N.N.MATHUR, J. - (1.) BY way of instant two writ petitions under article 226 of the Constitution of India petitioner seeks direction to quash the order of the Rajasthan Taxation Tribunal Bench, Jodhpur dated October 14, 1998 and restore the order of the Rajasthan Tax Board, Jaipur dated May 22, 1997.
(2.) THE petitioner, M/s. Kisan Traders a registered partnership firm is carrying on the business of ginning and pressing of cotton. It undertakes job-work fastening of ginned and pressed cotton bales with iron strips and hooks. THE petitioner purchased hessian and press patti as a packing material. THEy are used during the pressing of the cotton bales. THE say of the petitioner is that it is charging for the job-work done, i.e., ginning and pressing. It is not charging for hessian and press patti which is used as incidental packing material and also the pressing of cotton after ginning. It is further averred that the said incidental packing materials are necessary and without them the cotton cannot be pressed and made a bale. THE rate of these incidental packing material is reduced from the gross rate of bales while issuing the bill for job-work. On October 13, 1992 the Assistant Collector, Taxation Officer, Rai Singh Nagar, made assessment for the years 1990-91 and 1991-92. Later it was discovered that the tax had not been paid on the value of the iron strips and hooks which were used for fastening the cotton bales. Thus notices under section 12 of the Rajasthan Sales Tax Act, 1954 (hereinafter referred to as "the RST Act") was issued. THE reassessment order was passed creating the liability for the assessment year 1990-91 and 1991-92. In appeal Deputy Commissioner maintained the tax liability of Rs. 21,222 and interest in the sum of Rs. 16,555 but set aside the penalty amount of Rs. 42,444 for the assessment year 1990-91. In case of assessment year 1991-92 maintained the tax liability in the sum of Rs. 20,740 and the interest of Rs. 11,205 but set aside the penalty amount of Rs. 41,480. THE assessee as well as the department preferred an appeal against the order of the Deputy Commissioner (Appeals) dated November 27, 1995. THE Tax Board by its judgment dated May 22, 1997 dismissed the two appeals of the department so far as it relates to challenge penalty. THE appeal filed by the assessee challenging the tax liability and the interest was allowed. In the opinion of the Deputy Commissioner (Appeals) it was not permissible for the assessing authority to reopen the case under section 12 of the Act. THE department carried the matter in revision before the Rajasthan Taxation Tribunal. THE Tribunal held that after the 46th Amendment in clause (29A) in article 366 of the Constitution, the department is not required to prove that the sale of the material involved in the execution of the works contract has taken place. THE Tribunal found that the goods were supplied or delivered in the execution of the works contract and, therefore, there is a presumption that the transfer of the property of such goods has taken place. In view of the finding the Tribunal allowed the revision petition filed by the department and set aside the order of the Tax Board. It is contended by Shri S. L. Jain, learned counsel appearing for the petitioner, that there is statutory obligation on the petitioner-firm to fasten the cotton bales with iron strips and hooks under the Cotton Ginning and Pressing Factory Act, 1925. Without the use of iron strips and hooks the cotton bales cannot be kept intact in their usual form. Thus it is contended that no tax is payable on the value of iron strips and hooks. On the other hand, it is submitted by Mr. Sangeev Johari, learned counsel appearing for the department, that iron strips and hooks are purchased by the firm after paying the tax. Thereafter the firm supplies to the awarder of the contract in the course of its job-work. Thus, there is transfer of property in the said items of the goods. It is also argued that after 46th Amendment of the Constitution whereby a new clause (29A) has been introduced there is a presumption of sale of such items/goods. In order to appreciate the rival contention, we may briefly refer the relevant provisions of law which have bearing on the controversy involved. Under section 5 of the Rajasthan Sales Tax Act a dealer is liable to pay the tax at such rate as prescribed by the State Government. The fourth proviso appended to section 5 provides that when any goods are sold, packed in any materials the tax shall be leviable on such packing materials, whether charged separately or not. Sub-clause (3) provides that in case of works contract the turnover of such contract shall be subject to tax. The relevant provisions of section 5 