# M/s Aristo Printers Pvt. Ltd v. Commissioner of Trade Tax, Lucknow, U.P

- **Citation:** 2025 INSC 1188
- **Court:** Supreme Court of India
- **Decided:** 2025-10-07
- **Case number:** Civil Appeal No. 703 of 2012
- **Bench:** J.B. Pardiwala, K.V. Viswanathan
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/m-s-aristo-printers-pvt-ltd-v-commissioner-of-trade-tax-lucknow-u-p-38028
- **Pages:** 58

## Headnote

Issue arose whether tax can be levied u/s.3F of the Uttar Pradesh
Trade Tax Act, 1948, on the ink and processing material used by
the appellant in undertaking the printing work of lottery tickets.
Headnotes†
Uttar Pradesh Trade Tax Act, 1948 - ss.2(m), 3F - Works
contract - Tax on the right to use any goods or goods involved
in the execution of works contract - Appellant undertaking
the printing work of lottery tickets - Levy of trade tax u/s.3F
on the ink, chemical and processing material used by the
appellant - Tribunal deleted the tax on the value of ink and
other processing materials, including chemicals - However,
the High Court set aside the order passed by the tribunal -
Correctness:
Held: Appellant liable to pay tax u/s.3F(1)(b) on the ink and
processing material - All three conditions required to sustain a levy
of tax u/s.3F(1)(b) are fulfilled: works contract exists for printing
of lottery tickets; ink and chemicals have been involved in the
execution of the works contract; and the property in the ink and
chemicals has been transferred in execution of the works contract -
Appellant has admitted that the contract for printing lottery tickets
is a works contract - It is clear that the ink, chemical and other
processing material were involved in the printing of the lottery
tickets - There is a transfer of property in the ink and chemicals
used in the printing of the lottery tickets - Works contract is for the
printing of lottery tickets, and "the works" refers to the final, tangible
printed ticket - Taxable event, or the "deemed sale", occurs at the
precise moment the ink is applied to the paper - This act constitutes
"incorporation in the works", as the ink and the chemicals (with
* Author
406
[2025] 10 S.C.R.
Supreme Court Reports
which the ink is mixed) are involved in the execution of the work
contract and become a part of the lottery ticket - In this process,
there is a tangible transfer of the diluted ink, a composite good
comprising both the ink and the processing chemicals - Transfer
of ink and chemicals in their chemically altered form constitutes a
valid transfer of property - Thus, since it is impossible to transfer
the ink without also transferring the chemicals it is diluted with, it
can be conclusively inferred that the property in both the ink and
the chemicals has been transferred. [Paras 66-73]

## Text

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[2025] 10 S.C.R. 405 : 2025 INSC 1188
M/s Aristo Printers Pvt. Ltd.
v.
Commissioner of Trade Tax, Lucknow, U.P.
(Civil Appeal No. 703 of 2012)
07 October 2025
[J.B. Pardiwala* and K.V. Viswanathan, JJ.]
Issue for Consideration
Issue arose whether tax can be levied u/s.3F of the Uttar Pradesh
Trade Tax Act, 1948, on the ink and processing material used by
the appellant in undertaking the printing work of lottery tickets.
Headnotes†
Uttar Pradesh Trade Tax Act, 1948 - ss.2(m), 3F - Works
contract - Tax on the right to use any goods or goods involved
in the execution of works contract - Appellant undertaking
the printing work of lottery tickets - Levy of trade tax u/s.3F
on the ink, chemical and processing material used by the
appellant - Tribunal deleted the tax on the value of ink and
other processing materials, including chemicals - However,
the High Court set aside the order passed by the tribunal -
Correctness:
Held: Appellant liable to pay tax u/s.3F(1)(b) on the ink and
processing material - All three conditions required to sustain a levy
of tax u/s.3F(1)(b) are fulfilled: works contract exists for printing
of lottery tickets; ink and chemicals have been involved in the
execution of the works contract; and the property in the ink and
chemicals has been transferred in execution of the works contract -
Appellant has admitted that the contract for printing lottery tickets
is a works contract - It is clear that the ink, chemical and other
processing material were involved in the printing of the lottery
tickets - There is a transfer of property in the ink and chemicals
used in the printing of the lottery tickets - Works contract is for the
printing of lottery tickets, and "the works" refers to the final, tangible
printed ticket - Taxable event, or the "deemed sale", occurs at the
precise moment the ink is applied to the paper - This act constitutes
"incorporation in the works", as the ink and the chemicals (with
* Author
406
[2025] 10 S.C.R.
