The Supreme Court has ruled that ink, chemicals, and other materials used in printing lottery tickets are taxable under Section 3F(1)(b) of the UP Trade Tax Act, affirming their transfer as “goods” in a works contract.
Thank you for reading this post, don't forget to subscribe!
NEW DELHI: In an important decision for the taxation of works contracts, the Supreme Court has clarified that ink, chemicals, and other processing materials used in printing lottery tickets are liable to trade tax under Section 3F(1)(b) of the Uttar Pradesh Trade Tax Act, 1948.
Background of the Case
The dispute arose from Aristo Printers Pvt. Ltd., a company engaged in printing lottery tickets. The company purchased its own ink and chemicals for the printing process. The Trade Tax Officer levied tax on these materials, arguing they were used in executing a works contract.
The company contested the levy, claiming that the ink and chemicals were consumed in the printing process and, therefore, could not be considered as goods transferred under the Act. The Appellate Authority agreed with the company and exempted the ink and chemicals from tax, though it upheld tax on packaging materials.
The Trade Tax Tribunal supported the Appellate Authority, dismissing the Revenue’s appeals. However, the Allahabad High Court reversed the Tribunal, holding that the ink and chemicals constituted a transfer of property to the customer and were therefore taxable. Dissatisfied, the company approached the Supreme Court.
Supreme Court’s Analysis
The two-judge bench, comprising Justice J.B. Pardiwala and Justice K.V. Viswanathan, laid down key principles regarding the taxation of goods in works contracts:
- Definition of Works Contract Post-46th Amendment
- States can tax the transfer of property in goods involved in a works contract, but not the contract itself.
- Works contracts are now treated as divisible into two components: the sale of goods and the provision of services/labour.
- The traditional “dominant nature” test is no longer relevant.
- Deemed Sale of Goods
- Transfer of property in goods during a works contract is considered a deemed sale, even if the goods are chemically altered or consumed during the process.
- Goods involved in executing the works contract, like ink and chemicals, are different from consumables like electricity or water, which are merely used to facilitate the work.
- Three Conditions for Tax Under Section 3F(1)(b)
The Court emphasized that to levy tax on goods used in a works contract, three conditions must be met:- There must be a works contract.
- Goods must be involved in executing the contract.
- Property in those goods must transfer to a third party, either as goods or in another form.
Court’s Observations
Ink and Chemicals Are Transferred: The Court observed that the taxable event occurs the moment ink is applied to the paper. The ink, combined with chemicals, becomes part of the final lottery ticket.
Tangible Transfer of Property: Since the ink cannot be applied without the chemicals, the property in both is transferred to the customer.
Broader Interpretation of Works Contract: The Court stressed that the statutory framework is not limited to contracts yielding a tangible product. Any goods involved in executing the contract are liable.
The Supreme Court dismissed the appeals of Aristo Printers Pvt. Ltd., holding that:
“The property in the ink and processing materials is transferred during the execution of the works contract. All conditions for taxation under Section 3F(1)(b) are fulfilled, making the appellant liable to pay trade tax.”
Appearance:
Appellant: AORs Rohit Singh, Satyajeet Kumar, and Advocate Niraj Kumar
Respondent: AOR Bhakti Vardhan Singh and Advocate Sandeep Singh Somaria.
Case Title:
M/s. Aristo Printers Pvt. Ltd. v. Commissioner of Trade Tax, Lucknow, U.P.
CIVIL APPEAL NO. 703 OF 2012
Read Judgment:
