ORDER
U.B.S. Bedi, J.M.
1. This is assessee’s appeal directed against the order passed by the learned CIT(A)-I, dt. 4th April, 2000, relevant to the financial year 1995-96, whereby the challenge is with regard to confirmation of creation of demand under Section 201(1) and 201(1A) of the Act.
2. It is seen that the learned CIT(A) has passed a single order for the financial years 1995-96 and 1996-97 and the assessee, by paying fee only for one year, has challenged the confirmation of demand created for both the years. Assessee has filed one set of papers whereas it was required to file two appeals for each of the financial years separately and had to pay the fees for both the years. So taking into account these facts, the appeal of the assessee for financial year 1995-96 would only be considered. Since one consolidated order has been passed by the AO for both the financial years and the learned CIT(A) also has passed one consolidated order for both the years but this order will, however, cover only one year i.e., financial year 1995-96 and so far as the order in relation to financial year 1996-97 is concerned, no cognizance is being taken with respect to that year and the same is ignored.
3. According to the AO, a survey under Section 133A was conducted in the business premises of the assessee on 8th Oct., 1997. It was noticed that the assessee-company did not deduct the tax as per the provisions of Section 194C from the payments made to M/s Mudranika on account of supply of printed labels to be utilized for pasting on bottles. The material consisted of imported mirror coat paper labels like Officer’s choice, whisky labels, etc. The AO, therefore, issued summons to the assessee. It was contended by the assessee that it was giving only purchase order and on the said purchases, sales-tax was paid and the transactions were not covered by the provisions of TDS. The AO, however, did not agree with the assessee. He, while holding that the assessee failed in deducting the tax from the payments made to M/s Mudranika as per the provisions of Section 194C, has concluded as under :
“I have considered all the submissions made on behalf of the assessee. However, considering the recent Circular No. 715, dt. 8th Aug., 1995, the
provisions of Section 194C are attracted irrespective of the advertisement. In the case of Glaxo India Ltd., such printing and packing material was subjected to liable for tax deduction under Section 194C of the Act. The matter has gone up for consideration of the CBDT. The CBDT vide F. No. 275/215/96-H(B), dt. 30th Oct., 1996, has held that there is element of work and an element of purchase in the packing contracts. The action of ITO (TDS), Nashik, was justified, as law does not deal with how composite contracts are to be dealt with for the purpose of TDS. Considering the similar facts and circumstances of the case, I hold that the provisions of Section 194C are applicable in respect of printing and packing material in the instant case.”
He, therefore, determined the short deduction of tax under Section 201(1) at Rs. 40,481 and interest under Section 201(1A) at Rs. 11,132 for the financial year under consideration and required the assessee to pay the same.
4. The assessee took up the matter in appeal and it was pleaded before the first appellate authority that the AO was not correct in applying the provisions of Section 194C to the payments made by the assessee to M/s Mudranika. He pointed out that the assessee was prohibited from advertising. He further stated that as per the decision of the Hon’ble Supreme Court in the case of State of Himachal Pradesh v. Associated Hotels of India Ltd. (1972) 29 STC 474 (SC), the AO should have applied the same as the substance of the contract is not of work and labour but purchase of the material. It was further submitted that the provisions of Section 194C were applicable only in relation to the work contract and labour contract and did not cover contract for sale of goods. According to the learned counsel for the assessee, provisions of Section 194C were wrongly applied in the case of the assessee. The learned CIT(A) while considering but rejecting the plea of the assessee has concluded to dismiss the appeal vide paras 4 and 5 of his order as under:
“4. I have considered the reasons given by the AO and the submissions of the learned counsel for the appellant carefully. I find that the work done by M/s Mudranika for the appellant-company was printing the labels. This work was done as per the specifications of the appellant-company. The learned counsel was, therefore, not correct in stating that the appellant had purchased the labels from M/s Mudranika, who had done the work as per the specifications of the appellant-company and supplied the labels to them printing the same according to the specifications of the appellant-company. The Circular No. 715 of the CBDT, dt. 8th Aug., 1995, was, therefore, clearly applicable to the facts of the appellant’s case. It is further seen that the decision of the Hon’ble Supreme Court relied upon by the learned counsel, is not applicable to the facts of the appellant’s case. The AO, therefore, correctly required the appellant to pay on account of short deduction of tax and interest payable thereon. Hence, no interference is required.
