Prospective exemption notifications and job-work packing material taxability depend on the true factual and legal character of the supply.

An exemption notification operates prospectively unless retrospective effect is clearly stated, so it could not apply to transactions completed before 7 November 1988. The assessee was therefore not entitled to the exemption for the earlier period. Liability on packing material used in job-work turned on a factual inquiry into whether it formed an essential part of the works contract or was supplied separately as a sale; because no such inquiry had been undertaken, the authorities were required to reconsider the matter on the true factual position and the applicable legal basis.

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Issues: (i) Whether the exemption notification dated 7 November 1988 could be applied to transactions completed before its commencement; (ii) whether the taxability of packing material used in job-work depended on a factual inquiry into whether it formed part of the execution of the work or constituted a separate sale.

Issue (i): Whether the exemption notification dated 7 November 1988 could be applied to transactions completed before its commencement.

Analysis: The notification granting exemption where the value of goods involved in a works contract was less than 15 per cent of the total value of the work was not expressed to have retrospective effect. A notification of this kind cannot govern transactions already completed before the date on which it came into force. In the absence of material showing any earlier exemption on the same footing, the benefit of the notification was not available for the relevant assessment period.

Conclusion: The assessee was not entitled to the benefit of the notification for the period prior to its enforcement.

Issue (ii): Whether the taxability of packing material used in job-work depended on a factual inquiry into whether it formed part of the execution of the work or constituted a separate sale.

Analysis: Before tax could be levied, it had to be determined whether the packing material was used as an essential part of the execution of the work, in which case it would be treated as goods used in a works contract, or whether it was supplied after execution of the work, in which case tax could arise only if a sale of packing material was proved. No such factual inquiry had been undertaken by the authorities below. The matter therefore required reconsideration by the assessing authority on the factual position and the applicable legal basis.

Conclusion: The issue required fresh factual examination by the assessing authority.

Final Conclusion: The revisional court set aside the appellate orders and sent the matter back for a fresh decision in accordance with law, with the question of interest to follow the larger Bench reference.

Ratio Decidendi: A tax exemption notification operates prospectively unless retrospective effect is clearly provided, and liability on packing material in job-work or works-contract settings depends on a prior factual determination of the true nature of the supply.

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