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TMI Blog2018 (5) TMI 1797X X X X Extracts X X X X X X X X Extracts X X X X ..... n filed by the appellant-assessee against the order 17.03.2017, Annexure A.5 passed by the Haryana Tax Tribunal, Chandigarh (in short, "the Tribunal) for assessment year 2003-04 in STA No. 513 of 2010-11, claiming following substantial questions of law:- "(i) Whether on the facts and in the circumstances of the case, the learned Tribunal was justified in upholding the levy of tax on chemicals used as consumables in the process of job work of dyeing of fabric by assuming that property in the goods has passed on to the principals? (ii) Whether on the facts and in the circumstances of the case, the learned Tribunal was justified in upholding the levy of tax on the entire value of dyes used by the appellant in the job work process of dyeing of fabric ignoring the quantity of dyes which are wasted during the process in which property is not transferred to the principals? (iii) Whether on the facts and in the circumstances of the case, the findings of learned Tribunal are perverse insofar as it has been held that property in the goods i.e. dyes and chemicals is transferred to be principals in the job work of dyeing the fabric? (iv) Whether on the facts and in the circumstances ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f job work of bleaching and dyeing are transferred as in physical form or as their inherent properties. Therefore, the property in goods passed on in the process of execution of job work should be taxed and the Assessing officer raised a tax demand of Rs. 5,34,516/- vide order dated 20.3.2007, Annexure A.1. Reliance was placed on decision of the Bombay High Court in Commissioner of Sales Tax Vs. Matushree Textiles Limited, (2003) 132 STC 539. Aggrieved by the order, the assessee filed an appeal before the Joint Excise and Taxation Commissioner (Appeals) [JETC(A)]. It was pleaded that no such tax was payable by the assessee. The order of the Assessing Authority was not supported by any reason/ground or report regarding the portion of the material which could technically be said to have been transferred after the process of dyeing as that there was no transfer of chemical on dyed fabric. Even if sales tax was leviable, at best it could be said that the dyes transferred may be approximately 20%. Vide order dated 4.3.2008, Annexure A.2, the JETC(A) rejected the appeal on the ground that the Assessing Authority was the best judge to ascertain the factual position as to how much transfer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ution of a works contract and the said transfer of property in such goods takes place when the goods are incorporated in the works. Reliance was also placed on judgment of Karnataka High Court in Sri Krishna Spinning and Weaving Mills Pvt. Limited vs. Authority for clarification and Advance Rulings, Bangalore, (2010) 27 VST 194, wherein it was noted that about 10% to 20% of the dyeing chemicals are consumed by the fabric and the remaining get washed out as per technical reports. In that case, the court while holding that the said aspect had not been considered by the authorities below as to how much would be the actual loss of chemicals, dyes and colours when the fabric undergoes various process, remanded the case back to the Assessing Officer to work out details regarding as to how much of chemicals, dyes and colours get washed out. The Assessing Officer was asked to add to the value of turnover in accordance with law the actual percentage of chemicals, dyes and colours which were retained or embedded on the textile or the fabric. 5. On the other hand, learned counsel for the revenue contended that vide 46th Amendment of the Constitution with effect from 02.02.1983, it was inter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ds or in some other form) involved in the execution of a works contract; (iii) to (vi) xxxxxx" and such transfer, delivery or supply of any goods shall be deemed to be a sale of those goods by the person making the transfer, delivery or supply and a purchase of those goods by the person to whom such transfer, delivery or supply is made; Section 2(g) of the Central Sales Tax Act, 1956 defines "Sale", which is in similar terms as under:- With its grammatical variations and cognate expressions, means any transfer of property in goods by one person to another for cash or deferred payment or for any other valuable consideration, and includes,- (i) xxxxxxxxxxxx (ii) a transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract; (iii) to (vi)xxxxx" but does not include a mortgage or hypothecation of or a charge or pledge on goods. Section 2(d) of the Central Sales Tax Act, 1956 defines "Goods": "d) "goods" includes all material , articles, commodities and all other kind of movable property, but does not include newspapers, actionable claims, stocks, shares and securities." 