of the RST Act are extracted as follows : "5. Rate of tax. - The tax payable by a dealer under this Act shall be at such single point in the series of sales by successive dealers as may be prescribed and shall be levied at such rate not exceeding seventy five per cent on the taxable turnover, as may be notified by the State Government in the Official Gazette : ......... Provided also that when any goods are sold, packed in any material, the tax shall be leviable on the sale of such packing material, whether charged separately or not, at the same rate as is applicable to the sale of the goods themselves; and if the goods are exempted from tax under section 4 or have already been subjected to tax under the Act, then at the rate notified for such packing material from time to time; and ........... Notwithstanding anything contained in this Act, in the case of a works contract, the turnover of such contract shall be subjected to tax, provided that such deductions, as may be prescribed, may be allowed to a contractor while determining his tax liability." By 46th Amendment Act, 1982 a new clause (29-A) was inserted in article 366 of the Constitution of India which provides that the transfer of property in goods involved in execution of works contract constitutes a sale or purchase of goods. Thus, there is a presumption of sale of items/goods used in the execution of works contract. Sub-clause (b) of clause (29A) is extracted as follows : "(29A) 'tax on the sale of purchase of goods' includes - (a) ............. (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;". The sub-clause (b) makes it clear that transfer of property in goods (whether as goods or in some other form) was involved in execution of works contract which constitutes a sale or purchase of goods and as such tax can be levied thereon by the State Government by making the law under entry 54 of the State List. In support of the contention that in a use of packing material forming an integral part of the job-work there was no sale of material or goods by the assessee to his customer as such the sales tax was not chargeable on the price of the packing material, the learned counsel appearing for the assessee-petitioner has placed reliance on a decision of division Bench judgment of this Court in Rajputana Cotton Press Public Limited Company v. State of Rajasthan reported in [1979] 44 STC 373. This decision does not advance the case of the petitioner, as the said decision is prior to 46th Constitutional Amendment, i.e., introduction of clause (29A) in article 366 of the Constitution of India. The learned counsel has also placed reliance on the decision of the apex Court in Vasavadatta Cements v. State of Karnataka reported in [1996] 101 STC 168; (1996) 1 JT SC 508 wherein the court while interpreting section 5(3-D) of the Karnataka Sales Tax Act as to tax on packing material held that the liability of sales tax would depend on actual ingredients of contract and intention of the parties. In the said case the appellant was manufacturer of cement, the price of which was controlled by the Cement Control Order, 1967. The appellant supplied cement packed either by gunny bags or in plastic bags. The company also sold some loose to bulk of consumers. After the introduction of sub-section (3-D) in section 5 of the Karnataka Act the packing material was brought within a purview of the Act and made exigible to tax. This case has no bearing on the controversy, involved in the instant case. The another case referred by the learned counsel is a division Bench judgment of the Kerala High Court in P.A. Premkumar v. State of Kerala reported in [2000] 117 STC 76. In the said case the assessee was engaged in the business of photo processing laboratory and also in purchase and sale of photographic material. The assessee had also undertaken the job-work of photography. The controversy arose when the works contract was made deemed sales in pursuance of the 46th Constitution Amendment to the Kerala General Sales Tax Act, 1963. According to the assessee the processing of photographic print is a skilled labour and it does not involve element of marketing and as such there was no question of any transfer of property. The High Court upheld the contention of the assessee and held that the transaction in question did not involve transfer of any goods within the meaning of sub-clause (b) of clause (29A) of article 366 of the Constitution of India. In the opinion of the High Court the transaction did not involve transfer of any goods within the meaning of sub-clause (b) of clause (29A) of article 366 of the Constitution of India, it being purely a service contract. In our view, this case also does not advance the case of the petitioner.
