Income Tax Appellate Tribunal - Pune
Income Tax Officer vs Narmada Cement Co. Ltd. on 17 April, 2003
Equivalent citations: (2003)81TTJ(PUNE)955
ORDER
U.B.S. Bedi, J.M.
1. This is Revenue's appeal directed against the order passed by the learned CIT(A) Kolhapur dt. 4th Dec., 2002, relevant to financial year 1999-2000 whereby deletion of creation of demand under Section 201(1) and charging of interest under Section 201(1A) has been challenged.
2. The assessee is a subsidiary of Larsen and Tobro Ltd., and during its course of business, it entered into an agreement for supply of PP woven sacks for packing of cement. The arrangement involved supply of printed packing material. The conditions of printing were as under :
Bags are to be supplied branded on both sides (for NCCL and L&T) as per artwork using rubber stores. Printing should be in black link except in PPC bags. The Narmada logo in all bags should be in dark orange. In PPC bags to be supplied to NCCL the entire printing should be in Red except the L&T logo which should be in dark blue. The manufacturer's logo should appear only on the right and bottom of the reverse side enclosed in a block.
Corona treatment is a must for all the bags to be supplied to us".
3. In the view of the AO, the supply of printed packing material is covered under Section 194C of the IT Act inasmuch as on the packing material (sacks) assessee-company's trade name, logo, contents and quantity etc. is printed especially as per the assessee-company's prescribed specifications. For supply of this printed packing material there exists contracts. Not even a small portion of such material without such prescribed specification is used. For supply of such printed material a specialised skill is required. Such printed material is not available in the open market at any point of time. Such printed material required assessee-company's prior approval before.executing the entire bulk over that too has within a period of time as required. Thus it is a fact that the printed packing material required in the activities of the assessee-company is of a specialised nature which maintains its goodwill and credibility. Thus, the printing is not at all purely incidental in this case, as the supplier has to take due care of the prescribed specifications required by Narmada Cement. In other words the principal object of the assessee-company is to get the printed material as per the prescribed specifications which cannot be purchased instantly in the open market. The printing charges are also composite. In view of the facts discussed above, the supply of printed material is not merely purchases and sales as claimed. Further for sale of goods two conditions are most essential. Ownership of the goods should be transferred to the payer. The goods should have market value. In this case, from the others' point of view, than assessee-company, the printed material has no value, in the open market. Nobody else will purchase such printed material, which would be exclusively used by the assessee-company. Thus, the other condition regarding market value does not fulfill. In these circumstances the transaction for supply of printed material as per prescribed specifications of the assessee-company is not a sale but it is a contract as contemplated under the provisions of Section 194C of the Act, and therefore, on such payments the assessee should have deducted TDS from the amount paid. In the opinion of the AO, the matter is covered by Circular No. 715 dt. 8th Aug., 1995, issued by CBDT. The bags were to be supplied after printing company's trade name, logo, contents and quality etc. as per specifications given by the assessee. In his view, these arrangements were for contract and not for purchase of bags and, therefore, in his view, Section 194C of the Act is attracted. Rejecting the claim of the assessee, he worked out short deduction of Rs. 92,994 under Section 201(1) and also interest of Rs. 10,808 under Section 201(1A). The assessee took up the matter in appeal before the learned CIT(A).
4. It was submitted before the first appellate authority that the assessee-company has given order for supplying of bags. The contract related to that of purchase though some printing is also required to be done by the manufacturer on such bags as per specifications of the assessee, Sales-tax and excise duly is also paid on such orders and, therefore, in view of the assessee's representative the transactions being purely of the nature of purchase and sale, no tax at source under Section 194C of the Act was required to be made by the assessee. He also objected to the AO's twisting clarifications contained in question 15 of CBDT's circular No. 715 instead of 'printing material' the AO has substituted the work 'printed sacks', which was not proper. The assessee's counsel had particularly relied upon the decision of the Tribunal in the case of Wadilal Dairy International Ltd. v. Asstt. CIT (2001) 70 TTJ (Pune) 77 and pleaded for deletion of both the demands created.
5. The learned CIT(A) while considering and accepting the plea of the assessee has concluded in para 6 of his order as under :
"I have gone through the order of the AO as well as the submission made by Shri R.T. Chaugule on appellant's behalf. I find that the appellant's case is squarely covered by the decision of Tribunal, Pune, in the above case, and, therefore, it is held that the supply of bags in the appellant's case was that of a purchase and, therefore, fell out of the purview of Section 194C of the Act. Therefore, the AO was not justified in working out short deduction under Section 201(1) or the levy of tax under Section 201(1A) of the Act as he has done in the present case. As a result, his order dt. 28th April, 2000 is cancelled."
