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<h1>Appeal Allowed: Case Remanded for Factual Inquiry on Chemical and Dye Quantities in Dyeing Process.</h1> <h3>M/s. Color Fabs Pvt. Ltd. Versus State of Haryana and another</h3> M/s. Color Fabs Pvt. Ltd. Versus State of Haryana and another - TMI ISSUES PRESENTED AND CONSIDERED 1. Whether property in dyes and chemicals used as consumables in job work of fabric dyeing passes to the principals so as to render such consumables taxable. 2. Whether tax can be levied on the entire quantity/value of dyes used in the job work process when a portion is wasted/washed away and does not become part of the finished fabric. 3. Whether the findings upholding tax on dyes and chemicals are perverse insofar as they assume transfer of property in consumables to principals in the job work context. 4. Whether reliance on a decision addressing works contract tax (as opposed to quantification of goods subject to tax) was appropriate for determining the tax treatment of consumables in dyeing job work. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Taxability: whether property in dyes/chemicals passes to principals Legal framework: Tax is leviable where property in goods transfers; VAT/central sales tax principles distinguish supply/transfer of goods from consumable inputs used in a process. Assessment requires determination of whether consumables become part of the finished goods (turnover) or are consumed/wasted in the process. Precedent treatment: A co-ordinate bench earlier addressed the question and held that chemicals used in job work are taxable to the extent they are retained/embedded in the textile; issues of quantity retained require factual determination by the Assessing Officer. An appellate pronouncement of the Apex Court remanding similar matters to Assessing Officers for fresh factual consideration was treated as decisive. Interpretation and reasoning: The Tribunal had upheld levy by accepting a 25% attribution for chemicals and 100% for dyes. The Court notes that the earlier co-ordinate bench and the Apex Court's disposition require factual enquiry to determine the proportion of consumables that are actually transferred and retained in the goods. Where consumables are not retained (washed away), property in them does not pass to the principal and hence should not be taxed as turnover. Ratio vs. Obiter: Ratio-Taxability of consumables depends on whether property in those goods is transferred to the finished goods; such determination is factual and for the Assessing Officer. Observations in earlier judgments directing remand and factual enquiry are treated as binding in the present context. Any categorical assumption of transfer without factual adjudication is not ratio. Conclusion: The Tribunal's categorical conclusion that property passes to principals without a factual determination is not sustainable. Tax can only be levied on the portion of consumables that are retained/embedded in the fabric, to be quantified through a factual enquiry by the Assessing Officer. Issue 2 - Quantification: taxing entire value vs. taxed proportion Legal framework: Where only a portion of consumables becomes part of the turnover, valuation for tax must reflect only that proportion. The assessor must determine the quantity/value of consumables that remain in the product; industry practice or accepted proportions may inform but cannot substitute for evidence in individual cases. Precedent treatment: The co-ordinate bench directed that Assessing Officers must work out details of quantity lost/wasted and those retained, permitting parties to produce evidence. The Apex Court's remand similarly instructed fresh orders based on factual enquiries. Interpretation and reasoning: The Tribunal's approach of taxing 100% of dyes ignores the factual question of loss/wastage. The Court emphasises that the correct approach is to conduct a factual enquiry into actual quantities retained, allowing parties to present evidence, and to compute tax only on the percentage retained in the fabric. Ratio vs. Obiter: Ratio-Quantification of taxable consumables requires a factual inquiry; blanket taxation of entire quantities without such inquiry is impermissible. Observations about industry trends may be persuasive but are subordinate to evidence in the individual assessment. Conclusion: The Tribunal's levy on the entire value of dyes is unsustainable absent factual determination of retention; the matter must be remanded to determine the percentage of dyes/chemicals that remain with the textile and are therefore taxable. Issue 3 - Allegation of perversity in findings that property transfers Legal framework: Findings are perverse if they disregard relevant material or reach conclusions without evidential foundation. Determination of property transfer in consumables requires consideration of the process, measurements of loss, and party evidence. Precedent treatment: Earlier decisions have reversed or set aside assessments where factual conclusions on retention/wastage were not properly made and remanded for fresh factual enquiry. Interpretation and reasoning: The Tribunal's finding that property in dyes and chemicals was transferred is based on assumptions rather than a fact-specific enquiry. Given prior directions to assess retention quantitatively, the Court treats the Tribunal's failure to undertake such enquiry as unsustainable. Ratio vs. Obiter: Ratio-A conclusion as to transfer of property that is not founded on factual inquiry is liable to be set aside. Observations characterising an approach as perverse are consistent with the requirement for a re-examination by the fact-finder. Conclusion: The Tribunal's findings are set aside to the extent they assume transfer without factual foundation; the issue is remanded for fresh enquiry by the Assessing Officer. Issue 4 - Appropriateness of reliance on works contract authority Legal framework: Authorities construing works contract tax address composite contracts and applicability of tax on supply of goods vs. services; issues of quantification of goods taxable in dyeing job work concern different legal and factual considerations. Precedent treatment: The Tribunal and lower authorities relied on a decision dealing with works contract tax; however, the Court recognises that that decision did not directly resolve the quantification question in the job work/dyeing context. Interpretation and reasoning: The Court distinguishes reliance on a works contract decision where the question before it related to applicability of works contract tax, not the precise determination of quantities of consumables taxable. While such decisions may be referred for legal principles, they cannot substitute for the necessary factual quantification required here. Ratio vs. Obiter: Ratio-Reliance on a works contract ruling that did not address quantification of consumables is not determinative of the current factual question; use of such precedent must be carefully limited. Observations applying works contract authority to quantification are obiter when not founded on the specific facts. Conclusion: The Tribunal's reliance on the works contract authority, insofar as it ignored the need for factual quantification of dyes/chemicals retained, was misplaced; the matter requires fact-finding by the Assessing Officer. Remedial Direction and Final Disposition The Court allows the appeal to the extent that impugned orders are set aside and remands the matter to the Assessing Officer for a factual enquiry into the quantities of chemicals, dyes and colours that are retained/embedded in the fabric. The Assessing Officer is directed to permit parties to produce evidence on their respective contentions, to examine statutory provisions and relevant case law, and thereafter to determine the percentage/value of consumables to be included in turnover for taxation in accordance with law. All determinations as to taxability and valuation are to follow from that fact-based exercise.