Madras High Court
M/S.Star Audio vs Commercial Tax Officer on 6 September, 2021
Author: S.M.Subramaniam
Bench: S.M.Subramaniam
W.P.Nos.33462 of 2005,
13514 & 13515 of 2006
IN THE HIGH COURT OF JUDICATURE AT MADRAS
DATED : 06.09.2021
CORAM
THE HON'BLE MR.JUSTICE S.M.SUBRAMANIAM
W.P.Nos.33462 of 2005, 13514 & 13515 of 2006
and
W.P.M.P.Nos.15101 & 15102 of 2006
and
W.P.M.P.No.36378 of 2005
and
W.V.M.P.No.59 of 2010
W.P.No.33462 of 2005
M/s.Star Audio
Represented by Mr.B.Poonam Chand, Partner,
23A, North Boag Road,
T.Nagar, Chennai – 600 017. ..Petitioner
vs
1.Commercial Tax Officer, T.Nagar (East)
Assessment Circle,
46, Greenways Road, III Floor,
Chennai – 600 028.
2.The Special Commissioner and
Commissioner of Commercial Taxes,
Ezhilagam, Chepauk,
Chennai – 600 005.
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W.P.Nos.33462 of 2005,
13514 & 13515 of 2006
3.The State of Tamil Nadu,
Represented by the Secretary to the Government,
Commercial Taxes & Hindu Religious
Endowment, Government of Tamil Nadu,
Fort St.George, Chennai – 600 009. ..Respondents
Prayer: Writ Petition filed under Article 226 of the Constitution of India
praying to issue a Writ of Declaration, to declare the impugned Circular
No.Acts Cell-I/76234/2002 dated 16.05.2003 as ultravires the provisions of
Section 3(1) and other relevant sections of the Tamil Nadu General Sales
Tax Act, 1959 and as being ultravires Articles 14, 19(1)(g) and 265 of the
Constitution of India in so far as the petitioner is concerned.
W.P.No.13514 of 2006
M/s.HIT Music
Represented by Mr.K.P.M.M.Meeran
Mohideen, Partner,
No.16, Pandaram Street,
Purasalvakkam, Chennai – 600 007. ..Petitioner
vs
1.Commercial Tax Officer,
Purasalvakkam Assessment Circle,
Chennai.
2.The Special Commissioner and
Commissioner of Commercial Taxes,
Ezhilagam, Chepauk,
Chennai – 600 005.
3.The State of Tamil Nadu,
Represented by the Secretary to the Government,
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W.P.Nos.33462 of 2005,
13514 & 13515 of 2006
Commercial Taxes & Hindu Religious
Endowment, Government of Tamil Nadu,
Fort St.George, Chennai – 600 009. ..Respondents
Prayer: Writ Petition filed under Article 226 of the Constitution of India
praying to issue a Writ of Certiorari, to call for the records of the First
Respondent in pursuant to the revised assessment order
TNGST/0482113/2002-2003 dated 28.02.2006 and quash the same.
W.P.No.13515 of 2006
M/s.HIT Music
Represented by Mr.K.P.M.M.Meeran
Mohideen, Partner,
No.16, Pandaram Street,
Purasalvakkam, Chennai – 600 007. ..Petitioner
vs
1.Deputy Commercial Tax Officer,
Purasalvakkam Assessment Circle,
Chennai.
2.The Special Commissioner and
Commissioner of Commercial Taxes,
Ezhilagam, Chepauk,
Chennai – 600 005.
3.The State of Tamil Nadu,
Represented by the Secretary to the Government,
Commercial Taxes & Hindu Religious
Endowment, Government of Tamil Nadu,
Fort St.George, Chennai – 600 009. ..Respondents
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W.P.Nos.33462 of 2005,
13514 & 13515 of 2006
Prayer: Writ Petition filed under Article 226 of the Constitution of India
praying to issue a Writ of Certiorari, to call for the records of the First
Respondent in pursuant to the revised assessment order
TNGST/0482113/2003-2004 dated 28.02.2006 and quash the same.