Supreme Court Reports
which the ink is mixed) are involved in the execution of the work
contract and become a part of the lottery ticket - In this process,
there is a tangible transfer of the diluted ink, a composite good
comprising both the ink and the processing chemicals - Transfer
of ink and chemicals in their chemically altered form constitutes a
valid transfer of property - Thus, since it is impossible to transfer
the ink without also transferring the chemicals it is diluted with, it
can be conclusively inferred that the property in both the ink and
the chemicals has been transferred. [Paras 66-73]
Case Law Cited
Xerox Modicorp Ltd v. State of Karnataka [2005] Supp. 2 SCR
895 : (2005) 7 SCC 380; Gannon Dunkerley & Co. & Ors. v. State
of Rajasthan & Ors. [1992] Supp. 3 SCR 103 : (1993) 1 SCC 364
Larsen and Toubro Limited & Anr. v. State of Karnataka & Anr.
[2013] 17 SCR 678 : (2014) 1 SCC 708 - relied on.
State of Madras v. Gannon Dunkerley & Co. (Madras) Ltd. [1959]
1 SCR 379 : 1958 SCC OnLine SC 100; Rainbow Colour Lab
& Anr v. State of M.P & Ors. [2000] 1 SCR 594 : (2000) 2 SCC
385; Northern India Caterers (India) Ltd. v. Lt. Governor of Delhi
[1979] 1 SCR 557 : (1978) 4 SCC 36; Builders Association of
India & Ors. v. Union of India & Ors. [1989] 2 SCR 320 : (1989)
2 SCC 645; Kone Elevator India Private Limited v. State of Tamil
Nadu [2014] 5 SCR 912 : (2014) 7 SCC 1; State of Karnataka &
Ors v. M/s Pro Lab & Ors. [2015] 1 SCR 808 : (2015) 8 SCC 557;
Associated Cement Companies Ltd v. Commissioner of Customs
[2001] 1 SCR 608 : (2001) 4 SCC 593; Collector of Central Excise,
New Delhi v. Ballarpur Industries Limited [1989] Supp. 1 SCR
323 : (1989) 4 SCC 566 - referred to.
Commissioner of Sales Tax v. Matushree Textile Limited, 2003
SCC OnLine Bom 830; Enviro Chemicals v. State of Kerala, 2011
SCC OnLine Ker 3685 - approved.
Commissioner of Sales Tax, Maharashtra, Bombay v. R.M.D.C.
Press Pvt Ltd., 1998 SCC OnLine Bom 435; Pest Control India
Ltd v. Union of India & Ors., 1989 SCC OnLine Pat 288; Deputy
Commissioner of Sales Tax (Law), Board of Revenue (Taxes),
Ernakulam v. M.K Velu, 1993 SCC OnLine Ker 577; Commissioner
of Sales Tax, Mumbai v. Hari and Company, 2006 SCC OnLine Bom
1466; Teaktex Processing Complex Limited v. State of Kerala, 2002
[2025] 10 S.C.R.
407
M/s Aristo Printers Pvt. Ltd. v.
Commissioner of Trade Tax, Lucknow, U.P.