8. A plain reading of the above ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her service charges incurred for such execution and where it is not so quantifiable, then the cost of acquisition of the goods and the prevalent margin of profits on them plus the cost of transferring the property in the goods and all other expenses in relation thereto till the property in them is transferred to the contractee and where the property is converted into different form, by including the cost of conversion. Similar meaning is assigned to the expression "sale price" under the CST Act. Section 2(h) of CST Act is in the following terms:- "2(h) "sale price" means the amount payable to a dealer as consideration for sale of any goods, less any sum allowed as cash discount according to the practice, normally prevailing in the trade, but inclusive of any sum charged for anything done by the dealer in respect of the goods at the time of or before the delivery thereof other than the cost of freight or delivery or the cost of installation in cases where such cost is separately charged. Provided that in the case of a transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract, the sale price of such goods shall be deter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to change the structure of cellulose. The fabric becomes more lustrous and the strength increases. After the process is over, the entire caustic is to be removed from the fabric. In this process, 10% of the total value of dyes and chemicals are used. v) Dyeing After all the processes, to make the cloth fabric ready for dyeing the process of applying the colour is undertaken. In this process of dyeing, depending upon the colour of shade, 10 to 30% of the colours are fixed on the fabric. Rest of the colours are washed out. In this process, reactive colours and chemicals on the alkali, sodium silicate and detergents are used. In this process, 10 to 30% depending upon the shade are stuck to the shade and the rest of the colour and chemicals are totally washed out. In this process, about 20% of the colours and 10% of the total chemicals are used. (vi) Printing After mercerizing, dither the fabric is dyed or printed. In case the process of printing is undertaken, the fixation of colours on the fabrics would vary from 20% to 50%. Rest of the colours alongwith entire chemicals are washed out in the subsequent process of washing/soaping. In the printing, around 25% of the total ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have to be removed from the fabric. The fabric can be processed (dyed or printed) only when it is devoid of all impurities and foreign materials. 5.3.2 Nature of Process of Desizing: In the process of desizing, the size (starch) which was applied at the time of weaving, is removed. The fabric is wetted and certain chemicals are used to remove the size (starch) from the fabric. When certain chemicals are applied to the fabric, the size (starch) is made soluble and removed completely in the final process of washing immediately after desizing. 5.3.3 Chemicals Used * Enzymes * Wetting Agents * Deaerating Agents * Sequestering Chemicals In this process of desizing, roughly about 15% of the total dyes and chemicals are used. 5.3.4. Effect of Desizing: After desizing the fabric, the fabric is fully devoid of size (starch) and is ready for next process i.e. Scouring and Bleaching. All chemicals used in the process along with dissolved size (starch) are totally washed out while washing immediately after desizing. 5.4 Scouring & Bleaching: 5.4.1. The natural colour of the grey fabric is yellow and it contains certain fatty material, wax, etc. On account o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Dyeing: In this process, the colour is applied on the fabric either by Pad Batch Technique or Exhaust Process in Jiggers as per the requirement. Here various reactive colours (as per requirement) along with certain chemicals and detergents are used. Depending on the requirement of shades (light, medium or dark) colours are fixed on the fabric. Between 10% - 30% of the total colours used in the process of Dyeing are actually fixed on the fabric. As the process of Dyeing is done in all combinations of shades (light, medium and dark) depending on the customers requirement, it can be assumed that, on an average about 20% of the total colours used in this process of Dyeing are actually fixed on the fabric. The balance 80% colours alongwith the all chemicals used are fully washed out at the end of this process. 