Works contract classification for mosaic tile laying and limited tax on sand turnover where a notified exemption applied.

A mosaic tile laying agreement was treated as a works contract where the dealer maintained separate material accounts and the assessment lacked tangible support for dividing the contract value into a taxable sale of tiles. The true character of the contract was held to depend on the substance of the transaction, not the mode of payment alone, and labour and service deductions remained applicable under the statutory scheme. On the sand turnover used in execution of the works contract, tax was sustained only for periods outside the notified exemption, while the exempt period was excluded from assessment. The revisional challenge therefore failed, subject only to the limited liability upheld for sand.

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Issues: (i) Whether the mosaic tile laying contract was a works contract or a divisible contract involving taxable sale of tiles; (ii) Whether the turnover relating to sand used in execution of the works contract was liable to tax for the relevant assessment years.

Issue (i): Whether the mosaic tile laying contract was a works contract or a divisible contract involving taxable sale of tiles.

Analysis: The assessment rested on a percentage-based allocation of the contract value as representing the cost of tiles, but the appellate authority found that the dealer maintained separate accounts and that the assessment was unsupported by tangible material. The earlier decision governing mosaic tile laying contracts had held that such contracts are to be treated as works contracts where the true nature of the contract is not determined by the mode of payment alone, and that deductions relating to labour and service have to be allowed under the relevant statutory scheme.

Conclusion: The contract was treated as a works contract and the Revenue's attempt to treat the major portion as taxable sale of tiles failed.

Issue (ii): Whether the turnover relating to sand used in execution of the works contract was liable to tax for the relevant assessment years.

Analysis: The Tribunal noticed that the materials used in execution of the contract had suffered tax, except sand, and applied the Government notification exempting sand for the period covered by the notification. It therefore sustained tax only for the assessment years falling outside the exempted period and deleted the rest of the turnover sustained by the appellate authority.

Conclusion: Tax was sustained only to the limited extent of sand turnover falling outside the notified exemption period.

Final Conclusion: The revisional challenge failed, and the Tribunal's order was upheld, leaving only the limited tax liability on sand as determined by the Tribunal.

Ratio Decidendi: A mosaic tile laying agreement is to be assessed on its true character as a works contract when the record shows separate material accounts and no reliable basis for treating the contract value as a divisible sale of goods, and tax on inputs must yield to any applicable statutory or notified exemption.

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