SCC OnLine Ker 720; Commissioner of Sales Tax, Maharashtra
State, Bombay v. Ramdas Sobhraj, 2012 SCC OnLine Bom 1608;
M/s Mohan Offset Printers v. State of Tamil Nadu, 2010 SCC
OnLine Mad 587; Unique Traders v. Commercial Tax Officer-1,
2020 SCC OnLine Mad 1155; Dynamic Industrial and Cleaning
Services (P) Ltd. v. State of Kerala & Anr., 1994 SCC OnLine Ker
379; Microtol Sterilization Services Pvt Ltd v. State of Kerala, 2009
SCC OnLine Ker 1480; State of Tamil Nadu v. S.S.M. Processing
Mills, 2013 SCC OnLine Mad 2539 - referred to.
List of Acts
Uttar Pradesh Trade Tax Act, 1948; Central Sales Tax Act, 1956;
Constitution (Forty-sixth Amendment) Act, 1982.
List of Keywords
Tax; Ink and processing material used in undertaking the printing
work; Works contract; Tax on the right to use any goods or goods
involved in the execution of works contract; Printing work of lottery
tickets; Levy of trade tax; Works contract for printing of lottery
tickets; Transfer of property in the ink and chemicals used in the
printing of the lottery tickets; The works; Deemed sale; Incorporation
in the works.
Case Arising From
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 703
of 2012
From the Judgment and Order dated 08.12.2010 of the High Court
of Judicature at Allahabad in TTR No. 121 of 2003
With
Civil Appeal No. 705 of 2012
Appearances for Parties
Advs. for the Appellant:
Vadlamani Seshagiri, Ananya Kukreti, Ms. Poorvi Avtar,
Ms. P.Khyathi Simantini, Mrs. Bela Maheshwari, Rohit Singh, Niraj
Kumar Singh, Satyajeet Kumar.
Advs. for the Respondent:
Bhakti Vardhan Singh, Sandeep Singh Somaria.
408
[2025] 10 S.C.R.
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Judgment / Order of the Supreme Court
Judgment
J.B. Pardiwala, J.
For the convenience of exposition, this judgment is divided into the
following parts:
INDEX*
A.
FACTUAL MATRIX ..............................................................
2
B.
SUBMISSIONS ON BEHALF OF THE PARTIES ..............
6
(i) Submissions on behalf of the Appellant ........................
6
(ii) Submissions on behalf of the Respondent ...................
7
C.
ISSUE TO BE DETERMINED .............................................
7
D.
ANALYSIS ............................................................................
8
(i) Relevant provisions under the Act, 1948 ......................
8
(ii) Works Contract - Pre and Post 46th Amendment ......... 12
(iii) Whether the ink, chemical and other processing materials
are liable to the levy of tax under Section 3F(1)(b) of the
Act, 1948? ...................................................................... 32
a. Tangible Transfer of property .................................. 34
b. No transfer of property due to consumption of
goods ....................................................................... 42
c. Transfer of property despite consumption of
goods ....................................................................... 48
d. Application to the facts at hand ............................... 52
E.
CONCLUSION ..................................................................... 57
* Ed. Note: Pagination as per the original Judgment.
[2025] 10 S.C.R.
409
M/s Aristo Printers Pvt. Ltd. v.
Commissioner of Trade Tax, Lucknow, U.P.
1.
These appeals are at the instance of an assessee and are directed
against the judgment and order passed by the High Court of Judicature
at Allahabad, dated 8.12.2010, in Trade Tax Revision Nos. 106 &
121 of 2003 respectively (hereinafter, the "Impugned Judgment"),
by which the revisions filed by Revenue came to be allowed and the
order passed by the Trade Tax Tribunal, Ghaziabad, was set aside.
A.
FACTUAL MATRIX
2.
The appellant-assessee is engaged in the business of printing lottery
tickets. It would undertake the work of printing on the paper that
was supplied to it by the parties. The ink and processing material,
including the necessary chemicals used in the process of printing,
were procured by the appellant itself.
3.
