ORDER
P. Vishwanatha Shetty, J.
1. The petitioners, in this batch of petitions, are all dealers registered under the provisions of the Karnataka Sales Tax Act, 1957 (hereinafter referred to as 'the Act').
2. In these petitions, they have prayed for striking down entry 25 of the Sixth Schedule appended to the Act on the ground that the same is beyond the competence of the State Legislature. They have also called in question the correctness of either the orders of assessment made by the assessing authorities or the orders passed by the assessing authorities rejecting their application for rectification of the order of assessment filed under section 25A of the Act or the proposition notices issued.
3. Since the questions that arise for consideration in these petitions are similar, all the petitions are heard together and disposed of by this common order.
4. All the petitioners are carrying on business of taking photographs and supplying prints thereof, making enlargements from negatives given by the customers and preparing positive prints of the same size from the negatives brought by the customers. On the returns filed by the petitioners, the assessing authorities have either assessed the petitioners for payment of tax or issued proposition notices. In some cases, the application filed by the petitioners under section 25A of the Act seeking rectification of the orders of assessment also have been rejected. Under these circumstances, the petitioners have presented these petitions challenging the constitutional validity of entry 25 of the Schedule.
5. Sri R. V. Prasad, learned counsel for the petitioners, submitted that entry 25 of the Schedule is unconstitutional inasmuch as there is no element of transfer of property in the goods in so far as the business carried on by the petitioners in taking photographs and supplying prints thereof, making enlargements from negatives given by the customers and preparing positive prints of the same size from the negatives brought by the customers. He points out that the prepared positive print is a non-marketable commodity as the photograph of a person cannot be sold by the petitioner to another person and, therefore, the contract is one of pure labour executed by the petitioners to bring about the desired results and a consolidated amount is charged by the petitioners depending upon the work involved and the size and number of prints required. In other words, he submits that the activity carried on by the petitioners is one of developing photographs, photo prints and photo negatives and the amount received by the petitioners from their customers is for the expert knowledge without the involvement of any transfer of goods, like, sale of papers, chemicals, etc. He submits that the said activity of the petitioners can be compared to that of a painter, a film maker, solicitor, chartered accountant, architect, radiologist, etc., which are all connected with the contracts not involving any transfer of property in goods. Sri Prasad further points out that unless there is a transfer of property in the goods in the activities carried on by the petitioners, it is not permissible for the State to levy tax under section 5B of the Act, Therefore, he submits that entry 25 of the Schedule, which provides for levy of tax on processing and supplying of photographs, photo prints and photo negatives is beyond the legislative competency. Elaborating this submission, he submitted that sub-clause (b) of clause (29A) of article 366 of the Constitution read with section 5B of the Act makes it clear that it is only in case of transfer of property in the goods, the State Legislature is competent to levy tax. According to him, in the guise of providing for levy of tax in the transfer of goods, it is not permissible for the State to provide for an entry to levy tax for the services rendered by the petitioners, in the profession or the business carried on by them. He further pointed out that by means of an amendment made to the Constitution by providing sub-clause (b) of clause (29A) of article 366 of the Constitution what is provided is a tax on the transfer of property in goods (Whether as goods or in some other form involved in execution of a works contract), but that does not empower the State Legislature to levy a tax on an item where there is no transfer of property in the goods. In support of his contention that in the business carried on by the petitioners, there is no transfer of property in the goods, he strongly relied upon the Full Bench decision of the Punjab and Haryana High Court in the case of Thomson Press (India) Ltd. v. State of Haryana [1996] 100 STC 417. The learned counsel also relied upon the decisions of the Supreme Court in the case of Mittal Engineering Works (P) Ltd. v. Collector of Central Excise, Meerut [1997] 106 STC 201, Union Carbide India Ltd. v. Union of India [1987] 64 STC 444; Collector of Central Excise, Baroda v. Ambalal Sarabhai Enterprises (P) Ltd. [1990] 77 STC 190 and Indian Cable Co. Ltd. v. Collector of Central Excise, Calcutta [1995] 97 STC 307 in support of his plea that the goods