For Petitioners : Mr.V.S.Manoj
For Mr.K.Vaitheeswaran
[in all W.Ps]
For Respondents : Mr.V.Veluchamy
Government Advocate
[in all W.Ps]
COMMON ORDER
W.P.No.33462 of 2005 The writ on hand is filed, to quash the Circular dated 16.05.2003 as ultravires to the provisions of Section 3(1) and other relevant Sections of the Tamil Nadu General Sales Tax Act, 1959 [hereinafter referred to as 'TNGST Act'] and as being ultravires to Articles 14, 19 (1) (g) and 265 of the Constitution of India.
2. The petitioner is engaged in the business of selling/marketing of pre-recorded audio cassettes and is registered under the provisions of the 4/29 https://www.mhc.tn.gov.in/judis/ W.P.Nos.33462 of 2005, 13514 & 13515 of 2006 TNGST Act, 1959 and Central Sales Act, 1956.
3. The petitioner purchases pre-recorded audio cassettes from suppliers in Tamil Nadu, who are also duly registered under the TNGST Act and the said suppliers charge Sales Tax under TNGST Act in respect of the sales of pre-recorded audio cassettes.
4. The petitioner acquires audio rights from the artists themselves or from the film producers in Tamil Nadu to publish, manufacture, sell, distribute and broadcast the devotional songs and songs of cine films. The petitioner entrusts the master copy received from the producers to the cassette manufactures and supply pre-recorded cassettes. The cassette manufactures purchase blank cassettes from registered dealers within the State after payment of Sale tax and record the devotional songs / film songs etc., on the blank cassettes and sell the pre-recorded cassettes to the petitioner, charging the total value of the pre-recorded cassettes and the Sales tax.
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5. The petitioner states that the sales, which are made by the petitioner, are therefore second sales of pre-recorded audio cassettes, which are exempt from payment of tax as pre-recorded audio cassettes are only subject to tax at the point of first sale.
6. The first respondent after duly verifying first sale invoices in respect of pre-recorded audio cassettes, has allowed the second sale exemption in respect of earlier assessment years.
7. Under these circumstances, the exemption granted in respect of the earlier assessment years under Section 16 of the TNGST Act has been withdrawn.
8. The contention of the respondents are that the transaction between the petitioner company and the cassette manufacturers are “works contract” and cannot be construed as first sale. In the regard, the impugned Circular has been issued. Thus, the petitioner is constrained to move the present writ petition.
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9. The learned counsel for the petitioner mainly contended that the nature of manufacturing and selling the recorded cassettes to the petitioner would reveal that the same amounts to first sale and not “works contract”. Admittedly, the petitioner purchased the copyright from the Film Producers, Music Directors etc., and allowing the cassette manufactures to purchase the blank cassettes and record the songs and thereafter, sell the same to the petitioner and such sale would become a first sale, wherein tax has been paid. Therefore, the selling of the recorded cassettes by the petitioner to the end users cannot be construed as a first sale and it must be treated as second sale for all purposes, which is exempted under the provisions of the TNGST Act.
10. The learned counsel for the petitioner relied on the judgment of the Hon'ble Supreme Court of India in the case of Gramophone Co., of India Ltd. Vs. Collector of Customs, Calcutta, reported in 1999 (114) E.L.T. 770 (SC), wherein the Hon'ble Apex Court considered the activities involved in the manufacture of pre-recorded audio cassettes with reference 7/29 https://www.mhc.tn.gov.in/judis/ W.P.Nos.33462 of 2005, 13514 & 13515 of 2006 to the provisions of the Central Excise Act. Paragraphs 10, 11, 12 and 13 of the said judgment are extracted hereunder:
“10. According to the appellant the various activities involved in the manufacture of a pre-recorded audio cassette are as under:
(i) preparation of a master tape in the studio;
(ii) manufacture of plastic cassette parts, like cassette body, leather case, etc. from plastic raw material with the help of injection-moulding facility;
(iii) assembling of cassette parts to make a C-O tape;
(iv) high-speed transfer of music signals from 1/2" master tape to 1/8" pancakes;
(v) assembling of recorded pancakes into cassettes;
(vi) polymeric plate-making for printing machines;
(vii) printing of information on cassette body;
(viii) printing of inlay cards;
(ix) testing and cellowrapping of the finished cassettes.
The machines which were the subject of the contract dated 6- 11-1989 were required for the fourth-mentioned item, namely, high-speed transfer, of music signals from 1/2" master tape to 1/8" pancakes.