The Trade Tax Officer, Ward 5, Ghaziabad (hereinafter, the
"Assessing Authority") vide orders dated 28.10.1999 for AY 19961997 and AY 1997-1998 respectively, levied trade tax on the value of
ink, processing material and packing material used by the appellant
for executing the printing work on the basis of Section 3F of the Uttar
Pradesh Trade Tax Act, 1948 (for short, "the Act, 1948").
4.
The appellant, being aggrieved by the aforementioned orders
of the Assessing Authority, preferred appeals before the Deputy
Commissioner (Appeals)-II, Trade Tax, Ghaziabad (hereinafter, the
"Appellate Authority"). It was argued by the appellant before the
Appellate Authority that the ink, chemicals and other processing
materials had not been passed on with the lottery tickets and thus
the value of such goods could not have been made liable to tax
under Section 3F of the Act, 1948. The Appellate Authority vide
order dated 14.03.2000 accepted the claim of the appellant and
accordingly deleted the tax assessed on the value of ink and other
processing materials. However, the Appellate Authority upheld the
levy of tax on the packing materials. The relevant finding of the
Appellate Authority is as follows:
"Goods on the sale of which tax has been levied on the
trader which includes processing material, chemicals,
film founta etc. and which is not transferred to the
principal after getting job-work/work contract undertaken
done under any circumstances. These material are film,
chemical print etc and these are used for preparing plate
410
[2025] 10 S.C.R.
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for screen printing and after the use, either it becomes a
waste or its nature gets changed, but it is not transferred
to principal who get job-work/work contact done under
any of the circumstances. It would be pertinent to mention
the referred portion of the judgment given by Hon'ble
Bombay High Court about Messrs. R.M.A.C. Press (supra),
according to which before levying tax on work contract,
the necessary test is that transfer of goods either actual
or in deemed manner in the contract is essential, while
in the above-said case, no transfer of above-said goods
viz. ink, film developer, chemicals, founta, disc plate etc.
has taken place. Therefore, levying tax on the ink and
other uncategorized goods in five appeals is unjustifiable,
therefore, it is being set-aside."
(Emphasis supplied)
5.
In the circumstances referred to above, two sets of appeals were
filed before the Trade Tax Tribunal, Bench-I, Ghaziabad (hereinafter,
the "Tribunal") against the order dated 14.03.2000 passed by the
Appellate Authority. One set of appeals by the Commissioner of
Trade Tax, Uttar Pradesh, against the deletion of tax on the ink and
processing material. Another set of appeals by the assessee assailing
the levy of tax on the packing material.
6.
The Tribunal vide an order dated 06.08.2002 allowed the appellant's
appeals and set aside the levy of tax on the packaging material.
Furthermore, the Tribunal dismissed the Revenue's appeals and
affirmed the order of the Appellate Authority, which had deleted the
tax on the value of ink and other processing materials, including
chemicals. The Tribunal based its decision on this Court's decision
in Rainbow Colour Lab & Anr v. State of M.P & Ors., reported
in (2000) 2 SCC 385, and the Bombay High Court's decision in
Commissioner of Sales Tax, Maharashtra, Bombay v. R.M.D.C.
Press Pvt Ltd, reported in 1998 SCC OnLine Bom 435.
7.
The Revenue, being aggrieved by the aforementioned order passed
by the Tribunal, challenged it before the High Court vide two Revision
Applications, i.e., Trade Tax Revision No. 106 of 2003 and Trade
Tax Revision No. 121 of 2003, respectively. The High Court, vide
the impugned judgment, allowed both the Revision Applications and
thereby quashed and set aside the order of the Tribunal as well as
[2025] 10 S.C.R.
411
M/s Aristo Printers Pvt. Ltd. v.
Commissioner of Trade Tax, Lucknow, U.P.
the order passed by the Appellate Authority, so far as they set aside
the tax on the value of ink and processing material, i.e., chemical.
The relevant findings of the High Court are as follows:
"In my view the order of the Tribunal is not sustainable.