produced must be marketable and unless the goods transferred are marketable, it is not permissible to levy tax on transfer of property in the goods even assuming that there is any transfer of goods in the property. Relying upon the decision of the Patna High Court in the case of Pest Control India Ltd. v. Union of India [1989] 75 STC 188, Sri Prasad submitted that the nature and the activity carried on by the photographers does not involve transfer of any goods as understood in sub-clause (b) of clause (29A) of article 366 of the Constitution or under section 5B of the Act and the contract executed by them would be a pure service contract and no sales tax is leviable in relation thereto under the Act and, therefore, entry 25 of the Sixth Schedule to the Act, which provides for levy of sales tax, is unconstitutional as being beyond the competency of the State Legislature. Sri Prasad also relied upon the decision of the Supreme Court in the case of Assistant Sales Tax Officer v. B. C. Kame : [1977]2SCR435 , and referred to me the following observations made by the Supreme Court :
'When a photographer like the respondent undertakes to take photograph, develop the negative, or do other photographic work and thereafter supply the prints to his client, he cannot be said to enter not a contract for sale of goods. The contract on the contrary is for use of skill and labour by the photographer to bring about a desired result. The occupation of a photographer, except in so far as he sells the goods purchased by him, in our opinion, as essentially one of skill and labour. A good photograph reveals not only the aesthetic sense and artistic faculty of the photographer, but it also reflects his skill and labour. A good photograph in most cases is indeed a thing of beauty. It not only seeks to mirror and portray a scene from actual life, but it also catches and preserves for the future what belongs to and is a part of the fleeting moment. The ravage brought about by the passage of time, the decay and the ageing process which inevitably set in as the years roll by leave what is preserved in the photograph unaffected. It is no wonder that an old photograph revives nostalgic memories of days no more, but to which we look back through the mist of time with fondness even though such fondness has a tinge of sadness.'
He also relied upon the observations of the Supreme Court in the case of Everest Copiers v. State of Tamil Nadu : AIR1996SC2662 , wherein the Supreme Court has observed as follows :
'Where the main object of the work undertaken by the person to whom the price is paid is not the transfer of a chattel as a chattel, the contract is one of work and labour.
The main object of the work undertaken by the operator of a photocopier or xerox machine is not the transfer of the paper upon which the copy is produced; it is to duplicate or make a xerox copy of the document which the payer of the price wants duplicated. The paper upon which the duplication takes place is only incidental to this transaction. The object of the payment of the price is to get the document duplicated, not to receive the paper. The payer of the price has no interest in the bare paper upon which his document is duplicated. He is interested in it only if it bears such duplication. What is involved is not a sale but a contract of work or labour.'
He also relied upon the decision of the Supreme Court in the case of State of Tamil Nadu v. Anandam Viswanathan : [1989]1SCR301 . In the said decision, the Madras High Court referring to the decision of the Allahabad High Court (Commissioner of Sales Tax v. Uma Art Press [1984] 56 STC 300) has observed thus :
'The High Court relied on the decision of the Allahabad High Court reiterating the principle that it is necessary to determine the substance of the contract, and as the substance of the contract is that skill and labour that had been exercised for the production of the article and sale of material is only ancillary to that. In our opinion, the principle upon which the High Court relied, is not applicable in case of transactions of printing of question papers. Question papers as such, after being printed are neither available commercially nor available to any community - commercial or otherwise, save under specific circumstances for the candidates appearing at a particular time in an examination. Mr. Mohan also drew our attention to the decision of the Andhra Pradesh High Court in State of Andhra Pradesh v. Sri Krishna Power Press [1960] 11 STC 498. There, the court reiterated that a transaction which results in the transfer of property in finished goods to another person cannot be described as a works contract. It was further held that where the assessee press itself purchased stationery and did printing work upon it according to the orders of individual customers and supplied the printed stationery to the customers at an agreed price the transaction was sales liable to sales tax and not works contract. The fact that the goods prepared by the assessee could not be exhibited for sale to the general public is not decisive of the issue.'
