- (1.) SRI B. Anand, learned Government Advocate is directed to take notice for the respondent.
(2.) THIS is an appeal under Section 24-A of the Karnataka Sales Tax Act, 1957 ("the Act" for short) filed against the clarification/ advance ruling order dated December 22, 2003 in case No. CLR. CR. 106/03-04 passed by the Authority for Clarification and Advance Ruling constituted under Section 4 of the Act.
(3.) THE appellant is a registered dealer under the Act engaged in the business of digital printing. The appellant filed an application seeking advance ruling in regard to exigibility of digital printing to sales tax. The appellant submitted that process of digital printing is a skilled job of printing which does not involve any transfer of property in goods as a consequence of any contract of sales; that the customers provide the art works and designs in the form of computer files stored in floppy/compact discs; and that the assessee uses such art works and designs to produce full size pictures as per the specifications of the customers and the pictures are thereafter printed on vinyl film. It is submitted that the dominant intention of a contract relating to digital printing, is the process of digital printing. It is contended that the use of vinyl film is only incidental to the work of digital printing. The appellant submitted that the activity of digital printing is akin to the activity of printing of photographs ; that in a photo printing the customer provides the exposed film and prints are made on photo paper, whereas in a digital printing, the pictures/ images are provided on a floppy/compact disc which are printed on a vinyl film. Reliance is placed on the following observations of the Supreme Court in Rainbow Colour Lab v. State of Madhya Pradesh [2000] 118 STC 9 wherein the Supreme Court held that processing and making photo prints is a service contract and not works contract: "all that has happened in law after the 46th Amendment and the judgment of this Court in builders' case [19893 73 STC 370 is that it is now open to the States to divide the works contract into two separate contracts by a legal fiction (i) contract for sale of goods involved in the said works contract and (ii) for supply of labour and service. This division of contract under the amended law can be made only if the works contract involved a dominant intention to transfer the property in goods and not in contracts where the transfer in property takes place as an incident of contract of service. The amendment, referred to above, has not empowered the State to indulge in microscopic division of contracts involving the value of materials used incidentally in such contracts. What is pertinent to ascertain in this connection is what was the dominant intention of the contract. Every contract, be it a service contract or otherwise, may involve the use of some material or the other in execution of the said contract. State is not empowered by the amended law to impose sales tax on such incidental materials used in such contracts. " (emphasis *supplied);