M/S. IMAGIC CREATIVE PVT. LTD. v. THE COMMISSIONER OF COMMERCIAL TAXES & ORS.

[2008) 1 S.C.R. 457 . _., A B ## M/S. IMAGIC CREATIVE PVT. LTD. _v._ THE COMMISSIONER OF COMMERCIAL TAXES & ORS. (C.A. No. 252 of 2008) JANUARY 9, 2008 ## **(S.B. SINHA AND HARJIT SINGH BEDI, JJ.]** _Kamataka Value Added Tax Act, 2003_ - _Value added tax_ - _Levy of- On the value of entire sale including the creation of concept whereon service tax already paid_ - _Propriety of_ - c _Held: In the instant case Value Added Tax is not payable on the value of the entire sale, irrespective of the element of service_ - _Service tax and Value Added Tax being mutually exclusive, have to be made applicable having regard to the respective parameters of service tax and sales tax as_ D _envisaged in_ a _composite contract_ - _Where application of Parliamentary and_ a _Legislative Act comes up for consideration, endeavour to be made as to make provisions of both the Acts applicable_ - _The sale in question does not attract the legal fiction envisaged in Article 366 (29 A)_ - _Finance Act, 1994_ - _Karnataka Sales Tax Act, 1957_ - _s. 12_ - **E** _Kamataka Sales Tax Rules- r. 3_ - _Constitution of India, 1950 -Articles 246 rlw Seventh Schedule, 366 (29 A)_ - _Interpretation of Statutes._ ~ ~I **Appellant-company was an advertising agency. It** F **used to create original concept and design advertising material, brochures, annual reports etc. for its clients. Appellant filed its returns for service tax under Finance Act, 1994 and also for sales tax under Karnataka Sales Tax Act, 1957. It was assessed by the Assessing Officer** G **under s. 12 of the Sales Tax Act and r. 3 of Karnataka Sales Tax Rules. Thereafter raid was conducted and criminal proceedings were initiated against the appellant. Appellant filed application uls 60 of Karnataka Value Added Tax,** . 457 H SUPREME COURT REPORTS 458 [2008] 1 S.C.R. A 2003 for classification and advance rulings. The authority concerned held that the entire activity undertaken by the dealer is a comprehensive conduct, therefore the entire sale value including the creation of concept, forms part of the value of sale and is accordingly liable to tax. The B[order was confirmed by Tribunal ][as ][well ][as ][High Court. ] In appeal to this court, the question for determination was whether the charges collected towards services of creation of concept, on which service tax had been paid under the Finance Act, 1994 (as amended from time to c time), is liable to tax under Karnataka Value Added Tax Act, 2003. ~ 1 t .. ## Allowing the appeal, the Court HELD: 1. Payments of service tax as also Value D Added Tax are mutually exclusive. Therefore, they should be held to be applicable having regard to the respective parameters of service tax and the sales tax as envisaged in a composite contract as contradistinguished from an indivisible contract. It may consist of different elements E[providing for attracting different nature ][of ][levy. ][In ][a case ] of this nature, sales tax would not be payable on the value of the entire contract; irrespective of the element of service provided. [Para 28] [475-F-G] 2. If the case of the State is accepted in its entirety, F whereas on the one hand, the Central Government would be deprived of obtaining any tax whatsoever under the Finance Act, 1994, it is possible to arrive at a conclusion that no tax at all would be payable as the tax has been held to be an indivisible one. A distinction must be borne G in mind between an indi"isible contract and a composite contract. If in a contract, an element to provide service is contained, the purport and object for which the Constitution had to be amended and clause 29A had to be inserted in Article 366 of the Constitution of India, 1950 H[must ][be ][kE'~t ][in mind. [Para ][25] ][[474-H; ][475-A-8] ] r·- .. MIS. IMAGIC CREATIVE PVT. LTD. _v._ THE COMMNR. 459 OF COMMERCIAL TAXES & ORS . 