2010 (1) TMI 1101 - HC - VAT and Sales Tax

Whether the Appellate Tribunal was justified in overlooking the jurisdictional point raised by the whether in the given facts and circumstances of the case, printing ink could be construed to be a consumable one or not and whether such printing ink when used for execution of works contract to printing materials would amount to transfer of property in goods in terms of Sections 2(j) and 2(u) of the TNGST Act and consequently as to whether Section 3-B is attracted? Held that - The conditions for admitting deduction under Section 3-B of the TNGST Act basically are (i) that the contractor should have purchased the goods from a registered dealer liable to pay tax under the Act and (ii) that the goods should have been used in the execution of the works in the same form in which they were purchased. In this case, though the assessee had purchased raw materials locally and from other States, those raw materials had not suffered any tax. That apart, after the printing ink is manufactured by the assessee, as it is used on printing materials it does not amount to sale and the goods are not subjected to tax. Equally the raw materials purchased by the assessee are not used as such in the execution of the works contract, but the raw materials undergo a different form, namely, printing ink which alone is used in the execution of the works. In that view, the levy of tax under Section 3-B cannot be found fault with. Accordingly, the tax revision case stands dismissed and the issue is answered in favour of the revenue, but against the assessee.

Summary

Issues Involved:
1. Jurisdictional point regarding transfer of property in "goods" under Section 2(u) of the TNGST Act, 1959.
2. Deletion of turnover related to consumables and labor charges.
3. Addition towards gross profit in the cost price of goods in the execution of works contract.

Detailed Analysis:

Issue 1: Jurisdictional Point on Transfer of Property in "Goods"

The primary issue was whether the Appellate Tribunal was justified in overlooking the jurisdictional point raised by the petitioner regarding the transfer of property in "goods" as defined under Section 2(u) in the form of "ink" in the printing contract. The petitioner (assessee) contended that the ink used in printing was consumable and did not constitute a transfer of property. The court examined the facts and legal principles, including the insertion of Clause (29A) to Article 366 of the Constitution of India, which allows taxation on the transfer of property in goods involved in works contracts. The court determined that the printing ink retained its character as a property and was tangible even after usage, thus amounting to a transfer of property in goods. Consequently, Section 3-B of the TNGST Act was applicable, and the Tribunal was justified in its decision.

Issue 2: Deletion of Turnover Related to Consumables and Labor Charges

The second issue was whether the Tribunal erred in not deleting the turnover related to consumables such as oil and labor charges incurred towards grinding, which do not involve any transfer of property in goods. The court noted that the assessee purchased raw materials like pigments, linseed oil, and chemicals to manufacture printing ink, which was then used in the job work of printing. The court held that the printing ink, even after execution, was visible and tangible, and its usage constituted a transfer of property in goods. Therefore, the consumables and labor charges associated with the manufacturing of printing ink were subject to tax under Section 3-B of the TNGST Act.

Issue 3: Addition Towards Gross Profit

The third issue was whether the addition towards gross profit was unwarranted since it was included in the cost price of goods transferred in the execution of works contracts. The court referred to various judgments, including Tata Consultancy Services v. State of Andhra Pradesh, which clarified that goods could be tangible or intangible and must have utility, be capable of being bought and sold, and be transferable. The court concluded that the printing ink used in the works contract met these criteria and was therefore taxable. The addition towards gross profit was justified as the raw materials purchased by the assessee did not suffer tax at an earlier stage and were transformed into a new product (printing ink) used in the execution of the works contract.

Conclusion:

The court dismissed the tax revision case, ruling in favor of the revenue and against the assessee. It upheld the applicability of Section 3-B of the TNGST Act, confirming that the printing ink used in the execution of works contracts constituted a transfer of property in goods and was thus subject to sales tax. The Tribunal's decisions on all three issues were deemed justified.