5.6.2 Colours and Chemicals Used: * Various reactive colours * Alkalis * Sodium Silicate * Detergents In this process of Dyeing, roughly about 15% (chemicals), and about 20% (colours) of the total dyes and chemicals are used. 5.6.3 Effect of dyeing In this process of Dyeing the white fabric becomes coloured fabric as per the requirement with about 20% ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat every chemical used/consumed upto this process was completely washed off. (v) Dyeing After completion of process no. (iv) of Desizing, the process of dyeing is started with the help of 8% colour (by weight of fabric). After completion, two hot wash with detergent and two hot and two wash of normal water are given. In this process, dimensional width increases by 6% and the weight of fabric increases by about 1.5%. In this process, no trace of chemicals is found leading to a conclusion that every chemical is washed off. It was, however, observed that about 17% of the dyes used have been retained by the fabric. (vi) Finishing After dyeing, the softener is used but no traces are found in the final fabric." Conclusion: Now it is clearly concluded, here above that after going through various processes, the fabric finally contains only about 17% of dyes, which has been used during the process of dyeing. There is no existence, physically or by its chemical properties of any of the chemicals consumed here above upon the dyed fabric. 13. A perusal of the reports of experts shows that in the process of dyeing or printing, the colour and chemicals are stuck to the fabric. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a subcontractor for labour and services [item No. (ii)], charges for planning, designing and architect's fees [item No. (iii)], charges for obtaining on hire or otherwise machinery and tools used in the execution of a works contact [item No. (iv)], and the cost of consumables such as water, electricity, fuel etc. which are consumed in the process of execution of a works contract [item No. (v)] and other similar expenses for labour and services will have to be excluded as charges for supply of labour and services. The charges mentioned in item No. (vi) cannot, however, be excluded. The position of a contractor in relation to a transfer of property in goods in the execution of a works contract is not different from that of a dealer in goods who is liable to pay sales tax on the sale price charged by him from the customer for the goods sold. The said price includes the cost of bringing the goods to the place of sale. Similarly, for the purpose of ascertaining the value of goods which are involved in the execution of a works contract for the purpose of imposition of tax, the cost of transportation of the goods to the place of works has to be taken as part of the value of the said ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r to the extent it is relatable to supply of labour and services; g) other similar expenses relatable to supply of labour and services; h) profit earned by the contractor to the extent it is relatable to supply of labour and services; The amounts deductible under these heads will have to be determined in the light of the facts of a particular case on the basis of the material produced by the contractor. 46. We may, however, make it clear that apart from the deductions referred to above, it will be necessary to exclude from the value of the works contract the value of the goods which are not taxable in view, of Sections 3, 4 and 5 of the Central Sales Tax Act and goods covered by Sections 14 and 15of the Central Sales Tax Act as well as goods which are exempt from tax under the sales tax legislation of the State. The value of goods involved in the execution of a works contract will have to be determined after making those deductions and exclusions from the value of the works contract." 16. In Sri Krishna Spinning and Weaving Mills Pvt. Limited's case (supra), it was observed by the Karnataka High Court that the dyeing work undertaken by the assessee on cotton fabrics i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the process of printing, certain amount of chemicals, dyes and colours are washed out and they do not remain embedded on the textile or fabric. Thus the benefit of chemicals dyes and colours which get washed out to this extent could be extended to the appellant. 10. During the course of hearing, learned counsel for the appellant submitted before us a certificate issued by Sri K. P. Bhatt, technical consultant of textile processing industry to suggest that in dyeing, about 10 per cent to 20 per cent of the dyes and chemicals are consumed by the fabric and remaining, gets washed out. Normally, for dyeing it has been mentioned that roughly around 20 per cent colours and 10 per cent of chemicals are used and remaining gets washed out. Ultimately, the conclusion of expert is as follows: As everyone is aware, the fabric is used by human beings and traces of chemicals, enzymes, acids and alkalis and excess colours must be removed to make it harm-free to wear by human beings. Ultimately, dyed or printed fabrics will have and carry a small portion of colours on it and nothing else." 17. In Commissioner of Sales Tax, Maharashtra State, Bombay Vs. R.M.D.C. Press Private Limited., ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ugh consumables are lost to the contractor, it is not a gain for the awarder. In other words, they are used up in the