2013 (11) TMI 771 - HC - VAT and Sales Tax

Value of dyes and chemicals - Work contract - Held that - tax liability is drawn in the ambit of definition of sales in clause (i) and (ii) of S.2(t) of M.P. Vanijyik Kar Adhiniyam, 1994 and, therefore, material used and transferred in the same form or otherwise, it is deemed sales and is liable to tax under the provisions of Act that those materials like fuel, water, labour, which are consumed but not transferred to the contractee are not deemed sales whereas material which are transferred in the same form or in other form are deemed sale, according to the case of Gannon Dunkerley (1992 (11) TMI 254 - SUPREME COURT OF INDIA) - The High Court of Madhya Pradesh has rightly held that goods used in process of sizing of yarn is transferred to the contractee and is liable to tax. Consequently we find that no error or fault could be found in the impugned order passed by Divisional Deputy Commissioner in revision petition and we hold that according to 46th amendment of Constitution of India as already held above, the State Governments are empowered to the levy tax on the goods transferred otherwise than in pursuance of contract i.e., in execution of work contract and hence undoubtedly the State is entitled to levy tax on the value of material involved in the execution of job work/work contract - Decided against assessee.

Summary

Issues:
Challenge to order rejecting revision petition under Commercial Tax Act for tax liability on dyes and chemicals used in job work contract.

Analysis:
1. Issue of Tax Liability on Dyes and Chemicals:
The petitioner challenged an order holding them liable for tax under Sections 9 and 9-B of the Commercial Tax Act for the value of dyes and chemicals used in processing grey cloths on a job work basis. The petitioner argued that no transfer of property occurred as chemicals were not consumed and the job work did not involve transfer. The petitioner contended that the tax assessment was contrary to law as essential elements for levying tax were absent.

2. Application of 46th Constitutional Amendment:
The respondent argued that post the 46th Constitutional amendment, states were empowered to levy sales tax on materials used in works contracts. Citing legal precedents, the respondent emphasized that the amendment allowed for taxing materials involved in works contracts, even if the dominant intention was service provision. The respondent contended that the petitioner's activity of dyeing grey cloth constituted a deemed sale under the amended definition of sale or purchase.

3. Interpretation of Works Contract and Deemed Sale:
The court analyzed whether post the 46th amendment, job work or processing work involved the transfer of property, making the tax on dyes and chemicals a deemed sale. The court found that the activities of processing grey cloths and job charges, including chemicals and colors used, fell within the definition of deemed sale under the Act. The court rejected the petitioner's argument that no material transfer occurred, emphasizing that the use of chemicals and colors in processing constituted a separable transfer under the works contract.

4. Conclusion on Tax Liability:
The court concluded that the tax liability was within the definition of sales under the Act, considering the materials used and transferred in the works contract. The court held that materials transferred in any form were deemed sales and subject to tax, distinguishing them from materials like fuel or water that were consumed but not transferred. Relying on legal precedents, the court upheld the tax liability on materials involved in the job work contract, dismissing the petition as lacking merit.

In summary, the court upheld the tax liability on dyes and chemicals used in the job work contract post the 46th Constitutional amendment, emphasizing the separable transfer of materials in works contracts as deemed sales subject to tax under the Commercial Tax Act.