TaxTMI 
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2025 (10) TMI 387
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....O BE DETERMINED 7 D. ANALYSIS 8 (i) Relevant provisions under the Act, 1948 8 (ii) Works Contract - Pre and Post 46th Amendment 12 (iii) Whether the ink, chemical and other processing materials are liable to the levy of tax under Section 3F(1)(b) of the Act, 1948? 32 a. Tangible Transfer of property 34 b. No transfer of property due to consumption of goods 42 c. Transfer of property despite consumption of goods 48 d. Application to the facts at hand 52 E. CONCLUSION 57 1. These appeals are at the instance of an assessee and are directed against the judgment and order passed by the High Court of Judicature at Allahabad, dated 8.12.2010, in Trade Tax Revision Nos. 106 & 121 of 2003 respectively (hereinafter, the "Impugned Judgment"), by which the revisions filed by Revenue came to be allowed and the order passed by the Trade Tax Tribunal, Ghaziabad, was set aside. A. FACTUAL MATRIX 2. The appellant-assessee is engaged in the business of printing lottery tickets. It would undertake the work of printing on the paper that was supplied to it by the parties. The ink and processing material, including the necessary che....
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.... being set-aside." (Emphasis supplied) 5. In the circumstances referred to above, two sets of appeals were filed before the Trade Tax Tribunal, Bench-I, Ghaziabad (hereinafter, the "Tribunal") against the order dated 14.03.2000 passed by the Appellate Authority. One set of appeals by the Commissioner of Trade Tax, Uttar Pradesh, against the deletion of tax on the ink and processing material. Another set of appeals by the assessee assailing the levy of tax on the packing material. 6. The Tribunal vide an order dated 06.08.2002 allowed the appellant's appeals and set aside the levy of tax on the packaging material. Furthermore, the Tribunal dismissed the Revenue's appeals and affirmed the order of the Appellate Authority, which had deleted the tax on the value of ink and other processing materials, including chemicals. The Tribunal based its decision on this Court's decision in Rainbow Colour Lab & Anr v. State of M.P & Ors., reported in (2000) 2 SCC 385, and the Bombay High Court's decision in Commissioner of Sales Tax, Maharashtra, Bombay v. R.M.D.C. Press Pvt Ltd, reported in 1998 SCC OnLine Bom 435. 7. The Revenue, being aggrieved by the aforementioned order pas....
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....he case of R.M.D.C. Press Pvt. Ltd. relied upon by the Tribunal is no longer a good law in view of the decision of the Apex Court in the case of Associated Cement Companies Ltd. vs. C.C. reported in 2002 NTN (Vol. 20)-73 and in view of the decision of the Apex Court in the case of State of Maharashtra vs. Sarvodaya Printing Press Fine Art Printer. In view of the above, the order of the Tribunal as well as the order of the first appellate authority are not sustainable and liable to be set aside, so far it deletes the tax on the value of ink and processing materials, namely, chemical, the order of the assessing authority in this regard is restored." (Emphasis Supplied) 8. The High Court allowed the revision applications on the ground that the diluted ink (consisting of the ink and the chemicals) was passed onto the customers and thus the ink and the processing material, i.e., the chemical, could not be considered as consumables. 9. In such circumstances referred to above, the appellant assessee is here before this Court with the present appeals. B. SUBMISSIONS ON BEHALF OF THE PARTIES (i) Submissions on behalf of the Appellant 10. Mr. Niraj Kumar, the....
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....ng no merit in the appeals, the same may be dismissed. C. ISSUE TO BE DETERMINED 16. Having heard the learned counsel appearing for the parties and having gone through the materials on record, the following question falls for our consideration: I. Whether tax can be levied under Section 3F of the Act, 1948, on the ink and processing material used by the appellant in undertaking the printing work? D. ANALYSIS (i) Relevant provisions under the Act, 1948 17. Before adverting to the rival submissions canvassed on either side, we must look into a few relevant provisions of the Act, 1948. Section 2(d) of the Act, 1948, defines "goods". The same reads thus: "2(d) "goods" means every kind or class of movable property and includes all materials, commodities and articles involved in the execution of a works contract, and growing crops, grass, trees and things attached to, or fastened to anything permanently attached to the earth which, under the contract of sale, are agreed to be severed, but does not include actionable claims, stocks, shares, securities or postal stationery sold by the Postal Department;" 18. Section 2(h) of the Act, 1948, defines "Sale".....