1 ' ~ ---., " ,,,-, • -l ~ 3. By reason of introduction of clause 29A in Article A 366, a legal fiction was created so as to make the supply of goods involved in a works contract, subject to tax. Such a legal fiction, should be applied only to the extent for which it was enacted. It, although must be given its full effect but the same would not mean that it should be B applied beyond a point which was not contemplated by the legislature or which would lead to an anomaly or absurdity. A transaction of the present description was not contemplated. [Paras 16 and 26} [469-G; 475-C-D] 4. The Court, while interpreting a statute, must bear[c ] in mind that the legislature was supposed to know law . and the legislation enacted is a reasonable one. The Court must also bear in mind that where the application of a Parliamentary and a Legislative Act comes up for consideration; endeavours shall be made to see that D provisions of both the Acts are made applicable. [Para 27] [475-E] 5. In the matter of interpretation of a taxing statute, as also other statutes where the applicability of Article 246 E of the Constitution of India, read with Seventh Schedule thereof is in question, the Court may have to take recourse to various theories including 'aspect theory' [Para 24] [474-F-G] _Mis.Gannon Dunkerley and_ Co. _and Ors. v. State of_ F _Rajasthan and Ors._ 1993 (1) SCC 364; _State of Madras vs. Gannon Dunerley and_ Co. _(Madras) Ltd._ 1959 SCR 378; _Bharat Sanchar Nigam Ltd. v. Union of India_ 2006 (3) SCC 1 - relied on. _Tata Consultancy Services v State of A.P_ 2005 (1) SCC G 132; _Tata Consultancy Services v. Municipal Corporation of Greater Bombay and Anr_ 2006 (3) SCC 1; _Associated Cement Companies Ltd. V. Commissioner of Customs_ 2001 (4) sec - 593 distinguished. H [2008] 1 S. C.R. SUPREME COURT REPORTS 460 A _Builders' Association of India and Ors. v. Union of India and_ Ors. **1989 (2) SCC 645;** _Federation of Hotel and Restaurant Association of India, etc. v. Union of India and Ors._ **1989 (3) SCC 634;** _State of UP Another v. Union of India and Anr._ **2003** (3) **SCC 239 - referred to.** B CIVIL APPELLATE JURISDICTION : Civil Appeal No. of 2008 4.- I" From the final Judgment and Order dated 29.11.2006 of the High Court of Karnataka at Bangalore in S.T.A. No. 7/2006. c Joseph Vellapally, Mohit Choudhary, Ashok Kulkarni, Pradeep Chandel, Manish Jain and Puja Sharma for the Appellant. Sanjay R. Hegde for the Respondents. D The Judgment of the Court was delivered by **S.B. SINHA, J.** 1. Leave granted. ...... 2. Whether the charges collected towards the services for evolution of prototype conceptual design (i.e. creation of E concept), on which service tax had been paid under the Finance Act, 1994 as amended from time to time is liable to tax under the Karnataka Value Added Tax Act, 2003 (the Act) is the question involved in this appeal which arises out of a judgment and order dated 29.11.2006 passed by a Division Bench of the F Karnataka High Court in STA No.7 of 2006. F 3. Appellant is an advertising agency. It provides for advertisement services. It creates original concept and design advertising material for their clients and design brochures, annual reports etc. The Contract between the appellant and their G clients does not appear to have been entered into in writing as no written contract as such has been placed before us. "· f # 4. We may notice a purchase order and the invoice which have been produced before us and the authenticity whereof is H[not ][in ][question : ] MIS. !MAGIC CREATIVE PVT. LTD. _v._ THE COMMNR. OF COMMERCIAL TAXES & ORS. [S.B. SINHA, J] 461 ||||"ESTIMATE A _|"ESTIMATE A _|"ESTIMATE A _|"ESTIMATE A _| |---|---|---|---|---|---|---| |P&PRUnit<br>_MIS_ISROHEADQUARTERS ,<br>Antariksh Bhavan, NewBELRoad,|||EstimateNo.014F<br>Date: 26.04.2003<br>JobNo.:051/APR/03|||| |Bangalore,|||EnquirvNo.<br>Ramachandran|||| |_Co-ordinatedby:_Mr.C.S.Ramachandran||||||| |Particulars - GSAT 2 POSTER||Qty.|Rate||Amount|| ||||Rs.|P.|Rs.|P.| |1.<br>2.<br>3.<br>4.|Conceptualising,Designand<br>Production of Computer<br>ArtWorkof sizeA3,front<br>back<br>B/wLinedrawingsinback<br>pageArtwork of sizeAS<br>Digital Inkjet Outputon<br>Photoglossy Paper for<br>Layout of sizeA3(1.5sq.ft.)<br>@Rs.100/-per.sq.ft.front<br>back<br>Four Colour Separated<br>PositivesSize:A3@Rs.250/-<br>per colour x 4Nos.=1,000<br>front<br>back<br>5%Service Tax on item 1<br>5%KST on item 3<br>1.5% Resale Tax on item 4|1No.<br>1No.<br>4Nos.<br>1No.<br>1No.<br>1 Set<br>1 Set|1,500<br>1,500<br>100<br>150<br>150<br>1,000<br>1,000|00<br>00<br>00<br>00<br>00<br>00<br>00|1,500<br>1,500<br>400<br>150<br>150<br>1,000<br>1,000<br>150<br>15<br>30|00<br>00<br>00<br>00<br>00<br>00<br>00<br>00<br>00<br>00| |Rupees Five Thousand Eight Hundred<br>Ninety Five Only|||Total Rs.||5,895|00| SUPREME COURT REPORTS 462 [2008] 1 S.C.R. |INVOICE|INVOICE|||||| |---|---|---|---|---|---|---| |Consignee<br>M/SMORRISTOOLINGPVT.LTD.<br>Doddaballapur<br>Bangalore<br>Co-ordinatedbyMr.Muniswamy||InvoiceNo.<br>707|||Dated<br>31.01.2004|| |||DeliveryNote/Date<br>531/23.01.04|||JobNo.<br>1175/DEC/03|| |||PurchaseOrderNo.