under Article 226 of the Constitution of India praying to issue a writ of Certiorarified mandamus calling for the records on the file of the 1st respondent herein in his order in O.P.NO.831,832,886,709 of 2001 dated 18.3.2002 and quash the same and direct the 2nd respondent herein to declare the G.O.Ms.No.66 Commercial Taxes (B1) dated 16.8.2001 of the 2nd respondent herein subejcting all the printed materials executed on specific orders exigible to Sales Tax under Section 3 of the TNGST Act, 1959 as that of sale, is outside the purview of the powers of the State Legislature and violative of the consistent principles in law laid down by the Hon'ble High Court of Madras reported in AIR 1954 Madras 1130, 39 STC 226, 51 STC 28, 54 STC 382, 97 STC 489 and the Hon'ble Supreme Court of India reported in AIR 1958 SC 560, 16 STC 240, 29 STC 438, AIR 72 SC 1131, STC 1 and 55 STC 314. . . . . . 1.The Central Cooperative Printing Works Limited, 71 and 77 Anna Salai, Chennai 02. 2. The Registrar, Tamil Nadu Taxation Special Tribunal, ...Respondent in Chennai 1. 9552 of 2005 . . . . . Petition filed under Article 226 of the Constitution of India praying to issue a writ of Certiorari calling for the records of the second respondent pertaining to the order dated 4.3.2003 made in T.C.(A).No.125 of 1999 and quash the same as illegal. For petitioners in W.P.NOS.30036 to 30038/02 & 25391 of 2002 : Mrs.R.Hemalatha For petitioner in W.P.No.9552 of 2005: Mr.Haja Nazuruddin Special Government Pleader (T) For Respondents in W.P.NOS.30036 to 30038/02 & 25391 of 2002 :Mr.Haja Nazuruddin Special Government Pleader (T) For Respondent No.1 : Mr.S.Sundareswaran in WP.9552/05 . . . . . https://hcservices.ecourts.gov.in/hcservices/ C O M M ON O R D E R (Order of the Court made by PRABHA SRIDEVAN, J.) These writ petitions have been filed for a declaration that G.O. Ms. No.66, Commercial Taxes (B1) dated 16.8.2001 of the second respondent herein subjecting all the printed materials executed on specific orders exigible to sales Tax under Section 3 of the Tamil Nadu General Sales Tax (TNGST) Act, 1959 as that of sale, is outside the purview of the powers of the State Legislature and violative of the consistent principles of law laid down by the Hon'ble High Court of Madras reported in A.I.R. 1954 Madras 1130 (Gannon Dunkerley & Co. vs. State of Madras); (1977) 39 S.T.C. 226 (State of Tamil Nadu vs. Anandam Viswanathan); (1982) 51 S.T.C. 28 (Deputy Commissioner (CT), Coimbatore Division, Coimbatore vs. Karthikeya Press); (1983) 54 S.T.C. 382 (The Court Press Job Branch, Salem vs. State of Tamil Nadu); (1995) 97 S.T.C. 489 (State of Tamil Nadu vs. Gunasundari Modern Art Printers) and those by the Supreme Court reported in A.I.R. 1958 S.C. 560 (State of Madras vs. Gannon Dunkerley & Co. (Madras) Ltd.; (1965) 16 S.T.C. 240 (Government of Andhra Pradesh vs. Guntur Tobaccos Ltd.); (1972) 29 S.T.C. 438 (The Commissioner of Commercial Taxes, Mysore, Bangalore vs. Hindustan Aeronautics Ltd.); A.I.R. 1972 S.C. 1131 (State of Punjab vs. Associated Hotels of India Ltd.); (1989) 73 S.T.C. 1 (State of Tamil Nadu vs. Anandam Viswanathan) and (1984) 55 S.T.C. 314 (Hindustan Aeronautics Ltd. vs. State of Karnataka). 2. G.O. Ms. No.66, Commercial Taxes (B1) Department, dated 16.2.2001, reads as follows: " TAMIL NADU GENERAL SALES TAX ACT,1959-FIRST SCHEDULE-AMENDMENT Notification G.O.Ms.No.66 CT (B1) dated 16th August, 2001 No.II(1)/CT/45(a)/2001)- In exercise of the powers conferred by sub-section (1) of Section 59 of the Tamil Nadu General Sales Tax Act, 19509(Tamil Nadu Act 1 of 1959) the Governor of Tamil Nadu hereby makes the following amendment to the First Schedule to the said Act. AMENDMENT:- In the First Schedule in Part "C" in item 52, for such items (iv) to (vii) and the entries relating thereto, the following sub-item and entries shall be substituted, namely:- https://hcservices.ecourts.gov.in/hcservices/ "(iv) all printed materials other than those specified in sub-items (i) to (iii) above, whether made of paper, paper board or other materials, like account books, registers, order books, receipt books, memorandum pads, folders, file covers, book covers, greeting cards and invitation cards of all kinds and trade mark labels including those materials manufactured according to specification of customers whether or not with logo or name or matter". 