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

Citation: [2008] 1 S.C.R. 457 · Decided: 09-01-2008 · Supreme Court of India · Bench: S.B. SINHA · Disposal: Case Allowed

Cited by 3 judgment(s) · see the full citation network in Lexace

Judgment (excerpt)

[2008) 1 S.C.R. 457 
. _., 
M/S. IMAGIC CREATIVE PVT. LTD. 
A 
v. 
""" 
THE COMMISSIONER OF COMMERCIAL TAXES & ORS. 
(C.A. No. 252 of 2008) 
JANUARY 9, 2008 
B 
(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) -
E 
Finance Act, 1994 - Karnataka Sales Tax Act, 1957 - s. 12 -
-
Kamataka Sales Tax Rules- r. 3 - Constitution of India, 1950 
-Articles 246 rlw Seventh Schedule, 366 (29 A) - Interpretation 
of Statutes. 
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 
~I 
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 
458 
SUPREME COURT REPORTS 
[2008] 1 S.C.R. 
A 2003 for classification and advance rulings. The authority 
~ 1 
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 
t 
creation of concept, on which service tax had been paid 
-
c 
under the Finance Act, 1994 (as amended from time to 
time), is liable to tax under Karnataka Value Added Tax 
Act, 2003. 
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] 
F 
2. If the case of the State is accepted in its entirety, 
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 
r·-
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] 
MIS. IMAGIC CREATIVE PVT. LTD. v. THE COMMNR. 
459 
OF COMMERCIAL TAXES & ORS . 
• 
-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 
1 
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 

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