Sales tax cannot be mechanically deducted from works-contract bills, and labour supply remains outside tax unless goods are transferred.

Mechanical deduction of sales tax from works-contract bills could not be sustained without first examining whether any taxable transfer of materials had occurred and whether tax had already been paid. The court held that labour charges are not taxable because labour alone does not involve transfer of property in goods, but left the competent authority free to assess liability afresh on proper evidence and recover any tax due according to law. Amounts already deducted were required to be refunded, with interest if refund was delayed.

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Issues: (i) Whether a blanket deduction of sales tax at 2% from the contractors' bills could be sustained without examining the factual basis for tax liability; (ii) whether any tax could be levied on the supply of labour and the amounts already deducted were liable to be refunded.

Issue (i): Whether a blanket deduction of sales tax at 2% from the contractors' bills could be sustained without examining the factual basis for tax liability.

Analysis: The bills were for complete execution of works, involving both labour and some materials. Liability to sales tax depended on factual questions such as the cost of materials supplied, whether tax was leviable thereon, and whether such tax had already been paid. Without examination of these matters by the competent authority, an across-the-board deduction from the bills could not stand.

Conclusion: The mechanical deduction of 2% from the bills was not sustainable.

Issue (ii): Whether any tax could be levied on the supply of labour and the amounts already deducted were liable to be refunded.

Analysis: The Court held that no tax is leviable on the supply of labour, as there is no transfer of property in goods when labour alone is provided. At the same time, the competent authority was left free to examine the evidence and, if tax was found due after assessment, to recover it in accordance with law. The amounts already deducted were therefore required to be returned, with interest if refund was delayed.

Conclusion: The deducted amount was directed to be refunded, while leaving open lawful assessment and recovery on proper examination of facts.

Final Conclusion: The writ petitions succeeded to the extent of setting aside the mechanical tax deduction and securing refund, but the revenue authority retained the power to determine liability afresh on examination of evidence.

Ratio Decidendi: Sales tax cannot be deducted mechanically from works-contract bills without factual determination of taxable material supply, and no tax is leviable on the mere supply of labour in the absence of transfer of property in goods.

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