The determination of whether a transaction constitutes a sale of finished products or a works contract depends on the primary intention of the parties and the main object of the contract. If the main object is the transfer of property in a chattel, it is a contract of sale. However, if the principal object is the work and labor bestowed on the material, it is a contract of work and labor.

( 1 ) THIS is a revision by the assessee and pertains to the assessment year 1973-74.

( 2 ) THE assessee is aggrieved by an order of the Sales Tax Tribunal which decided, in appeal, that the assessees had effected sales of diaries and labels and had not done any works contract.

( 3 ) THE assessee is a dealer in diaries, books, etc. He also booked orders to prepare labels of specifications provided by the customers and also prepared diaries of certain specifications. The assessee has been found to have charged a consolidated price for the diaries and labels. He has not charged separately for the paper and labour. The Tribunal held that since the assessee had charged a consolidated price for the products supplied, that would be the crucial test for determining whether the assessee was entitled to any exemption in respect of the printing charges. The approach of the Tribunal was, as the Tribunal expressly said so in paragraph 12 of the judgment, that "the primary question in such cases that arises for determination is the intention of the parties viewing the transaction as a whole. " It calls for decision if they intended an apportionment or viewed the transaction on compartmented basis as that which represents labour and that which represents sale of the material.

( 4 ) HAVING framed this question, the Tribunal came to the conclusion that since the assessee has been paid a consolidated sum for the supply of material in the shape of diaries which were prepared though according to the customers specifications, the assessee sells the diaries to the customers.

( 5 ) A similar approach was adopted by the Tribunal in regard to the labels.

( 6 ) THE learned counsel for the assessee, Sri Bharatji Agrawal, has argued that what the assessee did was essentially to apply skill and labour to the paper and produced the diaries according to the specifications supplied by the customers and therefore, what the assessee did was that he executed a works contract and did not effect a sale of the finished products to the purchasers.

( 7 ) THE second argument of Sri Bharatji Agrawal broadly put is that whenever a printer executes an order to a particular specification and the goods produced are not capable of being used by any one other than the purchaser, there is a works contract and there is no sale of goods.

( 8 ) TAKING up Sri Bharatji Agrawals first argument, there is one difficulty that this argument does not appear to have been advanced before the Tribunal in the form that has been put by Sri bharatji Agrawal. The entire approach seemed to to take the view that where the papers are used on which some labour has been expended then unless the price of the papers is separately charged and also for the labour involved, there is always a sale of products.

( 9 ) THE Supreme Court in the case of Assistant Sales Tax Officer v. B. C. Kame [1977] 39 STC 237 (SC) had a case of a photographer who, inter alia, supplied positive prints of the same size negative brought to him by his customers. The revenue wanted to tax the transaction. The supreme Court held that it was a works contract and sales tax was not leviable. The Supreme court observed that, the question as to whether a contract is a contract of work and labour or a contract for sale is not one free from difficulty. The reason for that is that in border line cases the distinction between the two types of contracts is very fine. This is particularly so when the contract is a composite one involving both a contract of work and labour and a contract of sale. Nevertheless, the distinction between the two rests on a clear principle. A contract of sale is one whose main object is the transfer of property in, and the delivery of the possession of, a chattel as a chattel to the buyer. Where the principal object of work undertaken by the payee of the price is not the transfer of a chattel qua chattel, contract is one of work and labour. The test is whether or not the work and labour bestowe