2012 (7) TMI 856 - HC - VAT and Sales Tax

Tax levied of transfer of property - whether contract involves only pure labour in the sense that since the tiles are brought in by the customers themselves the appellant only prints the design on the tiles so brought and there is no transfer of property involved? Held that - From the material on record it is clear that the assessee has maintained accounts of works contract and accordingly he has paid composition tax on the total turnover of the works contract under section 17(6) of the Act. Similarly the authorities have not claimed any tax for similar works done within the State. They are claiming tax only in respect of works done for customers outside the State on the ground that the printing and design itself constitutes a property which is sold. As rightly pointed out by the Tribunal the material used by the assessee for painting and design on the glazed tiles supplied by the customers outside the State do not constitute sale of goods they are consumables used in execution of works contract. Therefore when section 5B is not attracted section 17(6) is not attracted. Even otherwise it would be a case of inter-State sale. Thus KST is excluded. Revision dismissed.

Issues:
1. Challenge to order passed by Tribunal setting aside assessment orders.
2. Applicability of works contract tax under KST Act and CST Act.
3. Dispute over transfer of property in works contract.
4. Interpretation of pure labour contract under KST Act.
5. Tax liability on turnover for works done outside the State.
6. Application of section 17(6) of the KST Act.
7. Comparison with Indian Dairy Machinery Co. Ltd. case.
8. Validity of Tribunal's decision.

Analysis:
1. The State challenged the Tribunal's order setting aside assessment orders under KST and CST Acts. The assessee, a limited company engaged in screen printing on tiles, declared contract receipts under both Acts. The dispute arose regarding exemption from works contract tax for contracts with customers outside the State.

2. The assessing authority levied tax on receipts from customers outside the State, citing property transfer in works contract. The Joint Commissioner upheld the tax liability, rejecting the inter-State works contract argument. The Tribunal, however, deemed the contract as pure labour, outside KST Act's scope, and exempt from tax under CST Act.

3. The Tribunal found no property transfer in the works contract, considering materials used as consumables. It held that even if property passed, it was in the course of inter-State trade, not taxable under KST Act due to lack of enabling provisions.

4. The contention that the contract involved sale of goods was analyzed. The Tribunal determined that if tiles were supplied after printing, only labour charges were collected, not goods sold. Hence, sections 5B and 17(6) were not applicable.

5. The dispute centered on works done for customers outside the State. The assessing authority viewed the materials used as goods sold, attracting tax. However, the Tribunal classified them as consumables, not subject to tax under KST Act, or as inter-State sales under CST Act.

6. The State's argument for tax on total turnover under section 17(6) was dismissed as unsubstantiated. The Tribunal's decision on the non-applicability of section 17(6) was upheld based on the nature of the works contract.

7. The comparison with the Indian Dairy Machinery Co. Ltd. case was made, clarifying that section 17(7) did not apply in the present case. The judgment's context was different, and not relevant to the current dispute.

8. Ultimately, the Tribunal's decision was deemed legal and valid, without legal flaws warranting interference. The revision petition was dismissed, with no costs imposed.

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