2003 (8) TMI 478 - HC - VAT and Sales Tax

Business of dyeing and printing is deal within the meaning of section 2(1)(d) of the Works Contracts Act? - Liable to pay tax - Maharashtra Sales Tax - Scope and ambit of the powers of the States to levy tax on transactions - Whether the processes of dyeing and printing of cloth fall within the ambit of the Maharashtra Sales Tax on the Transfer of Property in Goods involved in the Execution of Works Contracts (Re-enacted) Act, 1989 - HELD THAT - In the present case, the coloured shade is passed to the fabrics due to the chemical reaction of the materials used in the process of dyeing. Coloured shade may be due to the chemical reaction of one or more materials. The coloured shade represents the inherent chemical property of the materials used. Once there is passing of the chemical property of the materials used in the execution of works contract, then under the Works Contracts Act, there is a deemed sale of the materials used in the execution of the works contract. Accordingly we hold that in the process of dyeing, the coloured shade passed on to the fabrics constitutes sale of the materials used in dyeing, under the Works Contracts Act. As rightly contended by the counsel for the Revenue, under the Works Contract Act, what is relevant is the passing of property in goods used in the execution of the works contract and not the quantity of the material that passes. It is not the case of the respondents that the chemical solution used for dyeing retains its property even after dyeing. In fact, it is the specific case of the respondents that the solution prepared for dyeing the grey fabrics of one customer, cannot be used for dyeing the grey fabrics of another customer. It is the case of the respondents that on completion of dyeing, of a particular fabric, the chemical solution becomes worthless and is thrown as a waste. Therefore, it is clear that on completion of dyeing, the entire property of the materials used in dyeing are passed on and what remains as solution is nothing but the residue or the waste. In other words, the coloured shade on the fabrics represents the entire property of the materials used in dyeing. Therefore, it was not open to the Tribunal to hold that the coloured shade represents only very small quantity of the materials used for dyeing and, therefore, the Act is not applicable. In this reference, we are not concerned with the issue relating to the computation of tax on transfer of property in goods used in the execution of a works contract. We are only concerned with the applicability of the Works Contracts Act to the materials used in the execution of a works contract. Accordingly, we are of the opinion that the Tribunal was not justified in holding that the Works Contracts Act is not applicable in the present case, because the coloured shade passed on to the consumer represents only a small quantity of the materials used in the process of dyeing. Thus, we hold that the property of the materials such as chemicals, colours and dyes used in the process of dyeing and printing are passed on to the fabrics of the customer and, such passing of property of the materials is a deemed sale and tax is leviable on such materials under the Works Contracts Act. Accordingly, we answer both the questions referred to us in the negative, i.e., in favour of the Revenue and against the respondents. The reference is disposed of in the above terms, with no order as to costs.

Issues Involved:
1. Whether the processes of dyeing and printing of cloth fall within the ambit of the Maharashtra Sales Tax on the Transfer of Property in Goods involved in the Execution of Works Contracts (Re-enacted) Act, 1989.
2. Whether the activity in which the transfer of property in goods is too insignificant will attract the provisions of the said Act.

Detailed Analysis:

Issue 1: Applicability of the Works Contracts Act to Dyeing and Printing
The Tribunal initially held that the processes of dyeing and printing do not fall within the ambit of the Works Contracts Act because the transfer of property in goods is too insignificant. However, the High Court disagreed with this interpretation. The Court noted that the Forty-sixth Amendment to the Constitution introduced the concept of "deemed sale," which includes the transfer of property in goods in any form, whether physical or chemical.

The Court emphasized that the coloured shade passed to the fabrics due to the chemical reaction of the materials used in dyeing constitutes a transfer of property in goods. This transfer is considered a "deemed sale" under the Works Contracts Act. Therefore, the processes of dyeing and printing do fall within the ambit of the Works Contracts Act.

Issue 2: Insignificant Transfer of Property in Goods
The Tribunal had also held that the activity of dyeing and printing, where the transfer of property in goods is too insignificant, does not attract the provisions of the Works Contracts Act. The High Court found this interpretation incorrect. The Court clarified that under the Works Contracts Act, the relevant factor is the passing of property in goods, not the quantity of the property that passes.

The Court pointed out that the entire property of the materials used in dyeing and printing is transferred to the fabrics, and what remains is merely residue or waste. Therefore, the Act applies regardless of the quantity of the property transferred. The Court held that the Tribunal was not justified in excluding the applicability of the Works Contracts Act based on the insignificance of the transferred property.

Conclusion:
The High Court concluded that the processes of dyeing and printing of cloth do fall within the ambit of the Maharashtra Sales Tax on the Transfer of Property in Goods involved in the Execution of Works Contracts (Re-enacted) Act, 1989. The Court also held that the insignificance of the transferred property does not exclude the applicability of the Act. Both questions were answered in the negative, in favor of the Revenue and against the respondents. The reference was disposed of with no order as to costs.

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