1993 (6) TMI 239 - AT - VAT and Sales Tax

Summary

Issues Involved:
1. Whether the job work activity of dyeing and bleaching constitutes a works contract involving transfer of property in goods under section 6D of the Bengal Finance (Sales Tax) Act, 1941.
2. Whether the chemicals used in the process of dyeing and bleaching are consumed and destroyed, or if they result in the transfer of property in goods.
3. Whether the provisions of section 6D infringe article 286 of the Constitution concerning inter-State trade and commerce.

Issue-wise Detailed Analysis:

1. Works Contract and Transfer of Property in Goods:
The primary issue was whether the job work activity of dyeing and bleaching constituted a works contract involving the transfer of property in goods under section 6D of the Bengal Finance (Sales Tax) Act, 1941. The applicant, Bijoy Processing Industries, argued that their activity was purely a service contract involving no transfer of property in goods. They contended that the chemicals used in the process were consumed and destroyed, leaving no identifiable goods. However, the Tribunal found that the activity of bleaching and dyeing fell within the definition of "processing" and "treating" under section 2(b)(iv) of the Act. It was held that there was indeed a works contract as defined in the Act, and the chemicals used in the dyeing process resulted in a transfer of property in goods as they became part of the fabric.

2. Consumption and Destruction of Chemicals:
The applicant argued that the chemicals used in the bleaching and dyeing process were consumed and destroyed, thus not resulting in any transfer of property in goods. They cited technical literature and expert opinions to support their claim that the chemicals were exhausted after the process. However, the Tribunal noted that while bleaching resulted in the elimination of impurities and did not involve accretion, the dyeing process did result in the accretion of colored ions into the fabric. Therefore, it was held that there was a transfer of property in goods in the case of dyeing and whiting, but not in bleaching.

3. Infringement of Article 286 of the Constitution:
The applicant contended that section 6D of the Act infringed article 286 of the Constitution, which restricts the imposition of tax on inter-State trade and commerce. The Tribunal noted that this plea was neither raised in the writ petition nor in the affidavit-in-rejoinder. The Tribunal also observed that the nature of the transactions did not indicate any inter-State sale or sale in the course of export or import. Moreover, the Tribunal pointed out that section 27 of the Act provided a saving provision that complied with the limitations imposed by article 286, thereby distinguishing it from the Rajasthan Act struck down by the Supreme Court in Gannon Dunkerley & Co. v. State of Rajasthan.

Conclusion:
The Tribunal concluded that the activity of dyeing and bleaching constituted a works contract involving the transfer of property in goods in the case of dyeing and whiting but not in bleaching. The Commercial Tax Officer was within his jurisdiction to issue notice under section 14(1) for the levy of tax under section 6D. The application was dismissed, and the interim order was vacated. The operation of the judgment was stayed for six weeks on the verbal prayer of the applicant's advocate.