<br>MTP/PU0/2004/00002<br>Muniswamy|||Dated<br>21.01.2004|| |SI.<br>No|SI.<br>DescriptionofGoods<br>No|Quantity|Quantity<br>Rate||Amount|| ||||Rs.|P.|Rs.|P.| |1.<br>2.<br>3.<br>4.|HSKTOOLHOLDER<br>DesigningandSystem<br>Charges<br>FourColourSeparated<br>PositivesforCoverSize:A3<br>TwoColourSeparated<br>PositivesSize:A4<br>FourColourOffsetPrinting<br>on300GSMMattArtCard<br>forCoverTwoColourOffset<br>Printingon170GSMMatt<br>ArtPaperforInnerpages<br>withcentrepinning<br>8%ServiceTaxon item 1<br>1.5%ResaleTaxon item2-4|1Set<br>21Sets<br>500Nos.|468|00|9,000<br>1,728<br>9,828<br>31,850<br>720<br>651|00<br>00<br>00<br>00<br>00<br>00| |||TOTAL|||53,777|00| |Rupees FiftyThree Thousand Seven Hundred SeventySevenOnly"||||||| |~~-~~||||||| 5. They filed their returns both under the Finance Act, 1994 H as also the Act. An order of assessment was passed by the M/S. IMAGIC CREATIVE PVT. LTD. _v._ THE COMMNR. 463 OF COMMERCIAL TAXES & ORS. [S.B. SINHA, J] • .J i ;~ Assessing Authority in terms of Section 12 of the Karnataka A Sales Tax Act and Rule 3 of the Karnataka Sales Tax Rules, material portion whereof reads as under : "In view of the above discussions, I hereby complete the assessment for the year 2eJ03-2004 under section 12(3) B of the KST Act 1957 by confirming the turnovers proposed in the proposition notice. Gross turnover Rs. 1,97,72,296-00 Add. Towards omissions as c per. Int. report _Rs. 6,_ 07, _840-00_ Gross turnover determined Rs. 2,03,80, 136-00 _Less : Exempted turnover_ 1) Taxes collected Rs. 2,43,848-00 D 2) Discount allowed Rs. 80,332-00 3) Service charges, design & art work charges collected in which no transfer of E property in goods is involved Rs. 54,27,260-00 4) Advertisment charges for Newspapers collected Rs. 80, 12,976-00 5) Sales outside the state _Rs.62,400-00 Rs.1,38,26,816-00_ F Taxable turnover Rs. 65,53,320-00 Classification of TTO: 1) Sale of Computer Printed materials @ 8% from 1.4.03 to 31.5.03 Rs. 4,57 ,242-00 Rs. 36,580-00 G 2) -do- from 1.6.03 to 31.3.04 @ 9% Rs. 16,19,122-00 Rs. 145,721-00 3) -do- to Government Departments against D forms @ 5% 11,45,034-00 Rs. 57,252-00 H SUPREME COURT REPORTS 464 [2008] 1 S.C.R. I- • A 4) Sale of Printed materials as II dealer liable for RST @ 1.5% Rs. 33,31,922-00 Rs. 49,979-00 5) Addi. Tax after 1.6.03 B @1% Rs. 27,642/- 6) Cess @ 15% on tax after 1.2.04 Rs. 5.850-00 Total Tax Rs. 3,23,024-00" 6. After passing of the order of assessment, a raid was C conducted. A criminal proceeding was initiated against the appellant-company. An application was filed by it before the appropriate authority under Section 60 of the Act for classification and advance rulings. By reason of the order dated 30[1] h September, 2005, it was held: D E F G H _''The issue_ is _examined in detail and it_ is _seen that in the sale of the advertisement material, the background activity such_ as _conceptualization_ is _no doubt an idea but creation of advertisement_ is a _comprehensive activity leading to creation of_ goods _in question. Even when any other_ goods _are produced there_ is some _idea and thought regarding the shape and size etc. Therefore, to separate design and concept taking the sale value of merely the advertisement material_ as _brochure etc._ is _improper._ > _It_ is _further seen that in the bills there_ is _separate charge made_ as _content development concept, design, photography scanning and other charges such_ as system _charges including colour sketch pen or computer used design software etc., Ultimately, the brochures come out. Considering the entire ambit of activity of the dealer it_ is _seen tht it_ is a _comprehensive contract or supply of printed material developed by the company The bills_ a/so _indicate the entire activity though separated_ is a _comprehensive work. Such creation of activity_ • _j ' M/S. IMAGIC CREATIVE PVT. LTD. _v._ THE COMMNR. 465 OF COMMERCIAL TAXES & ORS. [S.B. SINHA, J] 1 _tanamounts to making indivisible contract in a divisible_ A _contract. Therefore, this Authority rules that entire sale value including the creation of concept etc. done by the company forms a part of the value of sale of such brochures and liable to tax at 4% on the entire proceeds received including those relating to concept charges,_ B _system charges etc. In short, this Authority rules that the sale of printed m9terial with a background of providing the concept is an indivisible activity liable to tax at 4%_ as _a whole."