6. Sri Shylendra Kumar, Sri S. Narayan and Smt. Rama, learned counsel appearing for some of the petitioners, reiterated all the submissions made by Sri Prasad and relied upon the decisions cited by him. Further, Sri Shylendra Kumar also drew my attention to para 32 (page 396 of STC) of the decision of the Supreme Court in the case of Builders Association of India v. Union of India : [1989]2SCR320 .
7. Smt. Sujatha, learned Government Pleader appearing for the respondents, submitted that entry 25 of the Schedule is not unconstitutional as contended by the learned counsel appearing for the petitioners. She submitted that the purpose and effect of the entry in question is to levy tax on transfer of property in the goods in the course of the business carried on by the petitioner. She submitted whether there is a transfer of property in the works executed by the petitioners or not, is a matter which requires to be ascertained depending upon the facts and circumstances of each case; and if there is no transfer of property in the works executed by the petitioners, no doubt, they cannot be fastened with the liability to pay tax, but that is not a ground to declare the entry as unconstitutional. She pointed out that the entry in question does not enable the State to levy tax on the services rendered by the petitioners, but it only enables the State to levy tax wherever there is a transfer of property in the goods in the business relating to processing and supplying of photographs, photo prints and photo negatives. She strongly relied upon the Division Bench decision of the Kerala High Court in the case of Bavens v. Union of India [1995] 97 STC 161 and drew my attention to paragraphs 10, 18, 20, 22 and 23 of the said judgment. She further submitted with reference to the return filed by the petitioners that the returns filed by each of the petitioners disclose that they have purchased the materials of considerable amount for the purpose of the works executed by them. In this connection, she brought to my notice the purchase statement filed by the petitioner in Writ Petition No. 824 of 1997 before the assessing authority, a copy of which has been produced as annexure R1, and the trading account of the said petitioner as annexure R2. She further pointed out that when sub-clause (b) of clause (29A) of article 366 of the Constitution of India and also section 5B of the Act, in unambiguous terms, provides for levy of tax on transfer of property in the goods, it is not permissible for this Court after the amendment made to the Constitution by amending article 366 of the Constitution of India by incorporating clause (29A), to go into the dominant purpose of the business and on that basis, to decide whether it is permissible for the State to levy tax even if there is transfer of property in the goods. She submits that the principle laid down in B. C. Kame's case : [1977]2SCR435 , has absolutely no application as the said decision was rendered prior to the amendment made by means of Constitution (46th Amendment) Act by inserting clause (29A) into article 366 of the Constitution of India. It is her further contention that the goods, which are liable for tax, need not be in the same form in which they are used; and even in the transfer form, if the goods are used, they are liable for tax. She further submitted that none of the decisions relied upon by the learned counsel for the petitioners is of any assistance to the petitioners to nullify the impugned provision.
8. In the light of the rival contentions advanced by the learned counsel appearing for the parties, the short question that would arise for consideration is as to whether entry 25 of the Schedule is liable to be declared as unconstitutional.
9. Before considering the rival contentions advanced by the learned counsel, it may be useful to refer to sub-clause (b) of clause (29A) of article 366 of the Constitution of India, section 2(v-i) and 5B the Act and entry 25 of the Schedule.
(a) Sub-clause (b) of clause (29A) of article 366 of the Constitution reads as hereunder :
'(29A) 'tax on the sale or 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.'
(b) Sections 2(v-i) and 5B of the Act, read as under :
'2(v-i) '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.'
'5-B. Levy of tax on transfer of property in goods (whether as goods or in some other form) involved in the execution of works contracts. - Notwithstanding anything contained in sub-section (1) or sub-section (3) or sub-section (3-C) of section 5, but subject to sub-section (4), (5) or (6) of the said section, every dealer shall pay for each year, a tax under this Act on his taxable turnover of transfer of property in goods (whether as goods or in in some other form) involved in the execution of works contract mentioned in column (2) of the Sixth Schedule at the rates specified in the corresponding entries in column (3) of the said Schedule.'