11. The term “manufacture” is not defined in the Customs Act. In the allied Actnamely the Central Excise Act, 8/29 https://www.mhc.tn.gov.in/judis/ W.P.Nos.33462 of 2005, 13514 & 13515 of 2006 1944 also, the term “manufacture” is not to be found defined though vide clause (f) of Section 2 an inclusive definition is given of the term “manufacture” so as to include certain processes also therein.
12. “Manufacture” came up for the consideration of the Constitution Bench in Ujagar Prints v. Union of India [(1989) 3 SCC 488 : 1989 SCC (Tax) 469 : (1988) 38 ELT 535] . It was held that if there should come into existence a new article with a distinctive character and use, as a result of the processing, the essential condition justifying manufacture of goods is satisfied. The following passage in the Permanent Edition of Words and Phrases was referred to with approval in Delhi Cloth and General Mills [Union of India v. Delhi Cloth and General Mills Co. Ltd., AIR 1963 SC 791, 795] AIR at p. 795:
“‘Manufacture’ implies a change, but every change is not manufac-ture and yet every change of an article is the result of treatment, labour and manipulation. But something more is necessary and there must be transformation; a new and different article must emerge having a distinctive name, character or use.”
13. In a series of decisions [to wit, Decorative Laminates (India) (P) Ltd. [Decorative Laminates (India) (P) Ltd. v. CCE, (1996) 10 SCC 46 : (1996) 86 ELT 186] , Union 9/29 https://www.mhc.tn.gov.in/judis/ W.P.Nos.33462 of 2005, 13514 & 13515 of 2006 of India v. Parle Products (P) Ltd. [1994 Supp (3) SCC 662 :
(1994) 74 ELT 492] Laminated Packings (P) Ltd. [Laminated Packings (P) Ltd. v. CCE, (1990) 4 SCC 51 : (1990) 49 ELT 326] and Empire Industries Ltd. [Empire Industries Ltd. v. CCE, (1985) 3 SCC 314 : 1985 SCC (Tax) 416 : (1985) 20 ELT 179] ] the view taken consistently by this Court is that the moment there is transformation into a new commodity commercially known as a distinct and separate commodity having its own character, use and name whether it be the result of one process or several processes, manufacture takes place; the transformation of the goods into a new and different article should be such that in the commercial world it is known as another and different article. Pre-recorded audio cassettes are certainly goods known in the market as distinct and different from blank audio cassettes. The two have different uses. A pre-recorded audio cassette is generally sold by reference to its name or title which is suggestive of the contents of the audio recording on the cassette. The appellant is indulging in a mass production of such pre-recorded audio cassettes. It is a manufacturing activity. The appellant's activity cannot be compared with a person sitting in the market extending the facility of recording any demanded music or sounds on a blank audio cassette brought by or made available to the customer, which activity may be called a service. The 10/29 https://www.mhc.tn.gov.in/judis/ W.P.Nos.33462 of 2005, 13514 & 13515 of 2006 Tribunal was not right in equating the appellant's activity with photoprocessing and holding the appellant a service industry.”
11. The issue considered by the Hon'ble Supreme Court in the above cited Gramophone Company case is that “Recording of blank audio cassettes of duplicating is a manufacturing activity and not an activity of service industry”. It is held that the pre-recorded audio cassettes is generally sold by reference to its name or title which is suggestive of the contents of the audio recording on the cassettes. The activity of recording the audio cassettes is a manufacturing activity and cannot be termed as a activity of service industry, because pre-recorded audio cassettes are certainly distinct and different routes from blank audio cassettes. Accordingly, the Hon'ble Supreme Court of India set aside the order passed by the CEGAT and the case was remanded back to the Assistant Commissioner for denovo consideration, treating the appellants as a manufacturing activity. Thus, the issue involved is not relatable to sell or “works contract”, which is to be considered in the present case with reference to the provisions of the TNGST Act.11/29
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12. The learned Counsel for the petitioner reiterated that the processing procedures involved in the manufacture of pre-recorded audio cassettes was considered by the Hon'ble Supreme Court and in the present case, admittedly, the petitioner is a copyright holder as far as the master recording is concerned, who in turn, allows a third person to purchase blank cassettes and record the songs etc., in a large scale manner and sell those recorded cassettes again to the petitioner alone and the petitioner is selling those recorded cassettes to the end users and therefore, selling of the recorded cassettes by the petitioner is a second sale.