_ > (Emphasis supplied) c 7. An appeal preferred thereagainst by the appellant in terms of Section 24(1) of the Karnataka Sales Tax Act has been dismissed by a Division Bench of the High Court. _••. ..o(_ -1 8. The High Court in its judgment noticed the decisions of D this Court in _Associated Cement Companies Ltd. v. Commissioner of Customs_ [(2001) 4 SCC 593]; _Tata Consultancy Services v. State of AP_ [(2005) 1 SCC 132]; and _Tata Consultancy Services v. Municipal Corporation of Greater Bombay_ & _Anr._ [(2006) 3 SCC 1] and held : E "In the light of the three judgments stated supra, what is clear to us is the services rendered by the appellant is an indivisible activity and liable to levy of tax. The aurhotity in Annexure-A after noticing the material facts, has chosen to hold that 'in the bills there is a separate charge made F as content development concept design, photography scanning and other charges such as system charges including colour sketch pen or computer used design software etc. Ultimately, the brochures come out. Considering the entire ambit of activity of the dealer, it is G seen that it is a comprehensive contract or supply of printed material developed by the company. The bills also indicate the entire activity tantamounts to making indivisible contract in a divisible contract'. The subsequent rectification application made by the applicant dated 24.12.2005 was H 466 SUPREME COURT REPORTS [2008] 1 S.C.R. _L_ A A not considered by the authority in terms of Annexure-H, after noticing the judgment of the Supreme Court in the case of Associated Cement Companites Ltd. (Stated supra). Therefore, it is clear that there is no mistake apparent on the face of the record. We are in full agreement B with the impugned orders at Annexure-A & H." 9. Mr. Joseph Vellapalli, learned senior counsel appearing for the appellant, would submit that - (1) the High Court committed a serious error in passing the impugned judgment in so far as in the event the contract is held to be an indivisible one, the service element thereof being subject to service tax, no sales tax could have been levied on the incidental transfer of goods unless such transfer falls within the scope and ambit of one of the provisions contained in subclauses (a) to (f) of clause (29A) of Article 366 of the Constitution of India. c D _r_ ,. - E F G H - (2) Appellant being an advertising agency, i.e., providing professional services, is not liable to pay Value Added Tax (VAT) upon application of dominion nature test or otherwise. - (3) From the orders of the assessment passed by the Assessing Authority itself, it would appear that a portion of the contract is often out sourced in which event, sale of goods are shown by the appellant as a second sale. - (4) On an indivisible contract, in view of the decisions of this Court in _The State of Madras_ v. _Gannon Dunkerley_ & Co., _(Madras) Ltd._ [1959 SCR 379]; _Mis. Gannon Dunkerley_ & Co. & Ors. v. _State of Rajasthan_ & Ors. [(1993) 1 SCC 364], no VAT would be payable. - (5) In any event, advertisement not being goods. they cannot be bought and sold in an open market being _. _'(_ ~ 467 M/S. IMAGIC CREATIVE PVT. LTD. _v._ THE COMMNR. OF COMMERCIAL TAXES & ORS. [S.B. SINHA, J] A • - customer specific . 1. 0. Mr. Hegde, learned counsel appearing on behalf of the respondents-State, on the other hand, submitted that i - ( i) an entire transaction is a composite whole inasmuch as all what was transferred is the documents B containing not only the value of the goods but also the soft skill involved therein; and - (ii) Taxable value of goods is what the buyer is buying and in view of the fact that when by some creativity c - the value of the goods is enhanced, the entire value has rightly been held to be taxable. Strong reliance in this connection has been placed on _Associated Cement Company_ (supra) as also the Constitution Bench decision of this Court in Tata Consultency and _Bharat_ D _Sanchar Nigam Ltd._ v. _Union of India_ [(2006) 3 SCC 1]. . _..-.:_ l ## -1 11. At the outset, we must express our reservation in regard to the question as to whether the appellant having already undergone the process of regular assessment before the assessing authority, an application under Section 60 of the E Karnataka Value Added Tax Act, 2003 was maintainable. The purpose for which such a proceeding is taken recourse to is well known. When a decision of a competent authority is not known and an entrepreneur intends to know as to what would be his liability under the taxing statute, such a proceeding is F ordinarily taken recourse to. But it is not necessary for us to consider the matter any further. In this case, the order of assessment was complete. The State did not prefer any appeal thereagainst. The process of accounting or the methodology adopted by the assessee for G the purpose of payment of both service tax as also the value added tax attained finality at least for that yeaL 12. Be that as it may, as the order of the competent ·authority under Section 60 of the Act would be binding on the H SUPREME COURT REPORTS [2008] 1 S.C.R. 468 I- ~ A assessing authority, in future also, we may examine the merit of the matter. 