Section 3-F of the Act levies tax on the value of goods
involved in execution of works contract. The printing work
has been held to be works contract by the Apex Court
in the case of State of Maharashtra Vs. M/s. Sarvodaya
Printing Press Fine Art Printer (Supra). The question for
consideration is whether in the printing of lottery tickets,
ink and processing materials, namely, chemicals, etc. are
passed on to the customers. Undoubtedly, ink passed on
to the customers as it is apparent on the printing paper.
The inks are diluted in chemicals (processing material)
and such ink in the diluted forms are being used in the
printing, therefore, both ink and chemical (processing
material) are passed on to the customers. It was not
the case of the assessee at any stage that the chemical
(processing material) was consumable and evaporates
in the process of printing and is not passed on to the
customers. Therefore, I am of the view that both the ink
and chemical used in the printing are passed on to the
customers. It may be mentioned here that the assessee
had also purchased and used consumable but the same
has not been taxed.
The Division Bench of the Bombay High Court in the case
of Commissioner of Sales Tax v. Matushree Textile Limited
(supra) has held that the contract of dyeing and printing of
cloth is a work contract and there is a transfer of property
in colours, dyes and chemical.
In the case of Commissioner of Sales Tax, Mumbai, vs.
Hari and Company (supra), the Division Bench of Bombay
High Court has held that the contract for bringing out the
Xerox copies amounts to works contract and the ink used
for providing Xerox copies is passed on to the customers
and, therefore, its value is liable to tax.
It may be mentioned here that the decision in the case
of R.M.D.C. Press Pvt. Ltd. relied upon by the Tribunal is
412
[2025] 10 S.C.R.
Supreme Court Reports
no longer a good law in view of the decision of the Apex
Court in the case of Associated Cement Companies Ltd.
vs. C.C. reported in 2002 NTN (Vol. 20)-73 and in view
of the decision of the Apex Court in the case of State of
Maharashtra vs. Sarvodaya Printing Press Fine Art Printer.
In view of the above, the order of the Tribunal as well as
the order of the first appellate authority are not sustainable
and liable to be set aside, so far it deletes the tax on the
value of ink and processing materials, namely, chemical, the
order of the assessing authority in this regard is restored."
(Emphasis Supplied)
8.
The High Court allowed the revision applications on the ground that
the diluted ink (consisting of the ink and the chemicals) was passed
onto the customers and thus the ink and the processing material,
i.e., the chemical, could not be considered as consumables.
9.
In such circumstances referred to above, the appellant assessee is
here before this Court with the present appeals.
B.
SUBMISSIONS ON BEHALF OF THE PARTIES
(i)
Submissions on behalf of the Appellant
10. Mr. Niraj Kumar, the Learned counsel appearing for the appellant,
vehemently submitted that the High Court committed a gross error in
passing the impugned judgment. According to the learned counsel,
the High Court fundamentally misunderstood the nature of lottery
tickets, erroneously treating them as "goods". It was submitted that
the legal status of lottery tickets is already settled law, establishing
them as "actionable claims", which are explicitly excluded from the
definition of "goods" under the Act, 1948. Since the very foundation
of the tax is on the transfer of property in goods, and lottery tickets
are not goods, the entire basis for the tax on the printing of these
tickets is incorrect from the outset.
11. The Learned counsel further submitted that the ink and chemicals
used in the printing process were essentially consumables whose
property is never transferred to the customer. These materials are
entirely used up and consumed during the execution of the printing
job. Since the customer does not receive the ink or chemicals in
[2025] 10 S.C.R.
413
M/s Aristo Printers Pvt. Ltd. v.
Commissioner of Trade Tax, Lucknow, U.P.
any form, but only the service of printing, these items should not
be treated as goods that are transferred in execution of the works
contract. Reliance was placed on Pest Control India Ltd v. Union
of India & Ors., reported in 1989 SCC OnLine Pat 288, and Deputy
Commissioner of Sales Tax (Law), Board of Revenue (Taxes),
Ernakulam v. M.K Velu, reported in 1993 SCC OnLine Ker 577.