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....er to a buying agent and from the buying agent to his principal, if the agent is found, in either of the cases aforesaid,-- (i) to have sold the goods at one rate and passed on the sale proceeds to his principal at another rate; or (ii) to have purchased the goods at one rate and passed them on to his principal at another rate; or (iii) not to have accounted to his principal for the entire collection or deductions made by him, in the sales or purchases effected by him on behalf of his principal; or (iv) to have acted for a fictitious or non-existent principal;" 19. Section 2(m) of the Act, 1948, defines "Works contract". The same reads thus: "2(m) 'Works contract' includes any agreement for carrying out, for cash, deferred payment or other valuable consideration, the building construction, manufacture, processing, fabrication, erection, installation, fitting out, improvement, modification, repair or commissioning of any movable or immovable property;" 20. Section 3F of the Act, 1948, deals with the taxation of goods involved in the execution of the works contract. The relevant portion of the same reads thus: "Secti....
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.... (ix) the amount representing the charges for obtaining on hire or otherwise machinery and tools used for execution of the works contract; (x) the amount representing the cost of consumables used in the execution of the works contract, the property in which is not transferred in the execution of the works contract; (xi) the amount representing the cost of establishment and other similar expenses of the contractor to the extent it is relatable to supply of labour and services; (xii) the amount representing the profit earned by the contractor to the extent it is relatable to the supply of labour and services. (3) Where in respect of transfer referred to in clause (b) of sub-section (1), the contractor does not maintain proper accounts or the accounts maintained by him are not found by the assessing authority to be worthy of credence and the amount actually incurred towards charges for labour and other services and profit relating to supply of labour and services are not ascertainable, such charges for labour and other services and such profit may, for the purposes of deductions under clause (b) of sub-section (2), be determined on the basis....
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....nor the property passed therein as movables. It was held that in a building contract, which is one entire and indivisible contract, there was no sale of goods, and it was not within the competence of the Provincial State Legislature to impose tax on the supply of the materials used in such a contract, treating it as a sale. In a building contract, the title to the materials used in the construction passes to the owner of the land as an accretion, and there is no question of title to the materials passing as movables in favour of the other party to the contract. b. The expression "sale of goods" in Entry 48 in List II of the Seventh Schedule to the Government of India Act, 1935 (similar to Entry 54 in List II) must be construed in the same sense it has been understood under the Sale of Goods Act, 1930 (for short, "the Act, 1930") and to constitute "sale of goods", the essential ingredients are: (a) there should be an agreement to sell movables; (b) it should be for a price; and (c) there should be passing of goods pursuant to the agreement. Thus, by virtue of this Court's decision in Gannon Dunkerley-I (supra), no sales tax could be levied on t....
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.... (b) a tax on the transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract; (c) to (f) [...] and such transfer, delivery or supply of any goods shall be deemed to be a sale of those goods by the person making the transfer, delivery or supply and a purchase of those goods by the person to whom such transfer, delivery or supply is made;" Amendment of Article 286 - Insertion of clause (3) "286. Restrictions as to imposition of tax on the sale or purchase of goods (3) Any law of a State shall, in so far as it imposes, or authorises the imposition of, (a) a tax on the sale or purchase of goods declared by Parliament by law to be of special importance in inter-State trade or commerce; or (b) a tax on the sale or purchase of goods, being a tax of the nature referred to in sub-clause (b), sub-clause (c) or sub-clause (d) of clause (29-A) of article 366, be subject to such restrictions and conditions in regard to the system of levy, rates and other incidents of the tax as Parliament may by law specify." Amendment of the Seventh Schedule - Inse....
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....islatures of states under Entry 54, and the same was not bound by restrictions imposed under Article 286 and the Act, 1956. 28. Rejecting the aforesaid contentions, this Court made the following pertinent observations: "32 [...]Sub-clause (b) of clause (29-A) states that 'tax on the sale or purchase of goods' includes among other things a tax on the transfer of property in the goods (whether as goods or in some other form) involved in the execution of a works contract. It does not say that a tax on the sale or purchase of goods included a tax on the amount paid for the execution of a works contract. It refers to a tax on the transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract. The emphasis is on the transfer of property in goods (whether as goods or in some other form). The latter part of clause (29-A) of Article 366 of the Constitution makes the position very clear. While referring to the transfer, delivery or supply of any goods that takes place as per sub-clauses (a) to (f) of clause (29-A), the latter part of clause (29-A) says that "such transfer, delivery or supply of any goods" shall be deemed to be....
