Works-contract receipts cannot be taxed as sale price where labour and profit components fall outside the State's goods tax power.

The State's power under Entry 54 of List II extended only to taxing the sale or purchase of goods, so it could not tax the labour, supervision and profit components embedded in works-contract receipts. A works contract payment was not confined to the value of materials, and the definition of "sale price" in section 2(h)(ii) of the Madhya Pradesh Sales Tax Act, 1947, together with the deduction formula in rule 7 of the Vindhya Pradesh Sales Tax Rules, 1954, went beyond that constitutional power insofar as they applied to works contracts. The provisions were therefore invalid to that extent, and assessments resting on them were unsustainable in relation to contract business.

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Issues: Whether the definition of "sale price" in section 2(h)(ii) of the Madhya Pradesh Sales Tax Act, 1947 and rule 7 of the Vindhya Pradesh Sales Tax Rules, 1954 were valid insofar as they subjected works-contract receipts to sales tax, and whether assessments made on that basis could be sustained.

Analysis: Entry No. 54 of List II of the Seventh Schedule to the Constitution empowered the State only to tax the sale or purchase of goods. The Court held that a works contract payment includes not only the value of materials but also labour, supervision and profit, and that the State could not, under the guise of taxing a sale of goods, impose tax on those non-goods components. The definition of "sale price" and the deduction formula in rule 7 were therefore beyond the legislative power conferred by the Constitution.

Conclusion: The definition of "sale price" in section 2(h)(ii) and rule 7 were invalid to the extent they applied to works contracts, and the assessments based on those provisions were unsustainable in so far as they related to contract business.

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