Works contract taxation of tin ingots upheld, with turnover estimated on gross profit and the applicable contract rate applied.

Tin ingots purchased by a contractor and consumed in fabricating empty tins under a job-work arrangement were held taxable as goods involved in a works contract, because the transfer of property in the ingots was deemed a sale under the Kerala General Sales Tax Act. The ingots were treated as integral to the finished work, not as mere consumables. An estimate of turnover by adding 25% gross profit to purchase value was accepted as reasonable, but the tax rate could not be taken from the finished tins. The applicable rate was the works contract entry under the relevant schedule.

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Issues: (i) whether tin ingots purchased by the assessee and consumed in the execution of job-work for manufacture of empty tins were liable to tax under the Kerala General Sales Tax Act, 1963 as goods involved in a works contract; (ii) whether the turnover of such ingots could be estimated by adding 25% gross profit and whether the rate of tax was the rate applicable to tins or the rate applicable to works contract.

Issue (i): whether tin ingots purchased by the assessee and consumed in the execution of job-work for manufacture of empty tins were liable to tax under the Kerala General Sales Tax Act, 1963 as goods involved in a works contract.

Analysis: The customers supplied the tin sheets, while the assessee purchased tin ingots and used them in the fabrication process. The Court applied Explanation (3A) to Section 2(xxi) of the Kerala General Sales Tax Act, 1963, under which transfer of property in goods involved in the execution of a works contract is deemed to be a sale. The ingots did not stand on the same footing as consumables such as water, electricity or fuel, because they formed part of the finished product and were essential to complete the work entrusted. On that basis, the transfer of ingots in the execution of the works contract was held taxable.

Conclusion: The levy of tax on the turnover of tin ingots was upheld against the assessee.

Issue (ii): whether the turnover of such ingots could be estimated by adding 25% gross profit and whether the rate of tax was the rate applicable to tins or the rate applicable to works contract.

Analysis: The Court accepted the estimate of sale value by adding 25% gross profit to the purchase value of the ingots as reasonable. However, it held that the rate applicable to the finished product, namely tins, could not be applied to the ingots transferred in the execution of the works contract. The proper rate was the rate applicable to transfer of goods involved in works contract under the relevant schedule, and for the assessment year 1990-91 the Fourth Schedule governed the levy. The assessing authority was therefore required to apply the residuary entry for fabrication of metals.

Conclusion: The 25% gross profit estimate was sustained, but the tax had to be levied at the rate applicable to the works contract entry and not at the rate applicable to tins as finished goods.

Final Conclusion: The taxability of the ingots was confirmed, but the assessment was modified on the rate aspect by directing application of the works contract schedule entry.

Ratio Decidendi: Goods used by a contractor in the execution of a works contract are taxable where they are transferred to and form part of the finished work, but the applicable rate is the rate prescribed for the works contract or the relevant contract entry, not the rate of the finished commodity itself.

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