3. Learned counsel for the writ petitioners submitted that the inclusion of the above sub-items in the entry is unconstitutional. Learned counsel submitted that by just amending the entry by an inclusion of a sub-item, the State cannot bring to tax what is otherwise non-taxable. Learned counsel submitted that in a works contract, the transfer of goods is only incidental and, when goods are made to order according to the specifications of the customers and the materials are so printed, there is no transfer of goods. The legislature has attempted to treat as "sale of goods", what is really a transaction in the nature of "a works contract". Learned counsel referred to Article 366(29A) of the Constitution of India and Section 3(B) of the TNGST Act and the definition of "sale" in Section 2 thereof. The learned counsel submitted that the fact that the "works contract" is a 'deemed sale' will not give the State the power to tax it as if it was a contract for sale of goods. The learned counsel submitted that the State cut into the scope of Section 3(B) of the TNGST Act by a mere amendment of the Schedule. The learned counsel submitted that the entries in the Schedule cannot control or prevail over the provisions of the Act. The learned counsel further submitted that the Supreme Court had repeatedly held that it is not open to the State to define a sale in a manner as to make a sale outside its territory into a sale within its territory, similarly, the State cannot by this G.O. enlarge its power to tax what is really a works contract as though it is sale of goods. 4. Learned Government Pleader submitted that the Legislature or Parliament has the power to classify 'goods', so that they fall in a particular entry. They have the power to amend the entry as well. The real question is, whether the items mentioned in the entry did not involve a simple sale of goods. According to the learned Special Government Pleader, if it was a transfer of chattel as chattel with an incidental works component, then the Government Order is perfectly valid. 5. We extract the changes that Entry 52 undergone in this regard, to bring home the points urged by the petitioners : "TNGST ACT 1959 – FIRST SCHEDULE-ENTRY 52 OF PART -C-8% Entry No.52:- FROM 17-07-1996 to 31-03-1999 https://hcservices.ecourts.gov.in/hcservices/ (i) Xerox copies (ii) Laser Copies/Printouts (iii) Computer printouts Provided that if the paper used for taking such copies or printouts has suffered tax under Item 53 in part-B, the copies or printouts shall not again be subjected to tax under any of the sub-items mentioned above. (iv) All printed materials other than those specified in sub-items (i) to (iii) above. ENTRY No.52:- FROM 01-04-1999 to 17-08-2001 (i) Xerox copies (ii) Laser copies/printouts (iii) Computer printouts Provided that if the paper used for taking such copies or printouts has suffered tax under Item 53 in Part-5, the copies or printouts shall not again be subjected to tax under any of the sub-items mentioned above. (iv) All printed materials other than those specified in sub-items (i) to (iii) above. (v) Account books, registers, order-books, receipt books, memorandum pads, folders, file covers and book covers made of paper or paper board (vi) Greeting cards and invitation cards of all kinds (vii) Trade mark labels (added vide G.O.Ms.90 dt.30/5/2000 effective from 1/6/2000) ENTRY NO.52 FROM 18-08-2001 (i) Xerox copies (ii) Laser copies/Printouts (iii) Computer printouts Provided that if the paper used for taking such copies or printouts has suffered tax under (Item 30 in part-C), the copies or printouts shall not again be subjected to tax under any of the sub-items mentioned above. (iv) All printed materials other than those specified in sub-items (i) to (iii) above, whether made of paper, paper board or other materials, like account books, registers, order books, receipt books, memorandum pads, folders, file covers and book covers, greeting cards and invitation cards of all kinds and trade mark labels including those materials manufactured according to specification of customers whether or not with logo or name or matter. ENTRY NO.40 :- FROM 27-03-2002 (i) Xerox copies (ii) Laser copies/Printouts (iii) Computer printouts Provided that if the paper used for taking such copies or printouts has suffered tax under Item 22 of this part, the copies or printouts shall not again be subjected to tax under any of the sub-items mentioned above. (iv) All printed materials other than those specified in https://hcservices.ecourts.gov.in/hcservices/ sub-items (i) to (iii) above, whether made of paper, paper board or other materials, like account books, registers, order books, receipt books, memorandum pads, folders, file covers and book covers, greeting cards and invitation cards of all kinds and trade mark labels including those materials manufactured according to specification of customers whether or not with logo or name or matter." 