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....he person who had assigned the contract and another part dealing with the supply of labour and services, sales tax was leviable on the goods which were agreed to be sold under the first part. But sales tax could not be levied when the contract in question was a single and indivisible works contract. After the 46th Amendment the works contract which was an indivisible one is by a legal fiction altered into a contract which is divisible into one for sale of goods and the other for supply of labour and services. After the 46th Amendment, it has become possible for the States to levy sales tax on the value of goods involved in a works contract in the same way in which the sales tax was leviable on the price of the goods and materials supplied in a building contract which had been entered into in two distinct and separate parts as stated above. It could not have been the contention of the Revenue prior to the 46th Amendment that when the goods and materials had been supplied under a distinct and separate contract by the contractor for the purpose of construction of a building the assessment of sales tax could be made ignoring the restrictions and conditions incorporated in Article 286 o....
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....les and purchases of goods under clause (29-A) of Article 366 is to be found only in Entry 54 and not outside it. We may recapitulate here the observations of the Constitution Bench in the case of Bengal Immunity Co. Ltd.- in which this Court has held that the operative provisions of the several parts of Article 286 which imposes restrictions on the levy of sales tax by the States are intended to deal with different topics and one could not be projected or read into another and each one of them has to be obeyed while any sale or purchase is taxed under Entry 54 of the State List" (Emphasis supplied) Thus, this Court in Builders Association (supra) clarified that the power to levy tax under Article 366(29A)(b) did not vest in the States the power to tax works contracts themselves, nor did it allow the States to levy taxation dehors the restrictions imposed under Article 286 of the Constitution and the Act, 1956. 29. In Gannon Dunkerley & Co. & Ors. v. State of Rajasthan & Ors., reported in (1993) 1 SCC 364 (hereinafter, "Gannon Dunkerley-II"), once again, this Court was faced with a host of questions pertaining to the imposition of tax on the transfer of property in g....
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....is not permissible for a State to frame the legislative enactment in exercise of the legislative power conferred by Entry 54 in State List in a manner as to assume the power to impose tax on such transactions and thereby transgress these constitutional limitations. Apart from the limitations referred to above which curtail the ambit of the legislative competence of the State Legislatures, there is clause (3) of Article 286 which enables Parliament to make a law placing restrictions and conditions on the exercise of the legislative power of the State under Entry 54 in State List in regard to the system of levy, rates and other incidents of tax. Such a law may be in relation to (a) goods declared by Parliament by law to be of special importance in inter-State trade or commerce, or (b) to taxes of the nature referred to in sub-clauses (b), (c) and (d) of clause (29-A) of Article 366. When such a law is enacted by Parliament the legislative power of the States under Entry 54 in State List has to be exercised subject to the restrictions and conditions specified in that law. In exercise of the power conferred by Article 286(3)(a) Parliament has enacted Sections 14 and 15 of the Central S....
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....ntract there is a deemed sale of the goods which are involved in the execution of a works contract. Such a deemed sale has all the incidents of a sale of goods involved in the execution of a works contract where the contract is divisible into one for sale of goods and the other for supply of labour and services. 37. For the reasons aforesaid, we are of the view that even in the absence of any amendment having been made in the Central Sales Tax Act (after the Forty-sixth Amendment) expressly including transfers of property in goods involved in execution of a works contract, the provisions contained in Sections 3, 4 and 5 would be applicable to such transfers and the legislative power of the State to impose tax on such transfers under Entry 54 of the State List will have to be exercised keeping in view the provisions contained in Sections 3, 4 and 5 of the Central Sales Tax Act. For the same reasons Sections 14 and 15 of the Central Sales Tax Act would also be applicable to the deemed sales resulting from transfer of property in goods involved in the execution of a works contract and the legislative power under Entry 54 in State List will have to be exercised subject to the ....
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....re involved in the execution of a works contract passes only when the goods are incorporated in the works, the measure for the levy of the tax would be the value of the goods at the time of their incorporation in the works as well as the cost of incorporation of the goods in the works. We are in agreement with the submission that measure for the levy of the tax contemplated by Article 366(29-A)(b) is the value of the goods involved in the execution of a works contract. In Builders' Association case it has been pointed out that in Article 366(29-A)(b), "[t]he emphasis is on the transfer of property in goods (whether as goods or in some other form)".)This indicates that though the tax is imposed on the transfer of property in goods involved in the execution of a works contract, the measure for levy of such imposition is the value of the goods involved in the execution of a works contract. We are, however, unable to agree with the contention urged on behalf of the contractors that the value of such goods for levying the tax can be assessed only on the basis of the cost of acquisition of the goods by the contractor. Since the taxable event is the transfer of property in goods invol....