(c) entry 25 of Schedule VI to the Act reads as hereunder :
'25. Processing and supplying of photographs, photo prints and photo negatives.'
10. Now, let me examine as to whether there is any merit in the contentions advanced challenging the constitutional validity of entry 25 of the Schedule.
10a. Section 5B of the Act provides for payment of tax by every dealer on turnover of transfer of property in goods (whether as goods or in some other form) involved in the execution of works contracts mentioned in column (2) of the Sixth Schedule. Therefore, there cannot be any doubt that the tax could be levied in the execution of works contract only on transfer of property in goods. Column (2) of entry 25 of the Schedule provides for levy of tax on processing and supplying of photographs, photo prints and photo negatives. Whether in a given case, processing and supplying of photographs, photo prints and photo negatives results in the transfer of property in the goods or not, is a matter of verification on the basis of the returns filed by the assessee. It may vary from assessee to assessee depending upon the nature of the business carried on by each assessee. Merely on the basis of the observations made by the Supreme Court in B.C. Kame's case : [1977]2SCR435 , it is not possible to strike down the entry so long as the entry provides for levy of tax on transfer of property in goods. Entry 25 has to be read along with section 5B of the Act. If so read, it is clear that the entry does not permit for levy of tax on the services rendered or exhibition of skill or labour involved in the execution of the work. It only provides for levy of tax on transfer of property in the goods in execution of the works contract. This is permissible under sub-clause (b) of clause (29A) of article 366 of the Constitution as well as under section 5B read with entry 25 of the Schedule to the Act. Further, to what extent, the material is used to produce a finished goods depends upon the nature of the work executed by each of the petitioners or an assessee who carries on business in processing and supplying of photographs, photo prints and photo negatives. The principle laid down, in my view, in B. C. Kame's case : [1977]2SCR435 , has to be understood in the back drop of the amendment made to article 366 of the Constitution by inserting clause (29A) by means of the Constitution (46th Amendment) Act. In B. C. Kame's case : [1977]2SCR435 , the Supreme Court proceeded to observe that after buying photographic goods, the photographer sells them to his customers or uses them in three ways, i.e., (1) in taking photographs and supplying prints thereof, (2) in making enlargements for the clients who bring their own negatives, and (3) in preparing positive prints of the same size from the negatives brought by the clients. The Supreme Court, in the said case, has no doubt taken the view that when a photographer undertakes to photograph, develop the negative, or do other photographic work and thereafter supplies the prints to his customers, he cannot be said to enter into a contract for sale of goods and the contract, on the contrary, is for use of skill and labour by the photographer to bring about a desired result. In the said case, it is further held that taking of photographs and supplying of prints thereof neither results in sale of photographs nor can it be treated as sale of photographs for the reason that it is not the intention of the customer to buy a photograph from the photographer as a photograph has no marketable value. However, in the said case, the Supreme Court did not consider the work relating to enlargement of photographs from the negatives brought by the customer and preparing the positive prints of the same size from the negatives brought by the customers. The effect of processing and supplying of photographs, photo prints and photo negatives made available by the customer, was also not considered by the Supreme Court in the B. C. Kames' case : [1977]2SCR435 , It may be that in cases where a photographer undertakes to take photograph, develop the negative or do photographic work and thereafter supply prints to his customer, he cannot be said to have entered into a contract for sale of goods. In such situation, the contract has to be treated as one for use of skill and labour by the photographer to bring about the desired result. In the year 1982, in view of the law laid down by the Supreme Court in the case of State of Madras v. Gannon Dunkerley & Co. (Madras) Ltd. : [1959]1SCR379 where the Supreme Court took the view that a works contract was an indivisible contract and the turnover of the goods used in the execution of the works contract would not be exigible to sales tax, the Parliament passed the 46th Amendment amending the Constitution in several respects in order to bring many of the transactions in which property in goods passed, but are not considered as sales, for the purpose of levy of sales tax within the scope of the power of the State to levy the sales tax. Thus, after the 46th amendment, the works contract, which was