1999 (12) TMI 849 - HC - VAT and Sales Tax

Court Rules on Taxability of Packing Material in Job-Work Contract

The court held that the packing material used in job-work was not taxable if it was an essential part of the work execution. The notification dated ... - Issues:1. Taxability of packing material used in job-work.2. Applicability of notification dated November 7, 1988 for exemption.3. Levying of interest under section 11B(1)(f) for the period prior to April 1, 1987.Taxability of Packing Material:The case involves reassessment proceedings related to the period ending on March 31, 1987 and March 31, 1988, concerning the tax treatment of packing material used in job-work. The assessing officer levied sales tax on the packing material purchased without payment of tax, treating it as a sale of goods. However, the Deputy Commissioner, based on a notification, held that no tax was payable if the value of goods used in the works contract was less than 15% of the total value of the works. Consequently, the tax amount was deleted. The court emphasized the need to determine whether the packing material was an essential part of the work execution or a post-execution service to decide its taxability. It directed a fresh decision by the assessing authority to establish this fact and apply the appropriate tax rate accordingly.Applicability of Notification for Exemption:The contention raised was regarding the applicability of the notification dated November 7, 1988, for exemption from taxation if the value of goods in a works contract was below 15% of the total work value. The court held that this notification could not be applied retrospectively to transactions completed before its issuance. It noted the absence of any prior exemption based on the value ratio of goods used in work execution. Consequently, the court found that the tax board and Deputy Commissioner erred in granting the assessee the benefit of the notification. The case was remanded for a fresh decision in accordance with law.Levying of Interest under Section 11B(1)(f):Regarding the levy of interest under section 11B(1)(f) for the period before April 1, 1987, the court referred to a previous decision and deferred the decision on interest levy until a larger Bench of the court reached a conclusion on the matter. The court directed that the question of interest levy in the present case would abide by the decision of the larger Bench. As a result, the civil revision was allowed, appellate orders set aside, and the case remanded for a fresh decision by the assessing officer in line with the court's directions.This detailed analysis of the judgment covers the taxability of packing material, the applicability of the exemption notification, and the deferred decision on interest levy under section 11B(1)(f) for the period before April 1, 1987.