Works contract classification for customised annual report printing defeats sales tax treatment and renders related penalty unsustainable.

Printing annual reports exclusively for identified customers on their specifications was treated as a works contract because the finished product had no open-market marketability and the parties intended execution of specialised printing work rather than a taxable sale. The incidental transfer of paper used in performing the job did not change the character of the transaction into a sale. As the principal transaction was not exigible to tax, penalty proceedings founded on the same assessment could not survive.

---

---

Issues: Whether printing annual reports for specific customers on their specifications amounted to a works contract and not a taxable sale, and whether the consequential penalty could survive.

Analysis: The transaction was found to be for printing annual reports exclusively for particular customers, with the finished product having no marketability in the open market. Applying the settled test that the nature of the contract depends on the intention of the parties and whether the finished product is a commercial commodity, the Court held that such printing activity fell within works contract. The incidental transfer of paper used in execution of the work did not convert the transaction into a sale. Once the principal transaction was held not exigible to tax, the penalty proceedings based on the same assessment could not stand.

Conclusion: The transaction was held to be a works contract and not liable to tax under the Act, and the penalty was unsustainable. The revision was therefore allowed in favour of the assessee.

---