process of executing the work. Sterilisation is a process by which goods are made free of germs and in order to retain the quality of goods, only packed commodities are subject to sterilization with the use of ethylene oxide. The assessee's representative present in court explained the sterilization process as one involving the use of a compact airtight room wherein the goods to be sterilized in packed form are exposed to ethylene oxide for around six hours and then the said gas is allowed to escape after mixing with carbon dioxide at higher levels through chimney. Ethylene oxide is a toxic gas which is highly inflammable. After the duration of sterilization, the gas is released to air after neutralising it with carbon-dioxide. Admittedly after sterilization goods do not retain any trace of ethylene oxide which is completely released in the air. Therefore, there is no transfer of ethylene oxide from the assessee to the customers in the course of sterilization of the goods. On the other hand, it is used up as a consumable in the service rendered by the assessee, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bjecting it to various processes such as bleaching, dyeing, de-sizing and printing. The finished fabric after processing/manufacturing is sent back to the owner of the fabrics. Explaining various stages of dyeing and bleaching process, according to the appellant, the cloth undergoes the following processes:- 1. Process of Washing Washing is conducted with the help of chemicals namely, Desizer, soda ash, caustic soda, Hydrogen peroxide, HCL, Potassium permanganate, oxalic acid, sodium sulphate and acetic acid. In the whole process of washing there is no change in the form of fabric. It remains the same as it was before washing. Only impurities and dust are removed from the gray cloth. No transfer of property of any chemical passes in the process of washing of fabric. After this stage fabric is called as RFD (Ready for Dyeing). That all the chemicals consumed upto this stage are necessarily to be removed from the fabric and for this, tests are conducted on the fabric because presence of even a single chemical (or its property) will destroy the whole process alongwith the fabric. Further, the properties of the above chemicals is so hazardous in nature that it cannot be passed alo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ormally undertaken are as follows: (1) desizing (2) scouring (3) bleaching (4) mercerizing (5) dyeing and finishing. While the textile undergoes the aforesaid treatment, certain chemicals are used which are consumables and which do not hold on to the cotton fabrics. After completion of the aforesaid processes, dyeing is undertaken which holds on to the cotton fabric giving lasting impression and ultimately converts the grey fabric into printed fabric which is marketed in the market. In the act of dyeing, as also in printing, certain amount of chemicals, dyes and colours are washed out and they do not remain embedded on the textile or fabric. Thus, the benefit of chemicals, dyes and colours which get washed out to this extent would be extended to the assessee-appellant. In Gannon Dunkerley's case (supra), it has been specifically laid down that while permitting deductions, the consumables are required to be deducted from the total Gross Turnover of an assessee for arriving at actual taxable turnover and the dyes and chemicals in the present case certain percentage thereof being consumables are required to be excluded. 22. Thus, it would be pertinent to observe that what is taxab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 executio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... job work are taxable but the pertinent question to be answered would be as to how much of dyes/colours are taxable which is transferred to the fabric when the whole quantity of consumable is not transferred. In the present case, it would be essential to determine the value of consumables transferred in the goods on which tax is leviable. While determining the actual loss of chemicals, dyes and colours where the fabric or textile undergoes various processes depends upon factual aspect which can be considered only by the Assessing Officer where parties can produce evidence in respect of their respective claims/contentions. 27. In the light of legal position enunciated hereinabove, the substantial questions of law as claimed are answered accordingly and the impugned orders passed by the authorities are hereby set aside. The matter is remanded to the Assessing Officer to work out the details of quantity of chemicals, dyes and colours that would get washed out in the process of dyeing and printing of fabrics undertaken by the appellant. The Assessing Officer would conduct a factual enquiry in this regard after giving liberty to the parties to produce evidence in respect of their respec ..... X X X X Extracts X X X X X X X X Extracts X X X X
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