13. The learned Government Advocate appearing on behalf of the respondents assisted by Mr.V.S.Velavan, State Tax Officer, Investigation-II, Chennai, disputed the said contentions by stating that the first transaction between the petitioner and the cassette recording company/person is a “works contract” and it involves a processing and does not amounts to sale. Admittedly, the petitioner is the copyright holder of the master recording and who in turn, entrusts the large scale recording to be processed to another person and such a person after recording the songs etc., in the blank 12/29 https://www.mhc.tn.gov.in/judis/ W.P.Nos.33462 of 2005, 13514 & 13515 of 2006 cassettes in a large scale manner and returning all the cassettes to the petitioner. Though they raise invoices, such invoices are relatable to purchase of certain materials for the execution of “works contract” and therefore, the process involved and the return of the goods after completion of process of recording the songs would not amount to a sale within the provisions of the TNGST Act and thus, the sale by the petitioner to the end users will become a first sale, wherein the Department is entitled to levy tax as per the provisions of the TNGST Act.
14. Even in the counter affidavit filed by the respondents, they have referred the judgment of the Hon'ble Supreme Court of India in the case of Tvl. Gramaphone Co., of India Vs. Collector of Customs (cited supra), wherein the respondents have stated as follows:
“5........It was held that the moment there is transformation into a new commodity commercially known and recognized as a distinct and separate commodity, it should be considered that manufacture has taken place and thereby recording of a blank cassette gives rise to a new product. In other words, the Apex Court has held that blank cassettes / CDs become commercially new products when they are recorded 13/29 https://www.mhc.tn.gov.in/judis/ W.P.Nos.33462 of 2005, 13514 & 13515 of 2006 and known as pre recorded cassettes / CDs. The members of the petitioners' Association are all engaged in similar type of sales of pre recorded cassettes / CDs. On scrutiny of their transactions, it was found out that they were owners of master copy having the audio right for taking copies from the master copy. As blank cassettes / CDs and pre recorded cassettes / CDs are commercially different goods, sale on blank cassettes / CDs are liable to tax and when they are recorded and sold as pre recorded cassettes / CDs, then such sale also will be liable to tax as different goods. Originally, these dealers were allowed exemption from tax as second sales on the ground that such cassettes / CDs were purchased from local registered dealers. But later on, it was found out that these dealers being copy right owners sent master copy to certain parties who after recording them made sale of pre recorded cassettes / CDs and charged tax as pre recorded cassettes / CDs. The dealers in their turn on having made such taxable purchases, claimed exemption from tax as second sale of pre recorded cassettes / CDs.
6....Such dealer who undertake this work of recording did not have the right to sell recorded cassettes / CDs to persons other than audio right holder. Thus, this transaction of recording audio and supply of such recorded cassettes would only be works contract in nature but the contractors treated the 14/29 https://www.mhc.tn.gov.in/judis/ W.P.Nos.33462 of 2005, 13514 & 13515 of 2006 transactions as first sale of pre recorded cassettes / CDs at a lower price. But the assessee who is audio right owners sell pre recorded cassettes / CDs at a much higher price and claimed exemption as second sales. Thus, it was considered that the sale at the hands of the audio right owners is to be first sellers of pre recorded cassettes / CDs since earlier transaction is works contract only liable to tax under Section 3B of the Tamil Nadu General Sales Tax Act, 1959. In the above circumstances, the second respondent issued a circular dated 16.05.2003 against which the present writ petition has been filed.
7.....The petitioners alone have the copy right which cannot be sold by the persons who supply pre recorded cassettes since the master copy belonged only to the petitioners.
Using the master copy, the petitioners get the pre recorded cassettes manufactured by others. The petitioners become the first sellers liable to tax as first sellers.
8.......Challenging the revision of assessment made under Section 16 of the Tamil Nadu General Sales Tax Act, 1959, it is submitted that in the instant case, the State would derive tax, once when sale of blank cassettes / CDs are sold and, again, when pre recorded cassettes / CDs are sold. The petitioners by adopting the ingenuous method of avoiding payment of tax twice i.e., at the stage of blank cassettes / CDs and again, at the stage of pre recorded cassettes / CDs made supply of blank 15/29 https://www.mhc.tn.gov.in/judis/ W.P.Nos.33462 of 2005, 13514 & 13515 of 2006 cassettes to convert as pre recorded with the aid of the master copy and then making them sale of pre recorded cassettes / CDs so that they could claim exemption at their hands as second sales on those purchases. This is clear evasion of tax and therefore, Section 16 of the Act has correctly invoked in this case.