(3.) LEARNED counsel has also referred to a decision of apex Court in Rainbow Colour Lab v. State of Madhya Pradesh reported in [2000] 118 STC 9. In the said case the question involved was whether the job rendered by a photographer in taking photographs, developing and printing films would amount to a works contract "as contemplated under article 366(29A)(b) of the Constitution read with section 2(n) of the Madhya Pradesh General Sales Tax Act, 1958 for the purpose of levy of sales tax on business turnover of the photographers". The Court considering the law after the 46th Amendment held that now it was open for the State to divide the works contract into two separate contracts by a legal fiction, firstly contract for sale of goods involved in the works contract and consequently the supply of labour and service. The Court observed that division of works contract under the amended law can be made only if the contract involved a dominant intention to transfer the property in goods and not in contracts where the transfer of property takes place as an incident of a contract of service. The relevant observations are extracted as follows : "Thus, it is clear that unless there is sale and purchase of goods, either in fact or deemed, and which sale is primarily intended and not incidental to the contract, the State cannot impose sales tax on a works contract simpliciter in the guise of the expanded definition found in article 366(29A)(b) read with section 2(n) of the State Act. On facts as we have noticed that the work done by the photographer which, as held by this Court in Kame's case [1977] 39 STC 237, is only in the nature of a service contract not involving any sale of goods, we are of the opinion that the stand taken by the respondent-State cannot be sustained." This case also does not advance the case of the petitioner as the works contract in the instant case cannot be said to be a service contract. Lastly the learned counsel has placed reliance on a decision of the apex court in Hindustan Shipyard Ltd. v. State of Andhra Pradesh in [2000] 119 STC 533; (2000) 8 JT SC 29. It is pointed out by the learned counsel that in the said case the apex Court has categorised the contract in three. He has invited our attention to the following paras which is extracted as under : "There may be three categories of contracts : (i) The contract may be for work to be done for remuneration and for supply of materials used in the execution of the work for a price; (ii) it may be a contract for work in which the use of the materials is accessory or incidental to the execution of the work; and (iii) it may be a contract for supply of goods where some work is required to be done as incidental to the sale. The first contract is a composite contract consisting of two contracts one of which is for the sale of goods and the other is for work and labour. The second is clearly a contract for work and labour not involving sale of goods. The third is a contract for sale where the goods are sold as chattels and the work done is merely incidental to the sale." It is submitted that the instant case falls in the second category that is the contract for work and labour and does not involve sale of goods. In the said case the apex Court held that no straight-jacket formula can be made available by which one can distinguish a contract of sale from a contract for work and labour. It was further held that it is essential question of fact depending upon the intention of the parties by culling the same on an over all reading of other terms and conditions of a contract. The constitutional validity of sub-clause (b) of clause (29A) of article 366 of the Constitution of India came up for consideration before the apex Court in Gannon Dunkerley & Co. v. State of Rajasthan reported in [1993] 88 STC 204. The apex Court pointed out the consequence of the 46th Amendment to the effect that the contract which was single and indivisible has been altered by a legal fiction into a contract which is divisible into one for sale of goods and other for supply of labour and services and as a result such a contract which was single and indivisible has been brought at par with a contract containing two separate agreements. Thus, while it is true that it cannot be said that on passing of the 46th Amendment Constitution has conferred a larger power than what State had before in regard to power to levy sales tax under entry 54 of the State List, but it permits the State to levy sales tax on price of goods and materials used in works contract as if there was a sale of such goods. Sub-clause (b) makes it clear that the transfer of property in goods (whether as goods or in some other form) involved in the execution of contract constitutes a sale or purchase of goods and as such tax can be levied thereon by the State Government by making the law under entry 54 of the State List. Thus, after 46th Amendment the department is not required to prove that the sale of material involved in the execution of works contract has taken place. Once it is proved that goods are supplied or delivered in the execution of the works contract it shall be presumed unless otherwise provided that the transfer of property in such goods has taken place. Once such goods are chargeable to tax, tax shall be levied as it is done in the case of sale of such goods. Thus, the Tribunal was right in holding that the iron strips and hooks used for fastening the cotton bales, which were supplied by the assessee-firm in the course of its job-works, are chargeable to tax for the reason that the property in the items passed from the assessee-firm to the awarder of the contract in the course of job-work. In view of the aforesaid discussion we find no merit in both the writ petitions. The writ petitions are dismissed, cost easy. Writ petitions dismissed. ;