6. Section 2(n) and Section 3(B) of the TNGST Act are extracted hereunder :- "2. Definitions.– In this Act, unless the context otherwise requires, -- ... (n) "sale" with all its grammatical variations and cognate expressions means every transfer of the property in goods (other than by way of a mortgage, hypothecation, charge or pledge) by one person to another in the course of business for cash, deferred payment or other valuable consideration and includes-- (i) a transfer, otherwise than in pursuance of a contract, of property in any goods for cash, deferred payment or other valuable consideration ; (ii) a transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract ; (iii) a delivery of goods on hire-purchase or any system of payment by instalments ; (iv) a transfer of the right to use any goods for any purpose (whether or not for a specified period) for cash, deferred payment or other valuable consideration ; (v) a supply of goods by any unincorporated association or body of persons to a member thereof for cash, deferred payment or other valuable consideration ; (vi) a supply, by way of or as part of any service or in any other manner whatsoever, of goods, being food or any other article for human consumption or any drink (whether or not intoxicating) where such supply or service is for cash, deferred payment or other valuable consideration, and such transfer, delivery or supply of any goods shall be deemed to be a sale of those goods by the person making https://hcservices.ecourts.gov.in/hcservices/ the transfer, delivery or supply and a purchase of those goods by the person to whom such transfer, delivery or supply is made. Explanation (1)-- The transfer of property involved in the supply or distribution of goods by a society (including a co-operative society), club, firm or any association to its members, for cash, or for deferred payment or other valuable consideration, whether or not in the course of business, shall be deemed to be a sale for the purposes of this Act. Explanation (1-A)--Every transfer of property in goods by the Central Government or any State Government for cash or for deferred payment or other valuable consideration, whether or not in the course of business, shall be deemed to be a sale for the purposes of this Act. Explanation (1-B)-- The transfer of property involved in the purchase, sale, supply or distribution of goods through a factor, broker, commission agent or arhatia, del credere agent or an auctioneer or any other mercantile agent, by whatever name called, whether for cash or for deferred payment or other valuable consideration, shall be deemed to be a purchase or sale, as the case may be, by such factor, broker, commission agent, arhatia, del credere agent, auctioneer or any other mercantile agent, by whatever name called, for the purposes of this Act. Explanation (1-C)-- Every transfer of property in goods including goods as unclaimed or confiscated or as unservicable or as scrap surplus, old, obsolete or discarded materials or as waste products, by the persons or bodies referred to in Explanation (3) in clause (g) of Section 2 of this Act, for cash or for deferred payment or for any other valuable consideration whether or not in the course of business shall be deemed to be a sale for the purposes of this Act. Explanation (2)--[Omitted by Act 28/84 w.e.f. 29th May 1984]. Explanation (3)-- (a) The sale or purchase of goods shall be deemed, for the purposes of this Act, to have taken place in the State, wherever the contract of sale or purchase might have been made, if the goods are within the State -- (i) in the case of specific or ascertained goods, at the time the contract of sale or purchase is made ; and https://hcservices.ecourts.gov.in/hcservices/ (ii) in the case of unascertained or future goods, at the time of their appropriation to the contract of sale or purchase by the seller or by the purchaser, whether the assent of the other party is prior or subsequent to such appropriation. (b) Where there is a single contract of sale or purchase of goods situated at more places than one, the provisions of clause (a) shall apply as if there were separate contracts in respect of the goods at each of such places. Explanation (4)-- Notwithstanding anything to the contrary contained in this Act, two independent sales or purchases shall, for the purposes of this Act, be deemed to have taken place -- (a) when the goods are transferred from a principal to his selling agent and from the selling agent to the purchaser, or (b) when the goods are transferred from the seller to a buying agent and from the buying agent to his principal, if the agent is found in either of the cases aforesaid -- (i) to have sold the goods at one rate and to have passed on the sale proceeds to his principal at another rate, or (ii) to have purchased the goods at one rate and to have passed them on to his principal at another rate, or (iii) not to have accounted to his principal for the entire collections or deductions made by him in the sales or purchases effected by him on behalf of his principal." "Section 3B - Levy of tax on the transfer of goods involved in works contract.–(1) Notwithstanding anything contained in sub-sections1[x x x], (2-B), (3), (4), (7) and (8) of Section 3, or Section 7-A, but subject to the other provisions of this Act including the provisions of sub-section (1) of Section 3, every dealer referred to in item (vi) of clause (g) of Section 2 snail pay, for each year, a tax on his taxable turnover of transfer of property in goods involved in the execution of works contract at the rates mentioned in sub-section (2),2[2-A or 2-C]of Section 3 or, as the case may be, in Section 4. Explanation-- Where any works contract involves more than one item of work, the rate of tax shall be determined https://hcservices.ecourts.gov.in/hcservices/ separately for each such item of work. (2) The taxable turnover of the dealer of transfer of property involved in the execution of works contract shall, on and from the 26th day of June1986, be arrived at after deducting the following amounts from the total turnover of that dealer:-- (a) all amounts involved in respect of goods involved in the execution of works contract in the course of export of the goods out of the territory of India, or in the course of import of the goods into the territory of India or in the course of inter-State trade or commerce ; (b) all amounts for which any goods specified in the First Schedule or Second Schedule, are purchased from registered dealers liable to pay tax under this Act and used in the execution of works contract in the same form in which such goods were purchased ; (c) all amounts relating to the sale of any goods involved in the execution of works contract which are specifically exempted from tax under any of the provisions of this Act ; (d) all amounts paid to the sub-contractors as consideration for execution of works contract whether wholly or partly : Provided that no such deduction shall be allowed unless the dealer claiming deduction, produces proof that the sub-contractor is a registered dealer liable to pay tax under this Act and that the turnover of such amounts is included in the return filed by such sub-contractor ; and (e) all amounts towards 'labour charges and other like charges' not involving any transfer of property in goods, actually incurred in connection with the execution of works contract, or such amounts calculated at the rate specified in column (3) of the Table below, if they are not ascertainable from the books of accounts maintained and produced by a dealer before the assessing authority. https://hcservices.ecourts.gov.in/hcservices/ THE TABLE Serial number (1) Type of works contract (2) Labour or other charges as a percentage value of the works contract (3) 1. Electrical contracts 15 2. All structural contracts 15 3. Sanitary contracts 25 4. Watch and / or clock repair contracts 50 5. Dyeing contracts 50 6. All other contracts 30 (f) all amounts (including the tax collected from the customer) refunded to the customer or adjusted towards any amount payable by the customer, in respect of unexecuted portion of works contract based on the corrections on account of measurements or check measurements, subject to the conditions that-- (i) the turnover was included in the return and tax paid ; and (ii) the amount (including the tax collected from the customer) is so refunded or adjusted, within a period of six months from the due date for filing of the return in which the said amount was included and tax paid." 7. Article 366 (29A) of the Constitution of India reads thus :- "366. Definitions.