9.......Provisions relating to levy Excise duty are different from that of the levy of sales tax. Even persons who are doing job work have to pay excise duty. In the instant case, it was proposed to bring to the tax net, the turnover relating to sale of cassettes and CDs by the petitioner for the reason that the petitioners are copy right owners and hence, others who bring out pre cassettes using the master copy cannot sell them as first sellers, as they have no right to sell the copy right. Only the petitioners have such right. Hence, the contention of the petitioners is not acceptable.
10.......The petitioners being the copy right owner of pre recorded cassettes cannot claim exemption as second sales and they will be liable to pay tax as first sellers of pre recorded cassettes. In respect of the cassettes manufactured using the master copy of the petitioners, the supplier cannot be treated as first sellers because the copy right cannot be sold by the manufactures, but could be done only by the petitioners.” 16/29 https://www.mhc.tn.gov.in/judis/ W.P.Nos.33462 of 2005, 13514 & 13515 of 2006
15. The respondents have contended that the provisions under the Central Excise Act are different and the application of TNGST Act for levying of Tax for sale cannot be compared with the provisions of the Central Excise Act and therefore, the analogy adopted by the petitioner in this regard is not in consonance with the provisions of the Statute.
16. Considering the arguments as advanced by the respective learned counsels appearing on behalf of the parties to the lis, let us look into the definition for “works contract” under Section 2 (u) of the Tamil Nadu General Sales Tax Act, 1959. “works contract” includes any agreement for carrying out for cash, deferred payment or other valuable consideration, the building, construction, manufacture, processing, fabrication, erection, installation, fitting out, improvement, modification, repair or commissioning, of any movable or immovable property.”
17. Thus, any agreement for manufacturing or processing also to be construed as “works contract” within the meaning of Section 2(u) of the TNGST Act. Section 3 (B) enumerates Levy of tax on the transfer of goods 17/29 https://www.mhc.tn.gov.in/judis/ W.P.Nos.33462 of 2005, 13514 & 13515 of 2006 involved in works contract. Thus, it speaks about levy of tax in respect of the transfer of goods involved in works contract. As far as the case on hand is concerned, whether the transaction between the petitioner and the cassette recorder in the present case is a first sale or a works contract.
18. The processing and the transactions are not in dispute between the parties. To make it more clear, the petitioner is the copyright holder of master copy of songs etc., purchased from the Artisan / Music Director etc., Such master recording was handed over to cassette manufacturers based on agreement/contract on certain terms and conditions for the purpose of recording such songs etc., by purchasing the blank cassettes and supply the recorded cassettes to the petitioner for the purpose of sale in the open market.
19. In this backdrop, the purchase of copyright of master copy from the creator may not have any implications in this case. The handing over of the master copy to another third party for the purpose of multiplying the 18/29 https://www.mhc.tn.gov.in/judis/ W.P.Nos.33462 of 2005, 13514 & 13515 of 2006 recording in order to sell the product in the open market, is the subject matter to be considered.
20. It is not in dispute that the petitioner has allowed the cassette manufacturers to use the master copy for the purpose of large scale recording by purchasing blank cassettes from open market. Thus, the other person is purchasing or manufacturing blank cassettes in large scale and by using the master copy, recording the songs etc., and again selling the recorded cassettes only to the petitioner and admittedly, he is not permitted to sell the recorded cassettes in the open market. Therefore, the other person is purchasing the master copy for the purpose of execution of the recording of cassettes by purchasing / manufacturing blank cassettes and handing over or selling the recorded cassettes to the petitioner. Therefore, the nature of contract is “works contract” as the definition of “works contract” under Section 2(u) categorically enumerates that manufacture, processing through an agreement is a “works contract”.
21. The definition of sale under Section 2(n)(iv) stipulates that “a 19/29 https://www.mhc.tn.gov.in/judis/ W.P.Nos.33462 of 2005, 13514 & 13515 of 2006 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.”
