2009 (3) TMI 940 - HC - VAT and Sales Tax

Whether the Tribunal was justified in sustaining the assessment on the value of ethylene oxide used in sterilisation of goods for others? Held that - Unable to uphold the order of the Tribunal confirming the levy and demand of tax on the value of ethylene oxide used up in sterilisation work. We therefore allow the sales tax revision by reversing the order of the Tribunal confirming the assessment and by declaring that no tax is leviable on the value of ethylene oxide used in sterilisation work.

Summary

Issues:
Assessment of turnover on works contract involving the value of ethylene oxide used in sterilisation of goods.

Analysis:
The court was tasked with determining whether the Tribunal was correct in upholding the assessment of the value of ethylene oxide used in sterilisation of goods as part of the turnover for works contract. The assessee, engaged in sterilisation work using ethylene oxide, contested the assessment, arguing that since the ethylene oxide is lost during the sterilisation process, there is no transfer of property, and therefore, it should not be considered as turnover for works contract. The assessing officer included the value of ethylene oxide and service charges in the contract receipts for assessment. The first appeal and second appeal upheld the assessment, leading to the revision filed against the Tribunal's decision.

During the proceedings, the petitioner's counsel cited precedents to support their argument, emphasizing that the loss of ethylene oxide during sterilisation negates any sale of the gas to customers, thus precluding the levy of tax under works contract. In contrast, the Government Pleader relied on different court decisions, asserting that the turnover on the sale of ethylene oxide should be assessable under the relevant tax provisions. The court examined the applicable law, specifically Section 5(1)(iv) regarding the levy of tax on works contract and Section 5C(1)(c)(iii) allowing for the deduction of consumables used in works contract turnover determination.

The court delved into the nature of consumables in works contracts, highlighting that consumables, like ethylene oxide in this case, are items lost during contract execution, benefiting neither the contractor nor the awarder. The process of sterilisation, explained by the assessee's representative, involves exposing packed goods to ethylene oxide in a sealed room, with the gas dissipating harmlessly after the process. The court drew parallels to previous judgments involving pesticide application and fireworks, emphasizing the distinction from dyeing work where the dye remains in the fabric. Ultimately, the court concluded that ethylene oxide, being consumed in the sterilisation process without any transfer to customers, should not be taxed as part of the works contract turnover. The revision was allowed, overturning the Tribunal's decision and declaring the non-leviability of tax on the value of ethylene oxide used in sterilisation work.