6. Aggrieved by this order of the learned CIT(A), the Department is in appeal and while relying upon the basis and reasoning as given by the AO it was pleaded for setting aside the order of the learned CIT(A) and restoring that of the AO.
7. Smt. Anupama Shukla, the learned Departmental Representative submitted that as per assessee-company's prescribed specification contained in the order, the printed packing material is supplied to the assessee. The other condition in such an order are incidental to execution but the transaction for supply of printed sacks which too included the detailed directions for printing of sacks. This is works contract and accordingly, the provisions of Section 194C of the Act in the light of the circular No. 715 dt. 8th Aug, 1995, was clearly applicable. The AO was, therefore, justified in creating both the demands. Reliance was also placed on relevant clauses of the agreement such as 'printing' and on the decision of the Supreme Court in the case 29 STC 477. Further reliance was placed on circular No. 681 dt. 8th March, 1994, in which the Supreme Court decision in Associated Cement Co. Ltd. v. CIT (1993) 201 ITR 435 (SC) was also considered and besides that Full Bench judgment of the Bombay High Court's in the case of Sarvodaya Printing Press v. State of Maharashtra (1994) 93 STC 387 (Bom) supports the view of the AO which is a binding precedent. Therefore, there was no occasion for the learned CIT(A) to delete the demands created. So far as the decision in the case of Wadilal Dairy International (supra) case is concerned, the same looses its importance in view of the Bombay High Court's full Bench decision in the case of Sarvodaya Printing Press (supra). Therefore, relying upon the other two decisions in the case of BDA Ltd. v. ITO (2003) 78 TTJ (Pune) 925 : (2003) 84 ITD 442 (Pune) and Warana San. Doodh Upadak Prakriya Sangh Ltd. (ITA No. 400 and 401/PN/2002 dt. 10th Feb., 2002, the order of the learned CIT(A) is liable to be reversed. It was urged for restoring the order of the AO.
8. The learned counsel for the assessee while relying upon the basis and reasoning as given by the learned CIT(A) has pleaded for confirmation of the impugned order. It was also submitted that so far as the subsequent decisions of Pune Bench after the decision in the case of Waldilal Dairy International (supra) .Wadilal's case is concerned, the matter can be set aside on the file of the AO with a direction to redecide the issue in the light of these decisions. However, in this case, the printing is only incidental whereas supply of material is dommant object and the cost of printing is very less and compared to the cost of material. So far as Sarvodaya Printing Press case is concerned, the same cannot be compared to the facts of the present case and making a reference to various papers submitted in the paper book to show that cost of printing is nominal, it was pleaded for confirmation of the impugned order or setting aside the matter back on the file of the AO.
9. The learned Departmental Representative, in order to counter the submissions of the learned counsel for the assessee, submitted that the printing is incidental is of no consequence as pleaded for by the learned counsel for the assessee is not correct. The specifications are there and if material is not supplied according to the specification, the same is liable to be rejected and persons supplying the material cannot sell that material as scrap. Therefore, the ratio of these decisions as relied upon, is very much applicable to the facts of the case and the learned CIT(A) was not justified in deleting the demand created.
10. After considering the facts of the case and the material on record in the light of case law cited and relevant provision of law, I find from the record that the assessee placed an order for supply of material as per the specification of the assessee-company which is a subsidiary of Larsen and Tobro Ltd., and printing of material as instructed was required to be done on packing material whose size, design and other specifications are supplied by the assessee. There is no denying the fact that in case of printing if not done strictly in accordance with the specifications supplied by the assessee, neither that material could be used by the assessee nor the supplier could use the same for any other purposes or even sell the same as waste material/scrap and such defective material had to be destroyed by the supplier. Under the circumstances, the material cannot be purchased in defective condition inasmuch as there cannot be any deviation from the specifications given by the assessee if any such defect having been crept in the material even then, it had to be destroyed and could not be sold as such by the supplier. It appears from the arrangement made between the assessee and the supplier that the intention of the contracting parties was to get the printed material of the specification supplied and from these facts, cannot be said that transfer is chattel qua chattel and there is nothing in the language of Section 194C(1) which would exclude the scope of its applicability to the said arrangement made between the assessee and the supplier of printed labels. As such, the said transaction is in the nature of works contract and not of simple purchase of material because a particular type of work is involved. Since the sole purchases are with reference to certain specification, it clearly becomes a contract between two parties. Moreover, printing details, on the material, to be supplied is not incidental or ancillary. Specific printing on the particular type of material has got its own importance and a minor mistake of printing in mentioning of the contents as specified will cause great loss to the assessee and the same cannot be used at all and it can delay the working of the assessee which may affect adversely. Since such defective material cannot be used thus, the printing is not at all incidental in this case. The principal object of the assessee is to get the material printed as per the prescribed specifications and not to purchase printed material as available in the market. The charges are composite and not separately mentioned. Under such contract, the supplier party cannot retain or use the printed material and the excess, if any, was to be destroyed. The supplier party is responsible for protecting the goods and preventing them from falling into the hands of third parties. Its commercial value becomes zero in the case of rejection and it cannot be used even as. a scrap. Therefore, the supply of printed material i.e. PP woven sacks, the packing material for cement, as per specification supplied by the supplier is not a sale but a contract involving work, Merely because excise duty or sales-tax was charged on the supply of material could not lead to the conclusion that it was purely purchase of goods, because the said levies have their own identity and nothing to do with income-tax. Moreover, Board Circular No. 715, dt. 8th Aug., 1995, applies only to the supply of printed materials with prescribed specifications and not for other purchases.
