Concessional tax benefit for hot mix raw materials upheld despite use in road construction works contract.

Raw materials used to manufacture hot mix qualified for concessional treatment under the U.P. Trade Tax Act because the relevant inquiry was their use in producing a notified product, not their eventual deployment in a road works contract. The deemed-sale treatment of goods involved in works contracts under article 366(29A)(b) did not displace the statutory benefit where the recognition certificate covered raw materials for manufacture of hot mix. The Court held that the show cause notice proceeded on an incorrect premise and that the supporting circulars could not override the statutory scheme; the assessee was therefore entitled to the concession and the notice was unsustainable.

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Issues: Whether raw materials used for manufacturing hot mix in road construction were eligible for concessional treatment under section 4B(2) of the U.P. Trade Tax Act, 1948, and whether the show cause notice seeking withdrawal of the recognition certificate was sustainable.

Analysis: The recognition certificate had been granted for raw materials used to manufacture hot mix, and those materials were used in execution of a works contract for road construction. After the Forty-sixth Amendment, transfer of property in goods involved in a works contract is treated as a deemed sale under article 366(29A)(b) of the Constitution of India. The statutory scheme of section 4B(2) of the U.P. Trade Tax Act, 1948 permits concessional purchase of raw materials required for manufacture of notified goods intended to be sold, and hot mix was a notified product. The impugned notice proceeded on the mistaken premise that the end use in road construction excluded the raw materials from the statutory benefit, although the relevant question was the manufacture of hot mix from those raw materials and the tax treatment of the transaction under the Act.

Conclusion: The assessee was entitled to the benefit of section 4B(2) of the U.P. Trade Tax Act, 1948, and the show cause notice and the supporting circulars were unsustainable.

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