Summary
| Category | Data |
|---|---|
| Court | Supreme Court of India |
| Case Number | C.A. No.-000703-000703 – 2012 |
| Diary Number | 12616/2011 |
| Judge Name | HON’BLE MR. JUSTICE J.B. PARDIWALA |
| Bench | HON’BLE MR. JUSTICE J.B. PARDIWALA and HON’BLE MR. JUSTICE K.V. VISWANATHAN |
| Precedent Value | Binding authority |
| Overrules / Affirms |
|
| Type of Law | State trade tax (works contract taxation) |
| Questions of Law | Whether tax can be levied under Section 3F(1)(b) of the UP Trade Tax Act, 1948 on ink and processing materials used in printing lottery tickets. |
| Ratio Decidendi |
|
| Judgments Relied Upon |
|
| Logic / Jurisprudence / Authorities Relied Upon by the Court |
In-depth analysis of Article 366(29-A)(b) and Article 286; Section 3F of the UP Act, 1948; Sections 3–5, 14–15 of CST Act; evolution of works-contract taxation post-46th Amendment; rejection of “dominant intention” test; classification of precedents on tangible vs. consumable goods; application of “incorporation” test for transfer. |
| Facts as Summarised by the Court |
|
Practical Impact
| Category | Impact |
|---|---|
| Binding On | All subordinate courts adjudicating works-contract tax issues in Uttar Pradesh and similar Acts. |
| Persuasive For | Other High Courts and benches of the Supreme Court on works-contract and sales-tax disputes. |
| Overrules | Pest Control India Ltd v. Union of India; Deputy Commissioner of Sales Tax v. M.K. Velu; Dynamic Industrial and Cleaning Services; Microtol Sterilization Services. |
| Distinguishes | High Court decisions excusing tax on consumables purely because they are consumed during execution. |
| Follows | Gannon Dunkerley I & II; Builders Association of India; Larsen & Toubro Ltd.; Associated Cement Companies Ltd.; Xerox Modicorp Ltd. |
What’s New / What Lawyers Should Note
- Clarifies that the “deemed sale” under Section 3F(1)(b) occurs when goods are incorporated into the final works—even if they are consumed immediately thereafter.
- Reaffirms that consumable materials are taxable if their property transfers in execution of the contract; only those never transferred qualify for deduction.
- Overrules High Court rulings that exempted consumables like chemicals and inks when they vanished post-use.
- Emphasizes reliance on Supreme Court precedents over conflicting High Court decisions in works-contract taxation.
- Advises practitioners to obtain an item-wise breakup of processing materials to assess liability accurately.
Summary of Legal Reasoning
- Taxable Event Defined: Section 3F(1)(b) imposes tax on transfer of property in goods “involved in the execution of a works contract.”
- Statutory/Constitutional Framework: Analyzed Article 366(29-A)(b) (46th Amendment) and Article 286 restrictions; Sections 3–5, 14–15 CST Act; UP Trade Tax Act, 1948.
- Historical Evolution: Reviewed pre-46th-Amendment rulings (Gannon Dunkerley I) and post-Amendment jurisprudence (Gannon II; Builders Assn; Larsen & Toubro; Associated Cement).
- Precedent Classification: Distinguished decisions on tangible transfers (Matushree; Hari & Co.; Bombay HC) and erroneous consumables-only rulings (Pest Control; M.K. Velu; Dynamic Cleaning; Microtol).
- Transfer vs. Consumption: Held that transfer occurs on incorporation—the moment ink/chemicals are applied—even if consumed; consumption post-transfer is irrelevant.
- Application: In printing lottery tickets, diluted ink (inclusive of chemicals) is incorporated into the ticket, effecting a transfer and triggering tax under Section 3F(1)(b).
Arguments by the Parties
Appellant (Petitioner)
- Lottery tickets are actionable claims, not “goods” under the Act.
- Ink and chemicals are consumables fully used in printing; no property passes to customers.
- High Court erred in treating diluted ink as transferred.
- Relied on Pest Control India Ltd v. Union of India and M.K. Velu.
Respondent (Commissioner of Trade Tax)
- Diluted ink (ink + chemicals) passes to customers as part of printing.
- Property in consumables transfers on application, triggering Section 3F(1)(b).
- Relied on Matushree Textile Ltd. and Hari & Company decisions upholding similar levies.
Factual Background
- The appellant-printer received blank paper from lottery promoters and procured its own ink and chemicals for printing.
- The Assessing Authority levied tax on ink, processing and packing materials under Section 3F of the UP Trade Tax Act, 1948.
- The Appellate Authority and Trade Tax Tribunal deleted tax on ink/chemicals; the UP High Court reversed these orders, holding diluted ink is passed on.
- The appellant challenged the High Court’s ruling in the Supreme Court.
Statutory Analysis
- Section 2(d) UP Trade Tax Act, 1948: Defines “goods” as movable property, including materials in works contracts—but excluding actionable claims.
- Section 3F(1)(b): Imposes tax on “transfer of property in goods (…in some other form) involved in a works contract.”
- Deductions: Section 3F(2)(b)(x) exempts cost of consumables “the property in which is not transferred in the execution.”
- Constitutional Provisions: Article 366(29-A)(b) deems certain transfers in works contracts as sales; Article 286 and CST Act limit State power.
Alert Indicators
- ✔ Precedent Followed – Reaffirms leading Supreme Court jurisprudence on works-contract taxation.
- 🔄 Conflicting Decisions – Departs from High Court rulings that excused consumables when consumed post-use.