Works contract tax applies to dyes and chemicals transferred in cloth processing; consumables remain outside the tax base.

Dyes and chemicals used in processing grey cloth on a job-work basis were treated as goods transferred in execution of a works contract and therefore taxable as a deemed sale. The legal framework after the 46th Constitutional Amendment permits State tax on the value of property in goods involved in a works contract, whether transferred in the same form or in another form. Consumables such as fuel, water and labour, which are consumed without transfer of property, do not fall within this tax base. On that basis, the assessment was sustained and the challenge failed.

---

---

Issues: Whether the value of dyes and chemicals used in processing grey cloth on job work basis is taxable as transfer of property in goods involved in the execution of a works contract after the 46th Constitutional Amendment.

Analysis: The governing legal framework treats a transfer of property in goods, whether as goods or in some other form, involved in the execution of a works contract as a deemed sale. On the facts, the processing of grey cloth involved the use of chemicals and colours that were separable from the service element and formed part of the material used in execution of the contract. Consumables such as fuel, water and labour that are consumed without transfer do not attract the same treatment, but goods actually used and transferred in the course of execution do. The 46th Constitutional Amendment empowers the State to levy tax on the value of such material involved in a works contract.

Conclusion: The dyes and chemicals used in the processing work were liable to tax as deemed sale, and the challenge to the assessment failed.

Ratio Decidendi: In execution of a works contract, goods that are transferred, whether in the same form or in another form, are deemed to be sold and may be taxed by the State, while consumables not transferred to the contractee are not.

---