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....our and services; (h) profit earned by the contractor to the extent it is relatable to supply of labour and services. The amounts deductible under these heads will have to be determined in the light of the facts of a particular case on the basis of the material produced by the contractor." (Emphasis supplied) Thus, this Court in Gannon Dunkerley -II (supra) held that the taxable event is the transfer of property in goods involved in the execution of a works contract, and that transfer occurs when the goods are incorporated in the "works". Consequently, it is the value of goods at the time of incorporation which have to constitute the measure for the levy of the tax. 31. A Three-judge Bench of this Court in Larsen and Toubro Limited & Anr. v. State of Karnataka & Anr., reported in (2014) 1 SCC 708, was faced with the question whether taxing the sale of goods in an agreement for the sale of a flat by a developer/promoter was permissible. This Court, when dealing with the said issue, made some pertinent observations with regard to: (i) the interpretation of Article 366(29-A)(b) of the Constitution; (ii) the scope and meaning of works ....
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.... of a works contract by the person making the transfer and the purchase of those goods by the person to whom such transfer is made. 58. The States have now been conferred with the power to tax indivisible contracts of works[...]The taxable event is a deemed sale. 59. [...] It is open to the States to divide the works contract into two separate contracts by legal fiction: (i) contract for sale of goods involved in the works contract, and (ii) for supply of labour and service. By the Forty-sixth Amendment, the States have been empowered to bifurcate the contract and to levy sales tax on the value of the material in the execution of the works contract. 60. Whether the contract involved a dominant intention to transfer the property in goods, in our view, is not at all material. It is not necessary to ascertain what is the dominant intention of the contract. Even if the dominant intention of the contract is not to transfer the property in goods and rather it is the rendering of service or the ultimate transaction is transfer of immovable property, then also it is open to the States to levy sales tax on the materials used in such contract if i....
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....e term "works contract" in Article 366(29-A)(b) takes within its fold all genre of works contract and is not restricted to one specie of contract to provide for labour and services alone. Parliament had all genre of works contract in view when clause (29-A) was inserted in Article 366. xxx 87. It seems to us (and that is the view taken in some of the decisions) that a contract may involve both a contract of work and labour and a contract of sale of goods. In our opinion, the distinction between contract for sale of goods and contract for work (or service) has almost diminished in the matters of composite contract involving both a contract of work/labour and a contract for sale for the purposes of Article 366(29-A)(b). Now by legal fiction under Article 366(29-A)(b), it is permissible to make such contract divisible by separating the transfer of property in goods as goods or in some other form from the contract of work and labour. A transfer of property in goods under clause (29-A)(b) of Article 366 is deemed to be a sale of goods involved in the execution of a works contract by the person making the transfer and the purchase of those goods by the person to whom su....
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.... works contracts and is not restricted to one particular specie of contract to provide for labour and services alone; and f. The dominant nature test is no longer applicable and has lost its significance where transactions are of the nature contemplated in Article 366(29-A). (iii) Whether the ink, chemical and other processing materials are liable to the levy of tax under Section 3F(1)(b) of the Act, 1948? 34. Section 3F(1)(b) of the Act, 1948, levies tax on the "transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract". 35. In the case at hand, the principal question that falls for our consideration is whether there has been a transfer of property in the ink and other processing materials used for the purpose of printing lottery tickets, thereby making them liable to the levy of tax under Section 3F(1)(b) of the Act, 1948. 36. The principal contention put forward by the appellant is that the lottery tickets are not 'goods' and are rather 'actionable claims'. Since 'actionable claims' are not considered as 'goods' under Section 2(d) of the Act, 1948, according to the appellant, the lottery tickets cann....
