Works contract and entry tax: x-ray film preparation by a diagnostic centre was not treated as taxable supply of goods.

Preparation and supply of x-ray films by a diagnostic centre did not amount to a works contract or sale involving transfer of property in goods, because the film was only a medium for medical diagnosis and had no independent commercial value as goods. As no transfer of property in goods occurred in the execution of a works contract, the diagnostic centre could not be treated as a dealer for entry tax purposes. The entry tax notices and endorsement were quashed, and the demand-based action under the entry tax law was set aside.

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Issues: Whether the preparation of x-ray films by a diagnostic centre constituted a works contract or sale involving transfer of property in goods so as to attract liability under the Karnataka Tax on Entry of Goods Act.

Analysis: Liability under the entry tax regime depended on the person being a dealer and on the activity falling within the statutory concept of works contract. The statutory definition of works contract covered carrying out work in relation to movable or immovable property, including manufacture, processing, fabrication, erection, installation, fitting out, improvement, modification, repair, conversion or commissioning. The preparation of an x-ray film did not answer that description. The film handed over to the patient had no commercial value as goods and was only a medium for medical diagnosis. Since there was no transfer of property in goods in the execution of a works contract, the petitioner could not be treated as a dealer for the purpose of entry tax.

Conclusion: The petitioner was not liable to entry tax on the activity of preparing x-ray films and the impugned notices and endorsement were liable to be quashed.

Final Conclusion: The writ petition succeeded and the demand-based action under the entry tax law was set aside.

Ratio Decidendi: Preparation and supply of an x-ray film by a diagnostic centre, where the film has no independent commercial value and no transfer of property in goods occurs in the execution of a works contract, does not create liability under the entry tax provisions applicable to dealers.

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