Works contract exemption denied for transformed mosaic tiles; penalty deleted where turnover was disclosed in accounts.

Goods purchased and converted into commercially distinct mosaic tiles before supply, laying and polishing at customers' sites were not used in the execution of a works contract in the same form, so the exemption under section 3B(2)(b) of the Tamil Nadu General Sales Tax Act, 1959 was unavailable and the assessment on tax liability was sustained. Penalty was not justified to the extent upheld because the turnover was recorded in the books and the dispute concerned the character of the transaction and the allowable deduction; accordingly, the penalty was deleted. Relief was therefore confined to the penalty and limited labour-charges deduction issue.

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Issues: (i) Whether the turnover from supplying, laying and polishing mosaic tiles was exempt under section 3B(2)(b) of the Tamil Nadu General Sales Tax Act, 1959 as goods used in the execution of works contract in the same form; (ii) Whether the penalty levied under the Tamil Nadu General Sales Tax Act, 1959 was liable to be sustained.

Issue (i): Whether the turnover from supplying, laying and polishing mosaic tiles was exempt under section 3B(2)(b) of the Tamil Nadu General Sales Tax Act, 1959 as goods used in the execution of works contract in the same form.

Analysis: The activity involved manufacture of mosaic tiles in the dealer's premises and their supply, laying and polishing at customers' sites. The materials used were converted into commercially distinct goods, namely mosaic tiles and related items, before transfer to customers. On the facts found by the authorities, the goods purchased were not used in the execution of any works contract in the same form in which they were bought. The exemption under section 3B(2)(b) therefore was unavailable.

Conclusion: The claim for exemption was rejected and the assessment on the quantum was sustained.

Issue (ii): Whether the penalty levied under the Tamil Nadu General Sales Tax Act, 1959 was liable to be sustained.

Analysis: The turnover was reflected in the books of accounts, and the dispute related to the character of the transaction and the extent of deduction to be allowed. In these circumstances, the penalty already sustained by the appellate authorities was not justified to the extent upheld by the Tribunal.

Conclusion: The penalty was deleted.

Final Conclusion: The revision was allowed only in part: the assessment on tax liability was maintained, while the penalty was set aside, and the matter was directed to be redone only to the limited extent indicated on labour-charges deduction.

Ratio Decidendi: Goods purchased and transformed into commercially distinct products before being transferred to the customer cannot be said to have been used in the execution of a works contract in the same form, so the statutory exemption for such use is not attracted.

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