13. The fact that the appellant is a service provider is not in dispute. It is also not in dispute that the orders received by it B[to ][provide ][such ][services ][is ][party ][specific ][and ][issue ][specific; ][be ] it for issuance of a brochure or a year book or for any other purpose. t Appellant, in their returns, made three categorical divisions in regard to its tax liabilities (1) The amount of service tax on the c[specific ][design ][and ][production; ][(2) ][The ][amount ][of ][Karnataka ] Sales Tax on the specified item on the first sale; and (3) when certain items are outsourced, the tax payable on resale of the said goods in terms of Section 6(4) of the Karnataka Sales Tax Act. D D 14. The Tribunal as also the High Court opined that the contract was an indivisible one. The effect of such an indivisible contract, vis-a-vis work contract came up for consideration before this Court in _The State of Madras_ v. _Gannon Dunkerley_ & Co., _(Madras) Ltd._ [1959 SCR 379] wherein it was clearly E[held: ] "To avoid misconception, it must be stated that the above conclusion has reference to works contracts, which are entire and indivisible, as the contracts of the respondents have been held by the learned Judges of the Court below to be. The several forms which such kinds of contracts can assume are set out in Hudson on Building Contracts, at p.165. It is possible that the parties might ~nter into distinct and for money consideration, and the other for payment of remuneration for services and for work done." F ## G 15. The Parliament amended the Constitution to insert clause 29-A in Article 366 of the Constitution of India, Subclauses (a) to (f) whereof read thus : ..__ . .. _(._ "(29A) "tax on the sale or purchase of goods" includes- H M/S. IMAGIC CREATIVE PVT. LTD. _v._ THE COMMNR. 469 OF COMMERCIAL TAXES & ORS. [S.B. SINHA, J] ' .( j (a) a tax on the transfer, otherwise than in pursuance of a A contract, of property in any goods for cash, deferred payment or other valuable consideration; (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 ,. t (c) a tax on the delivery of goods on hire-purchase or any system of payment by installments; (d) a tax on the transfer of the right to use any goods for c any purpose (whether or not for a specified period) for cash, deferred payment or other valuable consideration; (e) a tax on the supply of goods by any unincorporated association or body of persons to a member thereof for cash, deferred payment or other valuable consideration; D "'I .. _ ..... : _>_ -1 (f) a tax on the supply, by way of or as part of any service or in any other manner whatsoever, of goods, being food or any other article for human consumption or any drink (whether or not intoxicating), where such supply or service, is for cash, deferred payment or other valuable E consideration, and such transfer, delivery or supply of any goods shall be deemed to be a sale of those goods by the person making the transfer, delivery or supply and a purchase of those goods by the person to whom such transfer, delivery or supply is made." F 16. By reason of the said provision, therefore, a legal fiction was created so as to make the supply of goods involved in a works contract, subject to tax. A transaction of the present G description was not contemplated. The question came for consi9eration again in _Builders' Association of India_ & _Ors._ v. _Union of India_ & _Ors._ [(1989) 2 SCC 645] and _Mis.Gannon Dunkerley_ & Co. & _Ors._ v. _State of Rajasthan_ & _Ors._ [(1993) 1 SCC 364]. It has expressly been H [2008] 1 S.C.R. SUPREME COURT REPORTS 470 ' A laid down therein that the effect of amendment by introduction of clause 29A in Article 366 is that by legal fiction, certain indivisible contracts are deemed to be divisible into contract of sale of goods and contract of service. In _Gannon Dunkerley case_ (supra), it had been held: B "Keeping in view the legal fiction introduced by the Fortysixth