11. Before proceeding to consider the issue raised, let me examine the judicial aspects. The Hon'ble Bombay High Court (Full Bench) in the case of Sarvodaya Printing Press v. State of Maharashtra (supra) where dispute was under sales-tax laws and after discussing the facts of the case Hon'ble Court opined as under :
"The applicant ran a printing press where only job-work was done. It supplied printed material to the Madhya Pradesh Electricity Board (MPEB) in the form of (MEPB) in the form of multicoloured triplicate receipt books, specially designed, printed and prepared to the specifications of the MPEB. The words "Madhya Pradesh Electricity Board" were printed in various faint colours all over each page of the receipt book as a background, on which the detailed heads of the charges of electricity such as energy bill, surcharge, etc., were printed in black, The charges for the supply were of one composite sum for the entire job. The applicant was obliged to destroy any receipt books in excess of the MPEB's recruirement. On the question whether the transaction was a sale or works contract :
Held, that having regarding to the special type of job work done and other basic circumstances, the supply represented a works contract. The intention of the parties was material and it was obvious the principal object of the MPEB charges was composite the books were specially designed for the MPEB as per its specifications as to size, type, colour, format, background etc. No space was left blank obviously because the books were valuable and upon misuse could cause terrible loss to be MPEB, Under the contract the applicant could not retain or use the printed books and the excess, if any, had to be destroyed, Although the paper and ink used were property of the applicant before printing thereafter they became the property of the MPEB by theory of accretion. The passing of property in the goods used to the MPEB was by the very nature of things, only incidental or ancillary to the contract of printing. No transfer of chattel qua chattel was involved. The work done was composite or indivisible with separate charges for the material. The applicant was responsible for protecting the goods and preventing them from falling into the hands of third parties. The goods were not standard goods and were not capable of any use to any one else and thus had no commercial vale. Material could not be used even as scrap if rejected and had to be destroyed. Therefore, the supply of printed material to the MPEB by the applicant was not a sale but a works contract".
12. So far as the difference between a sale and works contract is concerned, there are several decisions, which are too numerable to be noticed. The last word on the subject has been uttered in the authoritative pronouncement of the Supreme Court in the case of State of Tamil Nadu v. Anandam Viswanathan (1989) 73 STC 1 (SC). It was a case of printing and supply of question papers of the University. The Supreme Court held that though sale of paper and ink was involved, it was merely incidental. It was not a case of sale but of a works contract having regard to the work to be done and the confidence reposed for the work to be done for remuneration. Following observations are appropriate :
"The primary difference between a contract for work or service and a contract for sale is that in the former there is in the person performing or rendering services no property in the thing produced as a whole, notwithstanding that a part or even the whole of the material used by him may have been his property. Where the finished product supplied to a particular customer is not a commercial commodity in the sense that it cannot be sold in the market to any other person, the transaction is only a works contract".