5. The appeal is dismissed.”
5. Still aggrieved, the assessee filed further appeal.
6. The main argument of the learned counsel for the assessee was that the assessee did not deduct tax as per the provisions of Section 194C from the payment made to M/s Mudranika on account of printing and packaging material because
it did not constitute works contract and was a purchase and the material involved consisted of mirror coat paper labels, like officer’s choice, whisky labels, etc. The AO also issued summons to the assessee-company and it was contended that the assessee was giving only purchase orders and on the purchases sales-tax was paid and the transactions were not covered by the provisions of the TDS. The AO was unjustified in creating a demand either under Section 201(1) or 201(1A) and the learned CIT(A) has unjustifiably confirmed the same. It was pleaded for deletion of the demand so created. Reliance was placed on the decisions in the case of Wadilal Dairy International Ltd. v. Asstt. CIT (2001) 70 TTJ (Pune) 77 : (2002) 81 ITD 238 (Pune) to contend that assessee’s case is not covered under the provisions of Section 194C and it does not come under the purview of Circular No. 715, dt. 8th Aug., 1995, which mainly pertains to the advertisement material whereas the assessee purchased labels for pasting them on the bottles of liquor and it is not meant for any advertisement and, therefore, neither the circular of the Board is applicable nor the provisions of Section 194C and, therefore, the orders of the authorities below creating/confirming the demand may be quashed.
7. The learned Departmental Representative while relying upon the orders of the authorities below has pleaded for confirmation of the impugned order. It was further submitted that the scope of Section 194C has been enlarged and the circular of the Board has further clarified the provisions and as per Q. No. 15 and answer thereto as contained in the said circular, the assessee’s case falls within the category as clarified in that, as such the provisions of Section 194C are very much attracted. It was also submitted that para 5 of the order of the AO makes it very clear that the provisions of Section 194C are attracted irrespective of the advertisement. Since there is an element of works contract as well as purchases therein and as chattel is not being sold as chattel, supplier of those labels is not authorized to use and only to destroy the rejected material and nobody else can use the said material and not even it can be sold as wastage paper, because it is an offence under the relevant State excise law. Therefore, it is works contract which involves printing as well as supply of the paper on which printing is done being an indivisible contract, same falls within the purview of Section 194C and hence, the payment with respect to such material is liable to TDS. Since the assessee has failed to deduct the tax at source, therefore, the demand created by the AO is justified and same has rightly been confirmed by the CIT(A), which needs to be confirmed further. So far as the decision of Pune Bench in the case of Wadilal Dairy International Ltd. (supra) as relied upon by the counsel of the assessee is concerned, it was submitted that there is a Full Bench decision of the jurisdictional High Court in the case of Sawodaya Printing Press v. State of Maharashtra (1994) 93 STC 387 where the facts are identical and since involved is almost similar with the case in hand, so, in view of this jurisdictional High Court decision, the decision of even of the same Bench of the Tribunal cannot be given preference. As the case of the assessee is almost on all fours with Bombay High Court’s decision, therefore, it was pleaded for confirmation of the impugned order.
8. The learned counsel for the assessee, in order to counter the submissions of the learned Departmental Representative has pleaded that in the case of
Wadilal Dairy International Ltd. (supra) the Full Bench decision of the jurisdictional High Court and other decisions have not only been taken note of but were duly considered. As the facts of the case in hand and the case decided by the Tribunal are almost similar, therefore, applying the precedent of Pune Bench the demand created under Section 201(1) and 201(1A) is liable to be deleted and same was urged to be deleted.