22. Here, in the present case, the right was not given to use goods for any purpose and it is given for a particular purpose that recording the songs in blank cassettes and after recording, such recorded cassettes are to be supplied only to the petitioner. Therefore, the cassette manufacturer's services are utilized to process the recording system and after processing the recording system, the recorded cassettes are handed over or sold to the petitioner and the materials utilized for such recording of cassettes cannot be construed as a sale and even in case, an invoice is raised in this regard i.e., part and parcel of the “works contract” and cannot be construed as a sale. The invoice, if at all raised by the cassette manufacturers, that is relatable to the purchase of blank cassettes from open market or manufacturing of cassettes, which cannot be a sale within the meaning of the provisions of the TNGST Act.
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23. In the present case, except the petitioner, no other person is allowed to sell the product in the open market. After any sale, the purchaser must be allowed to use it in the manner he likes and such usage of recorded cassettes cannot be controlled by the seller unless there is any specific violation of copyright, patent rights etc., However, in the present case, the master copy was allowed to be utilized only for the purpose of recording of blank cassettes by the cassette manufacturers and after recording, he is not permitted to sell the product in the open market, but to handover the recorded cassettes only to the petitioner company, who in turn, reserve their rights to sell the product in the open market. Thus, such sale by the petitioner in the open market cannot be construed as a second sale, but to be taken as the first sale for the purpose of levying tax under the provisions of the TNGST Act.
24. As far as the Gramaphone Company case (cited supra) is concerned, the said case was decided with reference to the provisions of the Central Excise Act and as considered earlier, the issue involved was also not 21/29 https://www.mhc.tn.gov.in/judis/ W.P.Nos.33462 of 2005, 13514 & 13515 of 2006 connected with the “works contract” or sale, and not relatable to the provisions of the TNGST Act.
25. Under these circumstances, this Court would like to rely on the Three Judges Bench judgment of the Hon'ble Supreme Court of India in the case of M/s.Larsen & Toubro Limited & Another Vs. State of Karnataka & another, in Civil Appeal No.8672 of 2013, decided on 26th September 2013 and His Lordship R.M.Lodha, J, while speaking for the Bench, made the following observations:
“57. Following the above amendment in the Constitution, the sales tax legislations in various States were amended and provisions were made for imposition of sales tax in relation to works contract. The constitutional validity of the Forty-sixth Amendment by which the legislatures of the States were empowered to levy sales tax on certain transactions described in clauses (a) to (f) of clause 29-A of Article 366 of the Constitution as well as the amendments made in the State legislations were challenged in Builders’ Association4. The Constitution Bench of this Court upheld the constitutionality of the Forty-sixth Amendment. The Court observed that the object of the new definition introduced in clause 29-A of Article 366 of 22/29 https://www.mhc.tn.gov.in/judis/ W.P.Nos.33462 of 2005, 13514 & 13515 of 2006 the Constitution was to enlarge the scope of the expression “tax of sale or purchase of goods” wherever it occurs in the Constitution so that it may include within its scope any transfer, delivery or supply of goods that may take place under any of the transactions referred to in sub-clauses (a) to (f). The Constitution Bench*** explained that clause 29-A refers to 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. The emphasis is on the transfer of property in goods – whether as goods or in some other form. A transfer of property in goods under sub-clause (b) of clause 29-A is deemed to be a sale of the goods involved in the execution of a works contract by the person making the transfer and a purchase of those goods by a person to whom such transfer was made.
90. The Court in Hindustan Shipyard case also set out three categories:
(a) the contract may be for work to be done, for remuneration and for supply of materials used in the execution of work for a price,
(b) contract for work in which the use of the materials is accessory or incidental to the execution of the work and
(c) contract for supply of goods where some work is required to be done as incidental to the sale. Having regard to 23/29 https://www.mhc.tn.gov.in/judis/ W.P.Nos.33462 of 2005, 13514 & 13515 of 2006 the recitals of the contract, the Court then concluded that the contracts in question involved sale of respective vessels within the meaning of clause (m) of the Andhra Pradesh General Sales Tax Act and were not merely the works contract as defined in clause (t) thereof.
