Digital printing treated as a works contract where goods are transferred in execution of the work

After the Forty-sixth Amendment, the dominant intention of a contract is not determinative for sales tax purposes where the transaction involves transfer of property in goods during execution of work. Applying that principle, a digital printing contract was treated as a works contract because it involved transfer of material such as vinyl film and inks used in performance of the work. The service element did not prevent taxability, and the material component was held exigible to tax under the Karnataka Sales Tax Act.

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Issues: Whether digital printing is a works contract exigible to tax under section 5-B of the Karnataka Sales Tax Act, 1957 and entry 43 of the Sixth Schedule to the Act, or a non-taxable service contract.

Analysis: The appeal turned on whether the nature of digital printing could be tested by the dominant intention of the contract. The Court held that the contention based on photography cases was untenable because the later decision in Associated Cement Companies Ltd. declared that, after the Forty-sixth Amendment, the dominant intention test is no longer relevant for determining taxability of works contracts. The State is empowered to bifurcate the contract and levy tax on the value of material involved in execution of the works contract, even if the material component is small or incidental. Applying that principle, the Court held that a digital printing contract involves transfer of property in material used in the execution of the work, including vinyl film and inks, and the service element does not prevent the transaction from being treated as a works contract.

Conclusion: Digital printing is a works contract and not a service contract, and the value of the material used in such contract is exigible to tax under the Act.

Ratio Decidendi: After the Forty-sixth Amendment, the dominant intention of the contract is not determinative; where a contract involves transfer of property in goods in the execution of work, the material component is taxable as a works contract.

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