Service contracts do not attract sales tax on incidental materials unless an express or implied sale of those materials is shown.

Where the dominant transaction is a contract of service, packing materials used incidentally in performing bleaching, dyeing and allied work are not taxable as a separate sale unless the taxing authority proves an express or implied agreement to sell those materials as such. Mere use of the materials, charging for them, or passage of property to the customer does not by itself establish a sale within the sales tax law. On the facts stated, no such agreement to sell the packing materials was shown, so the turnover assessed on that basis was not liable to sales tax.

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Issues: Whether the packing materials used in executing a contract of bleaching, dyeing and allied services were sold so as to be included in taxable turnover under the sales tax law.

Analysis: Liability to sales tax arose only if there was a sale within the meaning of the Act, that is, a transfer of property in goods pursuant to an express or implied agreement to sell. Where the main transaction was a contract of service, the mere fact that packing materials were used, charged for, and the property in them passed to the customer did not by itself establish a sale. In such a case, the taxing authority had to prove that the parties intended to contract for the sale of the packing materials as such. Since the principal contract here was one of service and no express or implied agreement to sell the packing materials was shown, the use of those materials remained incidental to the service.

Conclusion: The packing materials were not taxable as a separate sale, and the turnover assessed on that basis was not liable to sales tax.

Final Conclusion: A service contract does not attract sales tax on materials used in performance of the service unless the materials themselves are shown to have been the subject of an express or implied sale.

Ratio Decidendi: In a composite transaction whose dominant character is service, materials used incidentally are taxable as sales only if an agreement, express or implied, exists to sell those materials as such.

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