Works contract taxability extends to photocopying where paper and ink pass to the customer as deemed sale.

After the Forty-sixth Amendment, a composite contract may be taxed to the extent it involves transfer of property in goods in execution of the contract. The Bombay HC applied that post-amendment position to photocopying and held that, where paper and ink supplied by the assessee passed to the customer, there was a deemed sale under the works contract law. The value of the goods transferred was not decisive; the critical question was whether property in the goods passed in the course of the contract. Pre-amendment authorities and cases on photographic processing were treated as inapplicable. The answer was therefore against the assessee and in favour of the Revenue.

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Issues: Whether the transaction of photocopying, to the extent it involved paper and ink supplied by the assessee, constituted a transfer of property in goods involved in the execution of a works contract and was therefore taxable under the works contract legislation.

Analysis: The constitutional amendment introducing clause (29A) to Article 366 was treated as creating a legal fiction enabling bifurcation of composite contracts so that the transfer of property in goods involved in execution of a works contract could be taxed. The Court applied the post-amendment position and held that the value of the goods transferred was not material; what mattered was whether property in goods passed in the course of the contract. Reliance on pre-amendment authorities and on decisions dealing with photographic processing was rejected as inapplicable. The Court held that when paper and ink used in photocopying passed to the customer, there was a deemed sale within the meaning of the works contract law.

Conclusion: The transaction of photocopying, so far as paper and ink were passed on, amounted to a taxable deemed sale under the works contract law and the answer to the referred question was against the assessee and in favour of the Revenue.

Ratio Decidendi: After the Forty-sixth Amendment, a composite contract is taxable to the extent it involves transfer of property in goods in execution of the contract, and the dominant purpose of service does not exclude taxability where such transfer occurs.

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