Amendment whereby the works contract which was entire and indivisible has been altered into a contract which is divisible into one for sale of goods and other for supply of labour and services, the value of the goods involved in the execution of a works contract on which tax is leviable must exclude the charges which appertain to the contract for supply of labour and services." c 17. We may also notice that a Constitution Bench of this D[Court ][in ] _[Tata ][Consultancy ][Services ]_[(supra), ][opined ][that ][having ] regard to the definition of the term 'goods" contained in clause (12) of Article 366 of the Constitution of India, a software programme may consist of various commands which enable the computer to perform a designated task. The copyright in E[that programme may remain with the originator of the ] programme, but the moment copies are made and marketed, it becomes goods, which are susceptible to sales tax. In regard to the element of intellectual property, it was held that the same having been incorporated on a media, for purposes F[of ][transfer, ][both ][tangible ][and ][intangible ][property ][capable ][of ] being transmitted, transferred, delivered, stored and possessed etc. would come within the purview thereof. It was opined : "Thus, even unbranded software, when it is marketed/sold, may be goods. We, however, are not dealing with this G aspect and express no opinion thereon because in case of unbranded software other questions like situs of contract of sale and/or whether the contract is a service contract may arise." 18. We may, furthermore, notice that therein one of us, in a H _L_ '\. ... ,,\ _(-_ MIS. !MAGIC CREATIVE PVT. LTD. _v._ THE COMMNR. 471 OF COMMERCIAL TAXES & ORS. [S.B. SINHA, J] A ~ .. '( ~ ·"": separate but concurring judgment, opined as under .# _>_ --· -. "78. A software may be intellectual property but such personal intellectual property contained in a medium is bought and sold. It is an article of value. It is sold in various · forms like - floppies, disks, CD-ROMs, punchcards, B . magnetic tapes, etc. Each one of the mediums in which the intellectual property is con.tained is a marketable commodity. They are visible to the senses. They may be a medium through which the intellectual property is transferred but for the purpose of determining the question as regard s leviability of the tax under a fiscal statute, it c may not make a difference. A program containing instructions in computer language is subject-matter of a licence. It has its value to the buyer. It is useful to the person who intends to use the hardware viz. the computer in an effective manner so as to enable him to obtain the D desired results. It indisputably becomes an object of trade and commerce. These mediums containing the intellectual property are not only easily available in the market for a price but are circulated as a commodity in the market. Only. because an instruction manual designed to instruct E use and installation of the ,supplier program is supplied with the software, the same would not necessarily mean that it would cease to be a "goods". Such instructions contained in the manual are supplied with several other goods including electronic ones. What is essential for an F article to become goods is its marketability." 19. The question yet again came up for consideration before a Three Judge Bench of this Court in _Bharat Sanchar Nigam Ltd._ v. _Union of India_ (supra) wherein it was held; "44. Of all the different kinds of composite transactions[G ] the drafters of the Forty-sixth Amendment chose three specific situations, a works contract, a hire-purchase contract and a catering contract to bring them within the fiction of a deemed sale. Of these three, the first and third H SUPREME COURT REPORTS [2008] 1 S.C.R. 472 A B c D E F G involve a kind of service and sale at the same time. Apart from these two cases where splitting of the service and supply. has been constitutionally permitted in sub-clauses ( _b_ ) and ( f) of clause (29-A) of Article 366, there is no other service which has been permitted to be so split. For example, the sub-clauses of Article 366(29-A) do not cover hospital services. Therefore, if during the treatment of a patient in a hospital, he or she is given a pill, can the Sales Tax Authorities tax the transaction as a sale? Doctors, lawyers and other professionals render service in the course of which can it be said that there is a sale of goods when a doctor writes out and hands over a prescription or a lawyer