– In this Constitution, unless the context otherwise requires, the following expressions have the meanings hereby respectively assigned to them, that is to say- ... [(29A) “Tax on the sale or purchase of goods” includes – (a) A tax on the transfer, otherwise than in pursuance of a contract, of property in any goods for cash, deferred payment or other valuable consideration; https://hcservices.ecourts.gov.in/hcservices/ (b) A tax on the transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract; (c) A tax on the delivery of goods on hire- purchase or any system of payment by instalments; (d) A tax on the transfer of the right to use any goods for any purpose (whether or not for a specified period) for cash, deferred payment or other valuable consideration; (e) A tax on the supply of goods by any unincorporated association or body of persons to a member thereof for cash, deferred payment or other valuable consideration; (f) A tax on the supply, by way of or as part of any service or in any other manner whatsoever, of goods, being food or any other article for human consumption or any drink (whether or not intoxicating), where such supply or service, is for cash, deferred payment or other valuable consideration, And such transfer, delivery or supply of any goods shall be deemed to be a sale of those goods by the person making the transfer, delivery or supply and a purchase of those goods by the person to whom such transfer, delivery or supply is made;]". 8. Now let us refer to the aforesaid decisions mentioned in the writ prayer, both of the Supreme Court as well as those of this Court, since the impugned Government Order is being attacked as being unconstitutional :- I. Decisions of the Madras High Court : (a) In A.I.R. 1954 Madras 1130 (supra), this Court held that the expression 'sale' or 'purchase of goods' in Entry 54 of List II of the Constitution had the same meaning as the words 'sale' had in the Sale of Goods Act. It was held that a construction works contract could not be broken into a contract for sale of materials and a contract for payment of works done. (b) In (1977) 39 S.T.C. 226 (supra), this Court held that the contracts entered into by the Universities and other educational institutions with the printer for printing question papers are not contracts whose main object is transfer of property in the question papers and dismissed the tax revision filed by the State. (c) In (1982) 51 S.T.C. 28 (supra), this Court held that the orders for printing of ledgers and account books were works contract and the order forms provided separately for the execution of work https://hcservices.ecourts.gov.in/hcservices/ and held in favour of the assessee. (d) In (1983) 54 S.T.C. 382 (supra), this Court held that the work of printing done by the assessee in that case was in pursuance of a works contract. (e) In (1995) 97 S.T.C. 489 (supra), this Court held that the printing of account books for Indian Bank, the assessee in that case, was a works contract. II. Decisions of the Supreme Court : (a) In A.I.R. 1958 S.C. 560 (supra), the Supreme Court affirmed the decision of the Madras High Court in A.I.R. 1954 S.C. 1130 (supra) and held that in a sale of goods, the essential ingredients was an agreement to sell movables for a price and the property passed pursuant to that agreement and in a building contract, which is entire and indivisible, there is no sale of goods because in any such contract, the agreement between the parties is that the contractor should put up the construction according to the specifications contained in the agreement and therefore in such an agreement, there was neither a contract to sell the materials used in the construction nor does the property pass therein as movables. (b) In (1965) 16 S.T.C. 240 (supra), the Supreme Court held that the packing of tobacco in waterproof material must be regarded as an integral part of the process of re-drying and not independent of that process. It was held that in a contract for re-dyeing raw tobacco and supplying it in a packed condition, the packing materials formed an integral part of the process of re-dyeing and there was no independent contract for sale of packing material and it was only an incident of the dyeing process. (c) In (1972) 29 S.T.C. 438 (supra), where the question was whether the delivery of railway coaches by the assessee to the Railway Board is liable to sales tax, the Supreme Court held that the contract in question is a pure works contract and not subject to sales tax. The Court did not agree with the contention that when all the materials used in the construction