9. After hearing both the sides and considering the material on record, I find from the record that the assessee placed an order for supply of labels as per the specification of the assessee-company who is dealing in liquor and printing as instructed was required to be done on such labels, whose size, design and other specifications are supplied by the assessee. There is no denying the fact that in case of printing of labels if not done strictly in accordance with the specifications supplied by the assessee, neither that material could be used by the assessee nor the supplier of labels could use the same for any other purposes or even sell the same as waste material/scrap. As per the statement made by the assessee’s counsel, such defective material had to be destroyed by the supplier. Under the circumstances, the material cannot be purchased in defective condition inasmuch as there cannot be any deviation from the specifications given by the assessee if any such defect having been crept in the material even then, it had to be destroyed and could not even be sold as such by the supplier. It appears from the arrangement made between the assessee and the supplier that the intention of the contracting parties was to get the printed labels of the specification supplied from these facts, it cannot be said that transfer is chattel qua chattel and there is nothing in the language of Section 194C(1) which would exclude the scope of its applicability to the said arrangement made between the assessee and the supplier of printed labels. As such, the said transaction is in the nature of works contract and not of simple purchase of material because a particular type of work is involved. Since the sole purchases are with reference to certain specification, it clearly becomes a contract between two parties. Moreover, printing details, on the material, to be supplied is not incidental or ancillary. Specific printing on the particular type of paper has got its own importance and a minor mistake of printing in mentioning of the contents as specified will cause great loss to the assessee and the same cannot be used at all and it can delay the working of the assessee which may affect adversely. Since such defective material cannot be used thus the printing is not at all incidental in this case. The principal object of the assessee is to get the material printed as per the prescribed specifications and not to purchase printed material as available in the market. The charges are composite and not separately mentioned. Under such contract, the supplier party cannot retain or use the printed material and the excess, if any, was to be destroyed. The supplier party is responsible for protecting the goods and preventing them from falling into the hands of third parties. Its commercial value becomes zero in the case of rejection and it cannot be used even as a scrap. Therefore, the supply of printed material i.e., labels as per specification supplied by the supplier is not a sale but a contract involving work. Merely because sales-tax, etc., was charged on the supply of material could not lead to the conclusion that it was purely purchase of goods, because the said levy has its own identity and nothing to do with income-tax. Moreover,
Board Circular No. 715, dt. 8th Aug., 1995, applies only to the supply of printed materials with prescribed specifications and not for other purchases.
10. Before proceeding to consider the issue raised, let me examine the judicial aspects. The Hon’ble Bombay High Court (Full Bench) in the case of Sarvodaya Printing Press v. State of Maharashtra (supra) where dispute was under sales-tax laws and after discussing the facts of the case Hon’ble Court opined as under:
“The applicant ran a printing press where only job-work was done. It supplied printed material to the Madhya Pradesh Electricity Board (MPEB) in the form of multi-coloured triplicate receipt books, specially designed, printed and prepared to the specifications of the MPEB. The words “Madhya Pradesh Electricity Board” were printed in various faint colours all over each page of the receipt book as a background, on which the detailed heads of the charges of electricity such as energy bill, surcharge, etc., were printed in black. The charges for the supply were on one composite sum for the entire job. The charges for the supply were of one composite sum for the entire job. The applicant was obliged to destroy any receipt books in excess of the MPEB’s requirement. On the question whether the transaction was a sale or works contract:
Held, that having regard to the special type of job work done and other basic circumstances, the supply represented a works contract. The intention of the parties was material and it was obvious. The principle object of the MPEB charges were composite. The books were specially designed for the MPEB as per its specifications as to size, type, colour, format, background, etc. No space was left blank obviously because the books were valuable and upon misuse could cause terrible loss to the MPEB. Under the contract the applicant could not retain or use the printed books and the excess, if any, had to be destroyed. Although the paper and ink used were property of the applicant before printing thereafter they become the property of the MPEB by theory of accretion. The passing of property in the goods used to the MPEB was by the very nature of things, only incidental or ancillary to the contract of printing. No transfer of chattel qua chattel was involved. The work done was composite or indivisible with separate charges for the material. The applicant was responsible for protecting the goods and preventing them from falling into the hands of third parties. The goods were not standard goods and were not capable of any use to any one else and thus had no commercial value. Material could not be used even as scrap if rejected and had to be destroyed. Therefore, the supply of printed material to the MPEB by the applicant was not a sale but a works contract”.
11. So far as the difference between a sale and works contract is concerned, there are several decisions, which are too numerable to be noticed. The last word on the subject has been uttered in the authoritative pronouncement of the Supreme Court in the case of State of Tamil Nadu v. Anandam Viswanathan (1989) 73 STC 1. It was a case of printing and supply of guestion papers of the university. The Supreme Court held that though sale of paper and ink was involved, it was merely incidental. It was not a case of sale but of a works contract having regard to be done and the confidence reposed for the work to be done for remuneration. Following observations are appropriate:
“The primary difference between a contract for work or service and a contract for sale is that in the former there is in the person performing or rendering service no property in the thing produced as a whole, notwithstanding that a part or even the whole of the material used by him may have been his property. Where the finished product supplied to a particular customer is not a commercial commodity in the sense that it cannot be sold in the market to any other person, the transaction is only a works contract.”