drafts a document and delivers it to his/her client? Strictly speaking, with the payment of fees, consideration does pass from the patient or client to the doctor or lawyer for the documents in both cases. ~ ' 45. The reason why these services do not involve a sale for the purposes of Entry 54 of List 11 is, as we see it; for • reasons ultimately attributable to the principles enunciated .. ~ in _Gannon Dunkerley_ case 5, namely, if there is an instrument of contract which may be composite in form in any case''other than the exceptions in Article 366(29-A), unless th~·transaction in truth represents two distinct and separate contracts and is discernible as such, then the State would not have the power to separate the agreement to sell from t~e agreement to render service, and impose tax on the sale. The test therefore for composite contracts .. other than those mentioned in Article 366(29-A) continues .. to be: Did the partie s have in mind or intend separate rights arising out of the sale of goods? If there was no such intention there is no sale even If the contract could be disintegrated. The test for deciding whether a contract _, falls into one category or the other Is to as what is "the '._. substance of the contract". We will, for the want of a better[. ] phrase, call this the dominant nature test. H \" 473 M/S. IMAGIC CREATIVE PVT. LTD. _v._ THE COMMNR. OF COMMERCIAL TAXES & ORS. [S.8. SINHA, J] ;. . ,. ; " , 50. What are the "goods" in a sales transaction, therefore, A remains primarily a matter of contract and intention. The seller and such purchaser would have to be _ad idem_ as to the subject-matter of sale or purchase. The court would have to arrive at the conclusion as to what the parties had intended when they entered into a particular transaction of B sale, as being the subject-matter of sale or purchase. In arriving at a conclusion the court would have to approach the matter from the point of view of a reasonable person of average intelligence." 20. We may, at this juncture, also notrce the decision of[c ] this Court in _Associated Cement Qompany_ (supra). The question which arose for consideration therein was as to whether any intellectual property contained in a software would be subject to custom duty within the meaning of Section 2(22) of the Customs Act, defining goods. A three Judge Bench of this Court D sought to make a distinction between such a contingency arising under the Customs Act involving a works contract and a contract of sale stating : "32. In the sales tax cases referred to hereinabove no E. doubt the question which arose was whether in a works contract, wher.e there was a supply of materials and services in an indivisible contract, but there the question had arisen because the States' powers prior to the Fortysixth Amendment to the Constitution, were not entitled to bifurcate or split up the contract for the purpose of levying[F ] sales tax on the element of moveable goods involved in the contract. Apart from the decision in _Rainbow Colour Lab_ case 11 which does not appear to be correct, the other decisions cited related to the pre-Forty-sixth Amendment period. Furthermore, the provisions of the G Customs Act and the Tariff Act are clear and unambiguous. Any moveable articles, irrespective of what they may be or may contain, would be goods as defined in Section 2(22) .of the Customs Act." H SUPREME COURT REPORTS · [2008] 1 S.C.R. 474 A 21. Evidently, therefore, the decision of _Associated_ • • _Cement Company_ Supra) whereupon strong reliance has been placed by the Tribunal as also by the High Court seeks to make a distinction between cases arising out of works contract wherefor sales tax is liable to be paid and the cases under the B[Customs ][Act. ] A c 22. Our attention has furthermore been drawn to the decision of this Court in _Bharat Sanchar Nigam Ltd._ (supra) wherein referring to _Tata Consultancy_ (supra) it was observed that the approach of this Court in the said decision as to what would be 'goods' for the purpose of sales tax is correct. -I' 23. What, however, did not fall for consideration in any of the aforementioned decisions is the concept of works contract involving both service as also supply of goods constituting a D[sale. ][Both, ][in ] _[Tata ][Consultancy ]_[(supra) ][as ][also ][in ] _[Associated ] Cement Company_ (supra), what was in issue was the value of the goods and only for the said purpose, this Court went by the definition thereof both under the Customs Act as also the Sales Tax Act to hold