Works contract sales tax is confined to goods actually used, and tax orders must record adequate reasons to stand.

Sales tax on a turnkey works contract is confined to the value of goods actually involved in execution of the contract and cannot be computed on the entire indivisible contract price. The Forty-sixth Amendment deems transfer of property in goods in a works contract to be a sale, but the levy remains subject to Article 286 and the constitutional limit that only goods supplied in performance of the contract may be taxed. Quasi-judicial tax directions affecting civil liability must also record adequate reasons; unsupported orders are unsustainable, and the absence of reasons cannot be cured later by affidavit.

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Issues: (i) whether sales tax could be levied on the entire turnkey contract value or only on the value of goods actually involved in execution of the works contract; (ii) whether the impugned tax directions could stand when they were unsupported by adequate reasons.

Issue (i): whether sales tax could be levied on the entire turnkey contract value or only on the value of goods actually involved in execution of the works contract.

Analysis: The contract was treated as a works contract involving supply, erection and commissioning on a turnkey basis. After the Forty-sixth Amendment, transfer of property in goods involved in a works contract is treated as a deemed sale, but the taxing power extends only to the goods actually supplied in execution of the contract and remains subject to the constitutional restrictions in Article 286 of the Constitution of India. The levy could not therefore be computed on the entire project value merely because the contract was indivisible in form.

Conclusion: The levy could not validly be imposed on the entire contract value and had to be confined to the value of goods, if any, actually involved in the works contract.

Issue (ii): whether the impugned tax directions could stand when they were unsupported by adequate reasons.

Analysis: The orders were examined as quasi-judicial directions affecting civil liability. Such orders must disclose sufficient reasons so that their correctness can be tested in supervisory jurisdiction. A statutory authority cannot later cure the absence of reasons by filing an affidavit. Since the impugned directions did not disclose adequate reasoning, they were legally unsustainable.

Conclusion: The impugned directions were invalid for want of sufficient reasons.

Final Conclusion: The writ applications succeeded to the extent that the tax directions were quashed and the matter was sent back for reconsideration in accordance with law and the governing constitutional principles.

Ratio Decidendi: Sales tax on a works contract can be levied only on the value of goods actually involved in the execution of the contract and not on the entire contract price, and a quasi-judicial tax order must independently record reasons to be sustainable.

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