Works contract tax deduction rules upheld where purchased goods must remain in the same form for exemption.

Rule 6(4)(m)(i) of the Karnataka Sales Tax Rules, 1957, read with Explanation III, was upheld as consistent with Section 5B of the Karnataka Sales Tax Act, 1957. The provision limits deduction to goods used in the same form in which they were purchased and excludes goods consumed or transformed in the manufacture of other goods. The statutory scheme was treated as preserving single taxation of the same goods, while allowing tax to attach to the resulting commodity where the purchased goods are converted into a different commercial product. Exemptions and concessions in tax law were noted to require strict construction.

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Issues: Whether Rule 6(4)(m)(i) of the Karnataka Sales Tax Rules, 1957 read with Explanation III thereto travels beyond Section 5B of the Karnataka Sales Tax Act, 1957 by restricting deduction to goods used in the same form in which they were purchased.

Analysis: Section 5B is the charging provision for tax on transfer of property in goods involved in execution of works contracts, while Rule 6(4)(m)(i) grants a deduction for goods already subjected to tax and used in the same form. Explanation III clarifies that goods consumed or used in manufacture of other goods are excluded from that expression. The scheme preserves single taxation of the same goods, but where purchased goods are transformed into a different commercial commodity, the resulting commodity may be taxed. Exemptions and concessions in tax law are to be strictly construed, and the rule is consistent with the charging section.

Conclusion: Rule 6(4)(m)(i) read with Explanation III is intra vires and does not the scope of Section 5B; the challenge fails.

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