12. In such circumstances referred to above, the Learned counsel prayed
that there being merit in his appeals, the same may be allowed and
the impugned judgment passed by the High Court be set aside.
(ii) Submissions on behalf of the Respondent
13. On the other hand, Mr. Bhakti Vardhan Singh, Learned counsel
appearing for the State, submitted that the High Court did not commit
any error, not to mention any error of law, in passing the impugned
judgment.
14. Mr. Singh, placing reliance on Commissioner of Sales Tax v.
Matushree Textile Limited, reported in 2003 SCC OnLine Bom
830, and Commissioner of Sales Tax, Mumbai v. Hari and
Company, reported in 2006 SCC OnLine Bom 1466, submitted
that in the facts at hand, it is evident that ink and chemicals have
been transferred to the customer and thereby are liable to the levy
of tax under Section 3F(1)(b) of the Act, 1948.
15. In such circumstances referred to above, the Learned counsel prayed
that, there being no merit in the appeals, the same may be dismissed.
C.
ISSUE TO BE DETERMINED
16. Having heard the learned counsel appearing for the parties and
having gone through the materials on record, the following question
falls for our consideration:
I.
Whether tax can be levied under Section 3F of the Act, 1948,
on the ink and processing material used by the appellant in
undertaking the printing work?
D.
ANALYSIS
(i)
Relevant provisions under the Act, 1948
17. Before adverting to the rival submissions canvassed on either
side, we must look into a few relevant provisions of the Act, 1948.
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Section 2(d) of the Act, 1948, defines "goods". The same reads
thus:
"2(d) "goods" means every kind or class of movable
property and includes all materials, commodities and
articles involved in the execution of a works contract,
and growing crops, grass, trees and things attached
to, or fastened to anything permanently attached to the
earth which, under the contract of sale, are agreed to be
severed, but does not include actionable claims, stocks,
shares, securities or postal stationery sold by the Postal
Department;"
18. Section 2(h) of the Act, 1948, defines "Sale". The same reads thus:
"2(h) 'Sale', with its grammatical variations and cognate
expressions, means any transfer of property in goods
(otherwise than by way of a mortgage, hypothecation,
charge or pledge) for cash or deferred payment or other
valuable consideration, and includes-
(i) a transfer, otherwise than in pursuance
of a contract of property in any goods for
cash, deferred payment or other valuable
consideration;
(ii) a transfer of property in goods (whether
as goods, or in some other form) involved
in the execution of a works contract;
(iii) the delivery of goods on hire purchase or
any system of payment by instalments;
(iv) a transfer of the right to use any goods for
any purpose (whether or not for a specified
period) for cash, deferred payment or other
valuable consideration;
(v) the supply of goods by any unincorporated
association or body of persons to a member
thereof for cash, deferred payment or other
valuable consideration; and
(vi) the supply, by way of or as part of any
service or in any other manner whatsoever,
[2025] 10 S.C.R.
415
M/s Aristo Printers Pvt. Ltd. v.
Commissioner of Trade Tax, Lucknow, U.P.
of goods, being food or any other article for
human consumption or any drink (whether or
not intoxicating) where such supply or service is
for cash or deferred payment or other valuable
consideration ;
Explanation I.--A sale or purchase shall be deemed to
have taken place in the State,--
(i) in a case falling under sub-clause (ii) if
the goods are in the State at the time of
transfer of property in such goods (whether
as goods or in some other form) involved
in the execution of the works contract,
notwithstanding that the agreement for the
works contract has been wholly or in part
entered into outside the State;
(ii) in a case falling under sub-clause (iv), if the
goods are used by the lessee within the State
during any period, notwithstanding that the
agreement for the lease has been entered into
outside the State or that the goods have been
delivered to lessee outside the State.