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....(b) no transfer of property due to consumption of goods; and (c) transfer of property despite consumption of goods. a. Tangible Transfer of property 42. In Matushree (supra) the question before the Bombay High Court was whether the coloured shade/print passed on to the fabric in the course of dyeing and printing amounts to transfer of property of the materials used in dyeing and printing under the Maharashtra Sales Tax on the Transfer of Property in Goods involved in the Execution of Works Contracts Act, 1989 (for short, "Maharashtra Works Contracts Act"). In the said case, the primary contention of the respondent was that the colours, dyes and chemicals are consumed in the process of dyeing and therefore, the property in those goods was not transferred as goods or in any other form. Rejecting the said contention, the Bombay High Court held as follows: "32. [...]According to Mr. Joshi, unless the materials used in dyeing and printing pass in some or the other physical form, there is no passing of property in goods. In other words, according to Mr. Joshi if the property in goods passes as a result of some chemical reaction, then such passing of the property i....
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....e coloured shade passed on to the fabrics constitutes sale of the materials used in dyeing, under the Works Contracts Act. xxx 36. [...]In the present case, due to the chemical reaction of colours, chemicals and dyes, the inherent property in those goods are passed on to the fabrics. The fact that after the inherent property in those goods is transferred to the fabrics the remaining solution is thrown out as waste or affluent, does not in any way affect the taxability on transfer of the property in goods already effected on the fabrics. Admittedly, after dyeing, the solution made of colours, chemicals and dyes is thrown as waste, because, on transfer of the property in the form of coloured shade, the said solution becomes worthless. Therefore, the Legislature has sought to tax the property in goods which passes and not the remnants or the affluent that remain after the passing of the inherent property in those goods. xxx 39. Now, turning to the second question, the Tribunal has held that the coloured shade passed on to the fabrics represents very small quantity of the materials used in dyeing and hence the Works Contracts Act is not applicable. A....
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....see was engaged in the business of photocopying, and for this purpose, it used its own paper and ink. The question before the Bombay High Court was whether the paper and ink used by the respondent-assessee in the course of executing photocopying works would constitute a transfer of property, and thus be liable to the levy of tax under the Maharashtra Works Contracts Act. The Bombay High Court, relying on its own decision in Matushree (supra), held that the moment paper and ink changed hands, it could be construed as a sale within the works contract. 45. In Commissioner of Sales Tax, Maharashtra State, Bombay v. Ramdas Sobhraj, reported in 2012 SCC OnLine Bom 1608, a reference was made by the Maharashtra Sales Tax Tribunal to the Bombay High Court. The respondent-assessee was engaged in the works of plate and film making. The activities undertaken by the respondent-assessee are described as follows by the Bombay High Court: "In the job-work of plate making the customers of the respondent-assessee supplies to the respondent-assessee duly grained zinc or aluminium plates. On receipt, plates are coated by dipping in water wherein gun bio chromate is dissolved. Thereafter po....
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....ales tax under Section 3B of the Tamil Nadu General Sales Tax Act, 1959. Section 3B of the Tamil Nadu General Sales Tax Act, 1959 dealt with "levy of tax on the transfer of goods involved in works contract". It was the petitioner's contention that when ink is used for printing the materials on a work contract basis, such ink is consumed and no transfer of property in the ink occurs. Rejecting the contention of the petitioner, the Madras High Court held that in the printing work undertaken, the ink is transferred onto the papers in a tangible manner and without it, the works contract would not be completed. Therefore, the printing ink could not be considered a consumable and is liable to be taxed under Section 3B of the Tamil Nadu General Sales Tax Act, 1959. 47. In Unique Traders v. Commercial Tax Officer-1, reported in 2020 SCC OnLine Mad 1155, a Three-judge Bench of the Madras High Court was hearing a reference that originated when a Division Bench, noting conflicting decisions among other Division Benches of the High Court, deemed it necessary for the law on the subject to be settled. The appellant in this case was involved in performing job work, wherein it would receive pol....
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....eement. MX reserves the right to charge the customer for any stocks which are unaccounted for, to MX's satisfaction, at the then prevailing MX prices." Thus for the extra stock there is a provision which provides that it is left in trust. However once the toner and developer are put into the machine they are no longer in trust. This is because the property in the toner and developer passed the moment they are put into the Xerox machine. Now they belonged to the customer. At this stage they are tangible movables in which property can pass. This is clear from the provision that the appellants will charge for unaccounted stock at prevailing prices. That they are goods in which property can pass is also clear from the fact that in SSMA the customer has to buy the toner and developer. If as now claimed they are consumables in which property cannot be transferred how are the appellants charging for toners and developers. In our view, Mr Iyer is right. The sale i.e. transfer of property takes place before the goods are consumed. The transfer takes place in respect of tangible goods. Just like petrol is consumed after sale or ink is consumed after sale in this case also the to....