an indivisible one, is by a legal fiction altered into a contract, which is divisible into one for sale of goods and the other for supply of labour and service, enabling a State to levy sales tax on value of goods involved in a works contract. In the light of the said amendment, section 5B came to be incorporated into the Act. In view of the decisions of the Supreme Court in Builders Association of India v. Union of India : [1989]2SCR320 , Gannon Dunkerley & Co. v. State of Rajasthan [1993] 88 STC 204 and Builders' Association of India v. State of Karnataka [1993] 88 STC 248, it is now well-established that it is competent for the State Legislature to impose tax on transfer of property in goods involved in the execution of a works contract and the petitioners can escape liability only if they are able to establish that the photographic work done by them will not come within the term 'works contract'. As stated by me earlier, these are the matters which are required to be examined by the assessing authority on the basis of the returns filed by the petitioners and depending upon the nature of the work carried out by them. It is not possible to generally lay down that in all cases of processing and supplying of photographs, photo prints and photo negatives, there is no element of works contract involved and there is no transfer of property in goods. Therefore, I am of the view that the petitioners cannot receive much assistance from the law laid down by the Supreme Court in B. C. Kame's case : [1977]2SCR435 , in support of their plea that the impugned entry is liable to be struck down as unconstitutional.
11. In so far as the principle laid down by the Supreme court in the case Everest Copiers : AIR1996SC2662 , strongly relied upon by Sri Prasad is concerned, I am of the view that it relates to a case of a photo copier. On the basis of the facts of that case, the Supreme Court held that the paper upon which the duplication takes place is only incidental to the transaction and the object of the payment of the price is to get the document duplicated and not to receive the paper. In my view, the ratio laid down in the said decision cannot be applied in respect of the activities carried on by a photographer. It is necessary to point out that in view of the development of the technical know-how in the activities of a photographer, the skill of a photographer, which had a great role to play or paramount at one point of time, is not the same thing as of today. Therefore, merely because some skill is used or some service is rendered, is not a ground to strike down the entry in question so long as the said entry intends to levy tax on transfer of property in goods, which are used for the execution of the works contract. The view I have taken, is supported by the Division Bench decision of the Kerala High Court in Baven's case [1995] 97 STC 161, referred to above and relied upon by the learned Government Pleader. In the said decision, the Kerala High Court, after examining the observations made by the Supreme Court in B. C. Kame's case : [1977]2SCR435 , has laid down as follows :
'17. What is expected from the photographer in the first category of work we have no hesitation to hold is his service, in his artistic skill and talent. If any property passes to the customer in the form of photographic paper, it is only incidental to the service contract. We, therefore, find that no portion of the turnover of the petitioners relating to the first category of work would be eligible to sales tax.
18. The second and third categories of work can be considered together. The petitioners undertake to develop exposed film handed over by the customer and take positive print. They also receive processed negative from the customer, and take positive prints therefrom. In these two cases, the developed negatives along with the positive prints are delivered to the customers. Sometimes, the work of enlargement is also taken up along with the above work. When such a work is done by the photographer, can it be said that there is no movable property of a person other than photographer with reference to which the work is executed The property is the exposed film in the second category and the developed negative in the third category, which belong to the customer and which is handed over to the photographer to work upon it. The petitioners would counted that developing an exposed roll of film and taking positive prints therefrom would not come within any of the activities mentioned in the definition of 'works' contract' under section 2(xxix)(a) of the Kerala General Sales Tax Act, 1963.
19. According to the petitioners, the negative film being the original goods, it is not undergoing any improvement or enhancement in its value by the process or treatment employed thereto by the photographer. The negative remains as before even after the process and the treatment. Since the negative remains intact at the end of the entire transaction and nothing was added or employed to it to increase its value, utility or beauty, there could be no works contract.
