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Processing and supplying of Photographs, Photo Prints and Photo-negatives is leviable to Sales Tax – Supreme Court

Hon’ble Supreme Court in the case of State of Karnataka etc. vs. M/s. Pro Lab & Others in Civil Appeal No. 1145 of 2006 decided on January 30, 2015 upholds the levy of sales tax on Processing and supplying of Photographs, Photo Prints and Photo negatives retrospectively with effect from 01.07.1989.

Constitutional validity of Entry 25 of Schedule VI to the Karnataka Sales Tax Act, 1957 imposing tax on Processing and supplying of Photographs, Photo Prints and Photonegatives was subject matter of present appeal. This entry was inserted in said act by an amendment which came into force with effect from 01.07.1989. Karnataka High Court in the case titled “M/s. Keshroram Surindranath Photo Bag (P) Ltd. and others vs. Asstt. Commissioner of Commercial Taxes (LR), City Division, Bangalore and others” cited as 121 (2001) STC 175 declared the said entry to be unconstitutional. Special leave petition filed by department against this order was also dismissed vide order dated 20.04.2000, following its earlier judgement in the case of Rainbow Colour Lab and Another vs. State of Madhya Pradesh and others”. The reason for holding Entry 25 as unconstitutional was that Processing of Photographs was predominantly a service contract with negligible component of goods/material and therefore it was beyond the competence of state legislature.

Hon’ble Supreme Court in the case of “ACC Ltd. vs. Commissioner of Custom” cited as (2001) 4 SCC 593 expressed its doubts about the correctness of the law laid down in Rainbow Case.

After the judgement in ACC Ltd. case”, a circular instruction was issued by Commissioner of Commercial Taxes to assessing authority to proceed with the assessments as per Entry 25. This Circular was challenged before the High Court of Karnataka in the case of “M/s. Golden Colour Labs and studio and others vs. The Commissioner of Commercial Taxes. High Court allowed the writ petition vide judgement dated 30.07.2003 holding that a provision once declared unconstitutional could not be brought to life by mere administrative instructions. However, High Court at the same time held that Entry cannot be revived automatically, unless there is re-enactment made by the State Legislature to that effect.

This paved way for the enactment of the Karnataka State Laws Act, 2004 by the state legislature that came into force with effect from 29.01.2004. Section 2(3) of the said amendment re-introduced entry 25 in identical terms, as it appeared earlier, and that too with retrospective effect that is w.e.f. 01.07.1989, when this position was inserted by the amendment made in the year 1989 for the first time. This was also challenged before Karnataka High Court.

Hon’ble Karnataka High Court vide judgement dated 19.08.2005 declared the said amendment unconstitutional stating the reason that ratio laid down in Keshoram’s Case continues to be binding on the state of Karnataka.

State of Karnataka filed present Civil Appeal against this judgement before Hon’ble Supreme Court. Hon’ble Supreme Court uphold the constitutional validity of Section 2(3) of said amendment that too with retrospective effect from 01.07.1989, on following grounds:-

[1] After 46th amendment of Constitution, single contract are divisible into one for sale of goods and other for supply of labour and service.

[2] “Dominant Intention” test is no longer good after 46th Constitutional Amendment.

[3] State Government is empowered to levy sales tax in case of works contract without determining intentions.

[4] Kone Elevator India Pvt. Ltd. (2014) 7 SCC 1 also relied upon.

[5] Subject to constitutional restrictions a power to legislate includes a power to legislate prospectively as well as retrospectively.

Click here to Download Full text of Judgement

(Author: Anish Jain, B.Com. LL.M. – Dy. Manager – Law- Ballarpur Industries Ltd., Gurgaon)

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May 2024