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.... the other. If the goods do not exist, there is no question of transfer of property in goods. In Northern India Caterers (India) Ltd. v. Lt. Governor of Delhi [1978] 42 STC 386 ; (1978) 1 SCR 557, the Supreme Court quoted with approval a passage from Electa B. Merrill v. James W. Hodson LRA 1915-B 481, dealing with a case of supply of food or drink to customers, wherein it was held that such supply did not partake the character of a sale of goods. It was observed: "The necessary incident of this service or ministry is the consumption of the food required. This consumption involves destruction and nothing remains of what is consumed to which the right of property can be said to attach. Before consumption title does not pass; after consumption there remains nothing to become the subject of title." 13. While it is true that in view of the Constitution (Forty-sixth Amendment) Act, 1982, what was earlier considered to be one indivisible contract is by legal fiction altered into a contract which is divisible into one for the sale of goods and the other for supply of labour and services. It is now possible for the State to levy sales tax on the value of goods involved in a works ....
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....v. Union of India [1989] 75 STC 188. There can be no transfer of property unless the goods themselves exist. That is not the case herein. The decision of the Appellate Tribunal taking the said view is justified in law." (Emphasis supplied) 52. In Dynamic Industrial and Cleaning Services (P) Ltd. v. State of Kerala & Anr, reported in 1994 SCC OnLine Ker 379, the petitioner company was engaged in the business of cleaning of boilers in plants like thermal power stations and fertiliser complexes. For the process of cleaning, the petitioner used chemicals like citric acid, hydrochloric acid and the like, after determining the precise type of cleaning agent to be used in a particular plant. The petitioner, being aggrieved by the levy of sales tax on these chemicals, contended that the chemicals are consumed in the process of cleaning and removing the impurities in the plants, and as such no transfer of goods was involved. Accepting the said contention, the Kerala High Court held as follows: "2. A bare perusal of the above Explanation is sufficient to show that transfer of property in goods (whether as goods or in some other form) is the sine qua non for its applicati....
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....ntract. Even though consumables are lost to the contractor, it is not a gain for the awarder. In other words, they are used up in the process of executing the work. Sterilisation is a process by which goods are made free of germs and in order to retain the quality of goods, only packed commodities are subject to sterilisation with the use of ethylene oxide. The assessee's representative present in court explained the sterilisation process as one involving the use of a compact airtight room wherein the goods to be sterilised in packed form are exposed to ethylene oxide for around six hours and then the said gas is allowed to escape after mixing with carbon dioxide at higher levels through chimney. Ethylene oxide is a toxic gas which is highly inflammable. After the duration of sterilisation, the gas is released to air after neutralising it with carbon-dioxide. Admittedly after sterilisation goods do not retain any trace of ethylene oxide which is completely released in the air. Therefore, there is no transfer of ethylene oxide from the assessee to the customers in the course of sterilisation of the goods. On the other hand, it is used up as a consumable in the service rendered b....
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.... transfer of property. On the other hand, the revenue contended that the chemical was transferred the moment it was put into the effluent water, and the fact that it was subsequently consumed would not absolve the petitioner of its liability to pay tax as there was transfer of property. By a 2:1 majority, the court accepted the contention of the revenue. Justice K.M. Joseph (as His Lordship then was), speaking for the majority, made the following pertinent observations: "32. That the chemical in question is goods, is beyond doubt. It cannot be disputed that the assessee was the owner of the goods in question, namely, the chemical. It is obviously the intention of the parties that the assessee must use the chemical in the effluent treatment process. It is equally indisputable that the assessee has actually used it. No doubt, in the judgment of the apex court in Xerox Modicorp Ltd. v. State of Karnataka [2005] 142 STC 209, the apex court found that the toners and developers are liquids put into the xerox machine and they perform essentially the same function as ink in the printers and the court also relied on the provision in the contract that the assessees in the said case ....
