2025 (8) TMI 72 - HC - VAT / Sales Tax

HC upholds tax on chemicals in fabric dyeing job work under pending SC review, dismissing appellant's challenge

State of Haryana Versus M/s City Textile Industries, Faridabad and another.

The HC upheld the Tribunal's order dismissing the appellant's challenge to the levy of tax on chemicals used as consumables in job work for fabric dyeing. ... Levy of tax on chemicals used as consumables in the process of job work of dyeing of fabric by assuming that property in the goods has passed on to the principals - levy of tax on the entire value of dyes used by the appellant in the job work process of dyeing of fabric ignoring the quantity of dyes which are wasted during the process in which property is not transferred to the principals - HELD THAT:- It is specifically mentioned in Grounds of Appeal in the present matter that as the matter is pending before Hon’ble the Supreme Court, proceedings in present appeal should be kept in abeyance till decision thereof. This appeal was adjourned sine die on 19.01.2023 to await the decision of Hon’ble the Supreme Court in pending matters. Questions of law as raised are answered accordingly. Impugned order dated 30.08.2018 passed by learned Tribunal is, accordingly, upheld - Appeal dismissed. ISSUES: Whether the value taxable under the Haryana Value Added Tax Act (HVAT Act) and Central Sales Tax Act (CST Act) is limited to the goods that are actually transferred to the customer in the execution of a works or job contract'Whether the levy of tax on chemicals and dyes used as consumables in the job work process is justified when only a portion of these consumables is transferred to the principal, considering wastage during the process'Whether the findings that the entire property in dyes and chemicals used in the job work is transferred to the principal are perverse or unsupported by evidence'Whether reliance on precedent dealing with works contract tax is appropriate for determining the quantity of goods on which tax is leviable'Whether the impugned order remanding the matter to the Assessing Officer for factual determination and fresh decision is just, legal, and sustainable in the facts and circumstances? RULINGS / HOLDINGS: The Court held that 'what is taxable under the HVAT Act and CST Act, is the value of the goods which get transferred to the customer in the execution of works contract either as goods or in any other form.'The Court found that the learned Tribunal was not justified in levying tax on the entire quantity of dyes and chemicals used, ignoring the quantity wasted during the process, and emphasized the need to determine the actual quantity of consumables transferred.The Court concluded that the findings of the Tribunal that the entire property in the dyes and chemicals is transferred to the principals were not sustainable without factual inquiry, and such determination depends on evidence and factual aspects to be considered by the Assessing Officer.The Court held that reliance on the Bombay High Court judgment concerning works contract tax was misplaced for determining the quantity of goods on which tax is to be levied, as the said judgment did not address this issue.The impugned order remanding the matter to the Assessing Officer was upheld as just and legal, directing a factual enquiry to ascertain the quantity of chemicals, dyes, and colours that are retained or embedded in the fabric and thus taxable. RATIONALE: The Court applied the statutory framework under the HVAT Act and CST Act, focusing on the principle that tax liability arises only on the value of goods actually transferred to the customer in a works or job contract.The Court relied on a prior Division Bench judgment which remanded multiple VAT appeals to the Assessing Officer to determine the factual quantity of consumables lost or retained during processing, recognizing that tax cannot be levied on consumables wasted or not transferred.The Court noted that the factual determination of the quantity of dyes and chemicals transferred is a matter for the Assessing Officer, who must conduct a detailed enquiry with evidence from parties, consistent with the statutory provisions and case law.The Supreme Court's dismissal of the Special Leave Petition challenging the remand order was cited as authoritative confirmation of the correctness of the approach, leaving all contentions open for factual determination by the Assessing Officer.No dissent or doctrinal shift was indicated; the decision reaffirmed established principles on the taxable value in job work contracts and the necessity of factual inquiry for consumables.