Transformation of purchased materials into mosaic tiles was treated as sale, defeating works contract deduction

Manufacture of mosaic tiles from purchased raw materials was treated as a sale rather than a works contract because the materials lost their separate identity and became a new commercial commodity, namely mosaic. The Court applied the settled test that deduction is unavailable where goods purchased are not used in the contract in the same form as bought. On those facts, the claim for deduction under the Tamil Nadu General Sales Tax Act was rejected and the assessee's revisions failed.

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Issues: Whether the manufacture of mosaic tiles from purchased materials and their use in laying and polishing amounted to a works contract so as to qualify for deduction under Section 3B(2)(b) of the Tamil Nadu General Sales Tax Act, 1959.

Analysis: The decisive test was whether the goods purchased by the dealer were used in the execution of the contract in the same form in which they were purchased. The Court applied the settled principle that where purchased goods are transformed into a distinct commercial commodity, the goods used in the contract are not the same goods as purchased. In the case of mosaic tiles, the raw materials such as cement, sand, colour and chips lose their individual identity and become a new commercial commodity, namely mosaic. On that footing, the transaction was treated as a sale and not as a works contract. The Court also held that the deduction under Section 3B(2)(b) was unavailable on these facts.

Conclusion: The claim of works contract treatment failed, the deduction under Section 3B(2)(b) was not admissible, and the revisions were decided against the assessee.

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