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....at or the ship. Until, however, the materials are actually built into the work, in the absence of some stipulation intended to pass the property in them, when delivered on the site, they remain the property of the contractor, notwithstanding that they might have been approved by the employer or his agent or brought into the site unless the agreement between the parties evinces a clear intention to the contrary." 34. We would think that the said principle as such may not advance the case of the Revenue in a case where the works contract involves the effluent treatment process wherein chemical is poured into the effluent. 35. When the assessee has used it, will it remain the owner of the chemical any longer? Will not the property in the goods pass to the awarder? We would think that the moment the assessee pours the chemicals into the effluent, he will cease to be the owner and at that point of time the awarder must be deemed to have taken delivery of the same. In our view the fact that upon it being poured into the effluent, it loses its identity and that it is consumed will not detract from the fact that there is delivery of the same to the awarder. The assessee d....
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....re is transfer of property of the chemical, hence, bleaching contract attracts sales tax as in the case of dyeing contract, when the chemicals are purchased from outside the State. Consequently, this court allow the tax case (revisions) filed by the State." (Emphasis supplied) 57. In the cases of Enviro Chemicals (supra) and S.S.M. Processing Mills (supra) respectively, the focus of the courts decisively shifted from the final existence of the good to the precise moment a transfer of property occurred. The Kerala High Court, in Enviro Chemicals (supra), held in the facts of that case that the transfer occurs the moment the chemical is poured into the effluent water. Its subsequent consumption does not negate the fact that a "deemed sale" has already taken place. d. Application to the facts at hand 58. It is true that determining whether a transfer of property in goods has occurred is a fact-intensive enquiry, heavily dependent on the circumstances surrounding a particular case, such as the subject and terms of the work contract itself. In such a scenario, it is neither possible to lay down any "general principles" nor is it advisable to do so. At this juncture, it....
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.... the rulings of this Court in Builders Association (supra), Gannon Dunkerley-II (supra) and Larsen and Toubro (supra) respectively, it is clear that the taxable event with respect to the transfer of property in goods involved in works contracts is when the deemed sale occurs. 60. In Gannon Dunkerley-II (supra), this Court clarified that the transfer of property in such goods takes place when the goods are incorporated in the works. The Court's use of the word 'incorporated' should not be mechanically interpreted to mean that a transfer of property occurs only when a physical or tangible good is passed on when executing a works contract. Rather, 'incorporation' is to be understood contextually, defined by the specific nature of "the works" contracted for. 61. Considering it from the aforesaid perspective, it is evident that the Courts in Pest Control (supra), M.K. Velu (supra), Dynamic Cleaning (supra) and Microtol Sterilization (supra) respectively, proceeded on the wrong footing. The emphasis of the courts on 'consumption' in the aforesaid cases is incorrect on the following grounds: a. First, the courts in the said cases completely overlooked the taxable event as p....
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....he Forty-sixth Amendment and the dictum of this Court in various rulings. This Court allowed a broad interpretation of the term 'works contract' in order to enable the taxing transfer of property in goods in all genres of works contracts. 64. Many works contracts, particularly those for services and transformations, do not result in a new end product or a tangible transfer of property. For example, a works contract for providing pest control or cleaning service (as was the case in Pest Control (supra) and Dynamic Cleaning (supra), respectively) would not lead to the creation of a new end product or a very tangible transfer of property in goods. However, the chemicals used are indeed being transferred, as without such transfer of goods, it would be impossible to make an area clean or pest-free. Similarly, in M.K. Velu (supra) and Microtol Sterilization (supra), the works contracts therein could not have been executed successfully without the transfer of property in the fireworks and ethylene oxide, respectively. The chemicals, fireworks, and ethylene oxide are the primary goods facilitating the works under the respective contracts. It is in this context that they may said to be i....
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....d comprising both the ink and the processing chemicals. 68. As rightly held by the Bombay High Court in Matushree (supra), the transfer of ink and chemicals in their chemically altered form constitutes a valid transfer of property. Therefore, since it is impossible to transfer the ink without also transferring the chemicals it is diluted with, it can be conclusively inferred that the property in both the ink and the chemicals has been transferred. 69. Thus, in the facts of the present case, all conditions required to sustain a levy of tax under Section 3F(1)(b) of the Act, 1948, are fulfilled. Consequently, the appellant is liable to pay tax under Section 3F(1)(b) of the Act, 1948 on the ink and processing material. E. CONCLUSION 70. In order to sustain a levy of tax under Section 3F(1)(b) of the Act, 1948, three conditions must be fulfilled: (i) there must be a works contract; (ii) the goods should have been involved in the execution of the works contract; and (iii) the property in those goods must be transferred to a third party either as goods or in some other form. 71. The appellant has admitted that the contract for printing lottery ti....