Works contract treatment for cassette recording from master copy meant the petitioners' market sale was the first taxable sale.

Recording songs on blank audio cassettes from a master copy was treated as a works contract under the Tamil Nadu General Sales Tax Act, 1959, because the arrangement required a third party to process and manufacture goods for the petitioners and return the finished cassettes only to them. The recorder had no authority to sell the cassettes in the market, so the transfer occurred in the execution of work and fell within works contract taxation under Section 3B. The petitioners' later market sale of the recorded cassettes was therefore the first sale liable to tax, and the circular was upheld.

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Issues: Whether the activity of recording songs on blank audio cassettes using the petitioners' master copy constituted a works contract under the Tamil Nadu General Sales Tax Act, 1959, and whether the petitioners' subsequent sale of the recorded cassettes in the market could be treated as second sale exempt from tax.

Analysis: The definition of works contract under Section 2(u) of the Tamil Nadu General Sales Tax Act, 1959 expressly includes manufacture and processing undertaken under an agreement. The transaction in question involved the petitioners supplying the master copy for large-scale recording on blank cassettes, with the recorder not authorised to sell the recorded cassettes in the open market and required to return them to the petitioners. The Court held that the substance of the arrangement was not a sale by the recorder, but an execution of work involving processing and manufacture for the petitioners. It further held that the property in the goods, as transferred in the execution of the arrangement, fell within the scope of works contract taxation under Section 3B of the Tamil Nadu General Sales Tax Act, 1959. The Court distinguished the pre-recorded audio cassette decision relied upon by the petitioners as one rendered in the context of excise law and not on the question of sale versus works contract under the sales tax statute.

Conclusion: The transaction with the cassette manufacturers was a works contract and not the first sale. The petitioners' sale of the recorded cassettes in the market was the first sale liable to tax, and the circular was upheld.

Final Conclusion: The challenge to the circular failed, and the writ petitions were dismissed with the consequence that the departmental view on taxability of the petitioners' sales stood confirmed.

Ratio Decidendi: Where an agreement requires a third party to process or manufacture goods from a master copy and return the finished goods only to the contracting party, the transaction is a works contract and the transfer of the finished goods for tax purposes is attributed to the contracting party's market sale, not to the processor's return of the goods.

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