1994 (5) TMI 246 - HC - VAT and Sales Tax

Summary

Issues involved: Interpretation of Explanation (3A) to section 2(xxi) of the Kerala General Sales Tax Act, 1963 regarding levy and collection of tax on works contracts involving transfer of property in goods.

Summary:
The petitioner, a private limited company engaged in cleaning boilers in plants, objected to the levy of tax under the Act based on Explanation (3A) to section 2(xxi). The petitioner's work involved using chemicals like citric acid and hydrochloric acid for cleaning, with no goods produced or transferred to the plant owner. The court emphasized that the mere execution of a works contract does not attract tax unless there is a transfer of property in goods. Citing precedent, it was established that when goods are consumed in the process of a works contract, without transfer to the awarder, there is no tax liability. The chemicals used were deemed aids to the work, not goods transferred to the awarder, making the work akin to a labor contract. Consequently, the court allowed the writ petition, declaring the petitioner's works not liable to tax under the Act.

The judgment provides clarity on the application of Explanation (3A) to works contracts, highlighting the importance of the transfer of property in goods for tax liability under the Act. By distinguishing between goods consumed in the process and goods transferred, the court established that works involving the former do not constitute taxable sales. The decision aligns with previous rulings and affirms that in cases where goods are used in aid of the work without transfer to the awarder, no tax liability arises. This interpretation safeguards businesses engaged in similar activities from unwarranted tax burdens, ensuring a fair application of the law in works contract scenarios.