12. Having regard to the special type of job work done and other basic circumstances noticed above, it seems to me that the supply does not represent a transaction of purchase but simply is a works contract which is subject to tax deductible at source. The intention of parties is most material and it is obvious. The principal object of the assessee was to get the material printed and not to purchase the printed material. Charges are composite. The labels were specially designed for the assessee as per its specifications as to size, type, colour format, etc. Under the contract, the suppliers could not retain or use the printed labels and excess if any, is to be destroyed. Paper and ink used are no doubt property of the supplier before printing but thereafter they become the property of the assessee by theory of accretion. No doubt property in the goods passed on to the assessee but it was by way of nature of things only incidental or ancillary to the contract of printing. No transfer of chattel qua chattel was involved. The work done was composite and indivisible with composite charges for the entire job. The supplier was prohibited from selling the said material to any one else or to use them for any purpose. Element of responsibility was also involved. In any case, they were not standard goods and were not capable of any use to anyone else and thus had no commercial value. Material could not be used even as a scrap if rejected and had to be destroyed. Therefore, the supply of printed material to the assessee by the supplier was not a purchase but a works contract.
13. Now coming to the facts of the present case these are almost identical to the facts of the case decided by the Bombay High Court and issue involved and decided is the same. Therefore, the provisions of Section 194C as clarified by the Circular No. 715, dt. 8th Aug., 1995, are found to be applicable to the present case.
14. As regards the Tribunal decision in the case of Wadilal Dairy International (supra) as heavily relied upon by the learned counsel for the assessee, is concerned, to my mind, the same loses its importance and cannot be held to be applicable in view of the jurisdictional High Court’s decision as referred to above. No doubt, earlier decision of the same Bench has a persuasive value and Special Bench decisions have still more value than the Division Bench/Single Member’s decision but at the same time, any decision, even if, passed by maximum numbers of Members sitting together even in a Special Bench, can be quashed/set aside/reversed/annulled/disturbed/overruled/vacated even by a Single Judge of the jurisdictional High Court. As regards doctrine of precedents is concerned, the rule of judicial precedent is a salutary one and is aimed at achieving finality and homogeneity of judgments. The doctrine of binding precedent has the merits of promoting certainty and consistency in judicial decisions, and enables organic development of the law, besides providing
assurance to the individual as to the conseguence of transactions forming part of clear and consistent enunciation of legal principles in the decisions of a Court [Union of India v. Raghubir Singh (1989) 178 ITR 548 (SC)]. The Art. 141 of the Constitution of India embodies the doctrine of precedents as law and provides that the law declared by the Supreme Court shall be binding on all Courts and Tribunals in India [CWT v. Aluminium Corpn. of India Ltd. (1972) 85 ITR 167 (SC)]. Similarly, the doctrine of precedent is applicable to the decisions delivered by the High Court. The law declared by the High Court is binding on all the Courts subordinate to it within its territorial jurisdiction. By judicial precedent the law declared by the High Court is to be followed by the Courts and Tribunal subordinate to it and under its supervisory jurisdiction. The law declared by the High Court in the State is binding on the authorities or Tribunals under its superintendence and they cannot ignore it either in initiating a proceeding or deciding on the rights involved in such proceedings. The launching of proceeding contrary to the law laid down by the High Court would be invalid and proceedings themselves would be without jurisdiction [East India Commercial Co. Ltd. v. Collector of Customs AIR 1962 SC 1893]. Not to follow the decision of the High Court within that jurisdiction the AO is, would tantamount to committing contempt of that Court [Siemens India Ltd. v. TTO (1983) 143 TTR 120 (Bom)]. In order to give a word of caution, while applying the precedent, the Hon’ble Supreme Court in the case of State Financial Corporation v. Jagdamba Oil Mills AIR 2002 SC 834 has opined in para 19 as under;
“Courts should not place reliance on decisions without discussing as to how the factual situation fits in with the fact situation of the decision on which reliance is placed.”
And further in para 21 the Hon’ble Supreme Court observed as under :
“Circumstantial flexibility, one additional or different fact may make a world of difference between conclusions in two cases. Disposal of cases by blindly placing reliance on a decision is not proper.”
Since the facts of the present case are on all fours with the case decided by the jurisdictional High Court (Full Bench), otherwise which is also a binding precedent for this Bench and moreover, no dissimilarity could be noticed or having been pointed out, therefore, in the light of doctrine of precedents and other case law as discussed above and while applying the ratio of the said decision, I hold that purchase of printed labels as per specifications supplied by the assessee is nothing but works contract. As the assessee has failed to deduct tax at source from the price paid for such purchases in terms of provisions as contained in Section 194C, therefore, action of the AO is legally correct in creating a demand under Section 210(1) and also charging interest under Section 201(1A) of the Act and the learned CIT(A) is justified in confirming the action of the AO on both these counts. While upholding the action of the authorities below, I dismiss the appeal of the assessee.
15. As a result, the appeal of the assessee gets dismissed.