Works contract tax applies only to dyes and chemicals actually transferred to fabric, not consumables used up in processing.

In a works contract involving bleaching, dyeing and printing, tax is leviable only on the value of goods whose property is transferred to the customer. Chemicals and other consumables that are merely used up in the process and do not pass to the fabric are excluded from taxable turnover. On the evidence, only the dye or colour actually retained or embedded in the finished fabric could be treated as transferred goods. The matter therefore required factual determination of the retained portion, and tax was to be recomputed only on that basis after remand.

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Issues: (i) Whether chemicals used in the job work of bleaching, dyeing and printing, to the extent they are merely consumed and not transferred to the fabric, form part of the taxable value; (ii) Whether the entire value of dyes and chemicals used in the process is taxable or only the portion retained or embedded in the finished fabric.

Issue (i): Whether chemicals used in the job work of bleaching, dyeing and printing, to the extent they are merely consumed and not transferred to the fabric, form part of the taxable value.

Analysis: Under the Haryana Value Added Tax Act, 2003 and the Central Sales Tax Act, 1956, tax in a works contract is attracted only on the transfer of property in goods involved in execution of the contract. Consumables used up in the process and not passing to the customer do not constitute transferred goods. On the evidence relied upon, the chemicals used in the processing operations were found to be largely washed out and extinguished in the process, while only colour or dye retained on the fabric could be said to have been transferred.

Conclusion: Chemicals that are merely consumed in the process are not taxable as transferred goods; only such material as actually passes to the fabric can be brought to tax.

Issue (ii): Whether the entire value of dyes and chemicals used in the process is taxable or only the portion retained or embedded in the finished fabric.

Analysis: The quantity of dyes and colours actually retained in the fabric was shown by expert material to be only a portion of what is used, and the question of exact percentage was held to be factual. The authorities below had proceeded on the footing that the whole value was taxable, without determining how much of the material was in fact transferred. The matter therefore required a fresh factual enquiry by the Assessing Officer to ascertain the retained or embedded portion and to compute tax only on that part in accordance with law.

Conclusion: Only the portion of dyes and colours retained or embedded in the finished fabric is taxable, and the matter was remitted for factual determination of that portion.

Final Conclusion: The assessment orders and appellate orders were set aside, the appeals were allowed in part, and the question of actual taxable turnover was sent back for recomputation after determining the transferred portion of dyes and chemicals.

Ratio Decidendi: In a works contract, tax is leviable only on the value of goods whose property is transferred to the customer, and consumables that are used up in the process without being transferred cannot be included in the taxable turnover.

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