that the same must have the attributes of its utility, E[capability of ][being ][bought ][and ][sold ][and ][capability of ][being ] transmitted, transferred, delivered, stored and possessed. As a software was found to be having the said attributes, they were held to be goods. -. ~ ' 24. We have, however, a different problem at hand. F[Appellant ][admittedly ][is ][a ][service ][provider. ][When ][it ][provides ][for ] service, it is assessable to a tax known as service tax. Such tax is leviable by reason of a Parliamentary statute. In the matter of interpretation of a taxing statute, as also other statutes where the applicab.ility of Article 246 of the Constitution of India, read G[with ][Seventh ][Schedule ][thereof ][is ][in ][question, ][the ][Court ][may ] have to take recourse to various theories i_ncluding 'aspect theory', as was noticed by this Court in _Federation of Hotel_ & _Restaurant Association of India, etc._ v. _Union of India&_ Ors. [(1989) 3 sec 634J. 25. If the submission of Mr. Hegde is accepted in its entirety, H ~ ·~ .... 475 M/S. IMAGIC CREATIVE PVT. LTD. _v._ THE COMMNR. OF COMMERCIAL TAXES & ORS. [S.B. SINHA, J] ~· i· ¥ _)_ --i ~ _*_ whereas on the one hand, the Central Government would be A deprived of obtaining any tax whatsoever under t~e Finance Act, 1994, it is possible to arrive at a conclusion that no tax at all would be payable as the tax has been held to be an indivisible one. A distinction must .be borne in mind between an indivisible contract and a composite contract. If in a contract, an element B to provide service is contained, the purport and object for which the Constitution had to be amended and clau~e 29A had to be inserted. in Article 366, must be kept in mind. > 26. We have noticed hereinbefore that a legal fiction is created by reason of the said provision. Such a legal fiction, as[c ] is well known, should be applied only to the extent for which it was enacted. It, although must be given its full effect but the same would not mean that it should be applied beyond a point which was not contemplated by the legislature or which would lead to an anomaly or absurdity. D :,. 27. The Court, while interpreting a statute, must bear in mind that the legislature was supposed to know law and the legislation enacted is a reasonable one. The Court must also bear in mind that where the application of a Parliamentary and ·a Legislative Act comes up for consideration; endeavours shall be made to see that provisions of both the acts are made applicable. E 28. Payments of service tax as also the VAT are mutually exclusive. Therefore, they should be held to be applicable having F regard to the respective parameters of service tax and the sales tax as envisaged in a composite contract as contradistinguished from an indivisible contract. It may consist of different elements providing for attracting different nature of levy. It is, therefore, difficult to hold that in a case of this nature, sales tax would be G payable on the value of the entire contract; irrespective of the element of service provided. The approach of the assessing authority, to us, thus, appears to be correct. 34. We may notice that the concept of aspects theory whcih had found echoes in _State of UP Another_ v. _Union of India_ & H 476 SUPREME COUR'T REPORTS [2008] 1 S.C.R. A _Anr._ [(2003) 3 SCC 239] has expressly been overruled by a Three Judge Bench in _Bharat Sanchar Nigam Ltd._ (supra) stating: "78. But if there are no deliverable goods in existence as in this case, there is no transfer of user at all. Providing access or telephone connection does not put the subscriber in possession of the electromagnetic waves any more than a toll collector puts a road or bridge into the possession of the toll payer by lifting a toll gate. Of course the toll payer will use the road or bridge in one sense. But the distinction with a sale of goods is that the user would be of the thing or goods delivered. The delivery may not be simultaneous with the transfer of the right to use. But the goods must be in existence and deliverable when the right is sought to be transferred. B c D 79. Therefore whether goods are incorporeal or corporeal, tangible or intangible, they must be deliverable. To the extent that the decision in _State of UP_ v. _Union of India_ held otherwise, it was, in our humble opinion erroneous." _. .. E 35. For the reasons aforementioned, the impugned judgment cannot be sustained. It is set aside accordingly. The Appeal is allowed. No costs. K.K.T. Appeal allowed.