Pure labour contracts fall outside sales tax deduction where no transfer of property in goods takes place.

Tax deduction is not permissible from payments under a pure labour contract where the contractor does not transfer property in goods. The Forty-sixth Amendment and the amended definition of sale under the Kerala General Sales Tax Act, 1963 extend the tax net only to works contracts involving such transfer, whether in goods or in another form. Where the contractor supplies only labour, or where materials are supplied by the Board and no transfer of property in goods by the contractor occurs, sales tax deduction cannot be compelled under the circular.

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Issues: Whether tax deduction could be made from payments under works contracts where the contractor supplied only labour and no transfer of property in goods was involved.

Analysis: The Forty-sixth Amendment and the amended definition of sale under the Kerala General Sales Tax Act, 1963 bring within tax net only works contracts involving transfer of property in goods, whether as goods or in some other form. The constitutional and statutory provisions do not authorise levy or deduction of sales tax in respect of a pure labour contract. The impugned circular was held not to compel deduction in cases where the contractor supplied no goods and no transfer of property in goods took place.

Conclusion: Deduction of tax was not permissible from payments for contracts involving only labour or execution of work with materials supplied by the Board, where no transfer of property in goods by the contractor was involved.

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