13. Having regard to the special type of job work done and other basic circumstances noticed above, it seems to me that the supply does not represent a transaction of purchase but simply is a works contract which is subject to tax deductible at source. The intention of parties is most material and it is obvious. The principal object of the assessee was to get the material printed and not to purchase the printed material. Charges are composite. The material was specially designed for the assessee as per its specifications as to size, type, colour, format, etc. Under the contract, the suppliers could not retain or use the printed material and excess if any, is to be destroyed. Material and ink used are no doubt property of the supplier before printing but thereafter they become the property of the assessee by theory of accretion. No doubt property in the goods passed on to the assessee but it was by way of nature of things only incidental or ancillary to the contract of printing. No transfer of chattel qua chattel was involved. The work done was composite and indivisible with composite charges for the entire job. The supplier was prohibited from selling the said material to any one else or to use them for any purpose. Element of responsibility was also involved. In any case, they were not standard goods and were not capable of any use to anyone else and thus had no commercial value. Material could not be used even as a scrap if rejected and had to be destroyed. Therefore, the supply of printed material to the assessee by the supplier was not a purchase but a works contract.
14. Now coming to the facts of the present case these are almost identical to the facts of the case decided by the Bombay High Court and issue involved and decided is the same. Therefore, the provisions of Section 194C as clarified by the Circular No. 715 dt. 8th Aug., 1995, are found to be applicable to the present case.
15. As regards the Tribunal decision in the case of Wadilal Dairy International (supra) as heavily relied upon by the learned CIT(A), is concerned, to my mind, the same looses its importance and cannot be held to be applicable in view of the jurisdictional High Court's decision as referred to above. No doubt, earlier decision of the same Bench has a persuasive value and Special Bench decisions have still more value than the Division Bench/Single Member's decision but at the same time, any decision, even if, passed by maximum numbers of Members sitting together even in a Special Bench, can be quashed/set aside/reversed/ annulled/disturbed/overruled/vacated even by the Division Bench of the jurisdictional High Court. As regards doctrine of precedents is concerned, the rule of judicial precedent is a salutary one and is aimed at achieving finality and homogeneity of judgments. The doctrine of binding precedent has the merits of promoting certainty and consistency in judicial decisions, and enables organic development of the law, besides providing assurance to the individual as to the consequence of transactions forming part of clear and consistent enunciation of legal principles in the decisions of a Court [Union of India and Anr. v. Raghubir Singh (1989) 178 ITR 548 (SC)]. The Article 141 of the Constitution of India embodies the doctrine of precedents as law and provides that the law declared by the Supreme Court should be binding on all Courts and Tribunals in India [CWT v. Aluminium Corporation of India Ltd. (1972) 85 ITR 167 (SC)). Similarly, the doctrine of precedent is applicable to the decisions delivered by the High Court. The law declared by the High Court is binding on all the Courts subordinate to it within its territorial jurisdiction. By judicial precedent the law declared by the High Court is to be followed by the Courts and Tribunal sub-ordinate to it and under its supervisory jurisdiction. The law declared by the High Court in the State is binding on the authorities or Tribunals under its superintendence and they cannot ignore it either in initiating a proceeding or deciding on the rights involved in such proceedings. The launching of proceeding contrary to the law laid down by the High Court would be invalid and proceedings themselves would be without jurisdiction [East India Commercial Co. Ltd. v. Collector of Customs AIR 1962 SC 1893]. Not to follow the decision of the High Court within that jurisdiction the AO is, would tantamount to committing contempt of that Court [Siemens India Ltd. v. K. Subramanian ITO (1983) 143 ITR 120 (Bom)]. In order to give a word of caution, while applying the precedent, the Hon'ble Supreme Court in the case of State Financial Corporation v. Jagdamba Oil Mills AIR 2002 SC 834 has opined in para 19 as under :
"Courts should not place reliance on decisions without discussing as to how the factual situation fits in with the fact situation of the decision on which reliance is placed".
And further in para 21 the Hon'ble Supreme Court observed as under :
"Circumstantial flexibility, one additional or different fact may make a world of difference between conclusions in two cases. Disposal of cases by blindly placing reliance on a decision is not proper."
Since the facts of the present case are on all fours with the case decided by the jurisdictional High Court (Full Bench), otherwise which is also a binding precedent for this Bench and moreover, no dissimilarity could be noticed or having been pointed out, therefore, in the light of doctrine of precedents and other case law as discussed above and while applying the ratio of the said decision, I hold that purchase of printed material as per specifications supplied by the assessee is nothing but works contract. As the assessee has failed to deduct tax at source from the price paid for such printed material supplied in terms of provisions as contained in Section 194C, therefore, action of the AO is legally correct in creating a demand under Section 201(1) and also charring interest under Section 201(1A) of the Act and the learned CIT(A) is unjustified in issuing direction to AO for modifying his order to delete the demand. Thus, while accepting the ground No. 3 to 6 of appeal of the Revenue, I reverse the order of the CIT(A) and restore that of the AO.
16. As a result, the appeal of the Revenue gets accepted.