20. We are not inclined to accept the above contention for two reasons. Firstly, the definition of 'works contract' under the Kerala General Sales Tax Act is an inclusive definition. Therefore, it cannot be taken that the activities referred therein are the only activities which can be subject-matter of works contract. Secondly, the work done by the petitioners in the second and third categories would certainly come within the activity 'processing' referred in the definition. Admittedly in order to develop an exposed roll of film certain processing has necessarily to be undergone, so also for taking positive prints out of it. Processing is necessary for taking positive prints from a negative handed over by the customer. In any view of the matter, taking positive prints out of the developed negative which is an allied activity to the processing of exposed film would certainly come within the definition of 'works contract'.
21. By applying the test of accretion to the nucleus also, we are of the view that the second and third categories would come within works contract since the photographer is working upon the exposed film or the negative supplied by the customer and produce the positive prints in the desired size. We are also not inclined to accept the contention that while carrying on the above activity of processing an exposed roll of film and taking positive prints therefrom, it is the artistic talent or skill of the petitioners that is of utmost importance. The photo was already taken. The artistic talent or skill which is required to take a good photograph is thus already invested by someone other than the petitioners. It may be that the technical know-how, experience and the skill of the photographer or the person who is processing the film and taking the positive prints are also of importance to get a good print. But, it cannot be compared to the artistic skill or talent necessary for taking a goods photograph or painting a good portrait, In B. C. Kame's case : [1977]2SCR435 , the Supreme Court considered only the first category of work, namely, taking a photograph of the customer developing the negative and taking positive print. The second and third type of activities were not specifically considered by the Supreme Court. Therefore, we are of the view that in the nature of the activities under the second and third categories, they would come within the fold of works contract and not contract of service.
......
23. We, therefore, hold that as far as the first category of activity of the petitioners is concerned, no portion of the turnover is eligible to sales tax. But, in respect of categories 2 and 3 to the extent of the value of the photographic paper, there is passing of property in the course of execution of a works contract and thus a deemed sale making it eligible to sales tax................'
I am in respectful agreement with the view expressed by the Kerala High Court.
12. In the light of the above discussion, I am of the view that it is unnecessary to refer to the other decisions relied upon by the learned counsel for the parties, referred to above.
13. In view of my above conclusion, the submission of the learned counsel for the petitioners that entry 25 of the Schedule is liable to be declared as unconstitutional, is hereby rejected.
14. Learned counsel appearing for the petitioners further pointed out that since the petitioners have challenged the validity of entry 25, they did not choose to prefer appeals against the orders of assessment, which are impugned in these petitions, and also did not choose to file objections to the proposition notices; and under these circumstances, the petitioners must be given some reasonable time either to prefer appeals or file their objections to the proposition notices or to challenge the orders made rejecting their applications filed under section 25A of the Act, which are under challenge in these petitions.
15. Having regard to the facts and circumstances of the case, I am of the view that the request made by the learned counsel for the petitioners is reasonable.
16. Accordingly, the petitioners are given 30 days' time from today to file appeals either before the first or the second appellate authority or file their objections or take such other appropriate remedy available to them under the Act. If such appeals are filed within 30 days from today, the appellate authority is directed to consider the appeal on merits without raising any objection with regard to the period of limitation. Further, if objections are filed within 30 days from today, the appellate authority is directed to consider the objection on merits and proceed to pass assessment orders in accordance with law.
17. All the contentions urged by the petitioners on the merits of their claim, are left open to be urged either before the assessing authority or before the appellate authority, as the case may by.
18. In the light of what is stated above, these petitions are dismissed subject to the liberty reserved to the petitioners, as stated above. Rule issued is discharged. However, no order is made as to costs.
19. Smt. Sujata, learned Government Pleader, is given four weeks time to file memo appearance.
20. Writ petitions dismissed.