Works contract tax applies when materials are incorporated in the job, and later interstate dispatch of finished goods does not alter liability.

The taxable event in a works contract is the transfer of property in goods when they are incorporated into the execution of the work. On the stated facts, the retreading and recapping work was performed in Tamil Nadu, the materials were consumed there in completing the job, and only the finished tyres were later sent to Kerala. That later movement did not make the input materials part of an inter-State transaction. Section 3B of the Tamil Nadu General Sales Tax Act, 1959 was treated as a valid charging provision for such works contracts, excluding only export, import, and inter-State trade or commerce. The turnover of materials used in the work was therefore taxable.

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Issues: Whether the value of materials used in retreading and recapping of tyres, where the work was performed in Tamil Nadu and the retreaded tyres were later sent to customers outside the State, was exigible to tax under section 3B of the Tamil Nadu General Sales Tax Act, 1959 or whether the transaction was an inter-State works contract outside the State's taxing power.

Analysis: The taxable event under article 366(29A)(b) is the transfer of property in goods involved in the execution of a works contract, and for that purpose the relevant point is incorporation of the goods in the works. Section 3B of the Tamil Nadu General Sales Tax Act, 1959 was treated as a valid charging provision for works contracts while expressly excluding only transfers falling in export, import, or inter-State trade or commerce. On the facts, the order form and billing documents showed that the retreading job was executed in Tamil Nadu; the materials were consumed there in completing the job, and only the finished retreaded tyres were dispatched to Kerala. The movement of the finished tyres did not occasion the movement of the inputs used in the retreading work. The Tribunal distinguished authorities dealing with contracts where movement of goods from one State to another was an incident of the contract, and held that such reasoning did not apply where the goods had already been incorporated in the works within the State.

Conclusion: The turnover representing the materials used in retreading and recapping was rightly held taxable under section 3B, and the claim that the transaction was an inter-State works contract was rejected. The revision failed.

Ratio Decidendi: In a works contract, the transfer of property in goods is taxable where the goods are incorporated in the execution of the work, and the later movement of the completed article out of the State does not by itself convert the taxed input transaction into an inter-State sale or works contract.

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