Consumables used in cloth processing are not deemed sales and are outside VAT when not transferred to the customer.

Dyes and chemicals used in the dyeing, colouring, bleaching and printing of cloth on job-work basis were treated as consumables consumed in the processing activity and not transferred to the customer. On that basis, they did not amount to a deemed sale and were not liable to VAT. The text also notes that an earlier State Government view and prior writ proceedings on identical facts supported this position, and that withdrawal of exemption from additional excise duty was irrelevant because VAT liability depends on sale turnover and transfer of property in goods, not on manufacture or additional excise duty treatment. The tax assessment on these items was therefore unsustainable.

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Issues: Whether dyes and chemicals used in the dyeing, colouring, bleaching and printing of cloth on job-work basis were consumables not transferred to the customer and, therefore, not exigible to VAT as a deemed sale.

Analysis: The State Government had already taken a categorical view that dyes and chemicals used in the processing of cloth are consumed in the process and do not get transferred to the person supplying the cloth. That determination was treated as binding on the assessing authorities, and the same issue had also been decided in earlier writ proceedings on identical facts. The assessing authority had not shown that the petitioners' processing activity was materially different. The contention based on withdrawal of exemption from additional excise duty was held irrelevant because liability under VAT depends on sale turnover and transfer of property in goods, not on manufacture or the incidence of additional excise duty.

Conclusion: The imposition of tax on dyes and chemicals used in the processing of cloth was unsustainable, and the assessment orders were quashed.

Ratio Decidendi: Where dyes and chemicals are consumed in the processing of cloth and are not transferred to the customer, they do not constitute a deemed sale and cannot be subjected to VAT on that basis.

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