94. For sustaining the levy of tax on the goods deemed to have been sold in execution of a works contract, in our opinion, three conditions must be fulfilled:
(i) there must be a works contract,
(ii) the goods should have been involved in the execution of a works contract, and
(iii) the property in those goods must be transferred to a third party either as goods or in some other form. In a building contract or any contract to do construction, the above three things are fully met. In a contract to build a flat there will necessarily be a sale of goods element. Works contracts also include building contracts and therefore without any fear of contradiction it can be stated that building contracts are species of the works contract.” The Hon'ble Apex Court in the above Paragraph 94, have categorically held that three conditions must be fulfilled.24/29
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26. In the present case, there was a “works contract” between the petitioner and the cassette manufacturers to use the master copy for the purpose of recording the blank cassettes in large scale. Secondly, there is an execution of works contract and such execution is done on certain terms and conditions of the agreement. Thirdly, in the present case, the goods were transferred to the petitioner, who has supplied the master copy and not sold in the open market admittedly. It would have been supplied in the sale form or in any other form. In the present case, it was supplied in the other form by recording the blank cassettes by utilizing the master copy and therefore, all the three conditions stipulated by the Hon'ble Supreme Court of India in the above case has been complied with in respect of the facts and circumstances of the present case. Thus, the judgment of the Hon'ble Three Judges Bench of the Hon'ble Supreme Court of India in the case of M/s.Larsen & Toubro Limited (cited supra) would be aptly applicable with reference to the nature of transactions occurred in the case of the petitioner. Contrarily, the activities involved in the manufacture of pre-recorded audio cassettes with reference to the Gramophone case (cited supra) may not have application 25/29 https://www.mhc.tn.gov.in/judis/ W.P.Nos.33462 of 2005, 13514 & 13515 of 2006 as the issue raised before the Hon'ble Supreme Court are not connected with the sale or “works contract” and levy of tax under the provisions of the TNGST Act as in the present case.
27. This Court is of the considered opinion that for the purpose of levying tax with reference to the provisions of the tax law, the nature of transactions are of paramount importance for forming an opinion, whether such transaction amounts to sale or “works contract” or otherwise. In the present case, there is no dispute with reference to the transaction between the petitioner and the cassette manufacturers for recording of blank audio cassettes and supply of the recorded cassettes to the petitioner. Thus, this Court has no hesitation in forming an opinion that the first sale as claimed by the petitioner cannot be considered as a first sale, but to be construed as “works contract” and the sale by the petitioner in the open market is to be taken as the first sale for the purpose of levy of tax under the provisions of the TNGST Act.
28. Accordingly, the impugned Circular passed by the respondents in 26/29 https://www.mhc.tn.gov.in/judis/ W.P.Nos.33462 of 2005, 13514 & 13515 of 2006 Circular No.Acts Cell-I/76234/2002 dated 16.05.2003 is confirmed and the writ petition in W.P.No.33462 of 2006 stands dismissed. No costs. Consequently, connected miscellaneous petitions are closed. W.P.Nos.13514 & 13515 of 2006
29. In view of the fact that this Court passed orders in W.P.No.33462 of 2006, confirming the validity of the Circular dated 16.05.2003 issued by the respondents, these writ petitions deserve no further consideration and accordingly, the writ petitions in W.P.Nos.13514 & 13515 of 2006 stand dismissed. No costs. Consequently, connected miscellaneous petitions are closed.
06.09.2021 Kak Internet:Yes/No Index:Yes/No Speaking / Non-Speaking order To
1.Commercial Tax Officer, T.Nagar (East) Assessment Circle, 46, Greenways Road, III Floor, Chennai – 600 028.
27/29 https://www.mhc.tn.gov.in/judis/ W.P.Nos.33462 of 2005, 13514 & 13515 of 2006
2.The Special Commissioner and Commissioner of Commercial Taxes, Ezhilagam, Chepauk, Chennai – 600 005.
3.The Secretary to the Government, Commercial Taxes & Hindu Religious Endowment, Government of Tamil Nadu, Fort St.George, Chennai – 600 009.
4.Commercial Tax Officer, Purasalvakkam Assessment Circle, Chennai.
5.Deputy Commercial Tax Officer, Purasalvakkam Assessment Circle, Chennai.
S.M.SUBRAMANIAM, J.
Kak 28/29 https://www.mhc.tn.gov.in/judis/ W.P.Nos.33462 of 2005, 13514 & 13515 of 2006 W.P.Nos.33462, 13514 & 13515 of 2006 06.09.2021 29/29 https://www.mhc.tn.gov.in/judis/