Explanation II.--Notwithstanding anything contained in
this Act, two independent sales or purchases shall, for
the purposes of this Act, be deemed to have taken place-
(a) when the goods are transferred from a
principal to his selling, agent and from the selling
agent to his purchaser,
(b) when the goods are transferred from the
seller to a buying agent and from the buying
agent to his principal, if the agent is found, in
either of the cases aforesaid,--
(i) to have sold the goods at one rate and
passed on the sale proceeds to his principal at
another rate; or
(ii) to have purchased the goods at one rate and
passed them on to his principal at another rate; or
416
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Supreme Court Reports
(iii) not to have accounted to his principal for
the entire collection or deductions made by him,
in the sales or purchases effected by him on
behalf of his principal; or
(iv) to have acted for a fictitious or non-existent
principal;"
19. Section 2(m) of the Act, 1948, defines "Works contract". The same
reads thus:
"2(m) 'Works contract' includes any agreement for
carrying out, for cash, deferred payment or other valuable
consideration, the building construction, manufacture,
processing, fabrication, erection, installation, fitting out,
improvement, modification, repair or commissioning of
any movable or immovable property;"
20. Section 3F of the Act, 1948, deals with the taxation of goods involved
in the execution of the works contract. The relevant portion of the
same reads thus:
"Section 3F - Tax on the right to use any goods or goods
involved in the execution of works contract:
(1) Notwithstanding anything contained in Section 3A or
Section 3AAA or Section 3D but subject to the provisions
of Sections 14 and 15 of the Central Sales Tax Act, 1.956,
every dealer shall, for each assessment year, pay a tax
on the net turnover of--
(a) [...]
(b) transfer of property in goods (whether
as goods or in some other form) involved in
the execution of a works contract.
at such rate not exceeding twenty percent as the
State Government may, by notification, declare
and different rates may be declared for different
goods or different classes of dealers.
(2) For the purposes of determining the net turnover
referred to in sub-section (1), the following amounts shall
[2025] 10 S.C.R.
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M/s Aristo Printers Pvt. Ltd. v.
Commissioner of Trade Tax, Lucknow, U.P.
be deducted from the total amount received or receivable
by a dealer in respect of a--
(a) [...]
(b) transfer referred to in clause (b) of sub-section (1),-
(i) the amount representing the sales value
of the goods covered by Sections 3, 4 and
5 of the Central Sales Tax Act, 1956;
(ii) the amount representing the value of
the goods exempted under Section 4;
(iii) the amount representing the value of
the goods, on the sale or purchase whereof
tax has been levied or is leviable under
this Act at some earlier stage;
(iv) the amount representing the value
of the goods manufactured in a new unit
exempted under Section 4A or Section
4AAA;
(v) the amount representing the value of
the goods supplied to the contractor by
the contractee:
Provided that the ownership of such goods
remains with the contractee under the
terms of the contract;
(vi) the amount representing the labour
charges for the execution of the works
contract;
(vii) all amounts paid to the sub-contractor
as the consideration for execution of the
works contract, whether wholly or in part:
Provided that no deduction under this subclause shall be allowed unless the dealer
claiming deduction produces proof that the
sub-contractor is a registered dealer liable
to tax under this Act and that such amount
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is included in the return of turnover filed by
such sub-contractor under the provisions
of this Act;
(viii) the amount representing the charges
for planning, designing and architect's fees;
(ix) the amount representing the charges for
obtaining on hire or otherwise machinery
and tools used for execution of the works
contract;
(x) the amount representing the cost
of consumables used in the execution
of the works contract, the property in
which is not transferred in the execution
of the works contract;
(xi) the amount representing the cost of
establishment and other similar expenses
of the contractor to the extent it is relatable
to supply of labour and services;
(xii) the amount representing the profit
earned by the contractor to the extent it
is relatable to the supply of labour and
services.
(3) Where in respect of transfer referred to in clause (b)
of subsection (1), the contractor does not maintain proper
accounts or the accounts maintained by him are not found
by the assessing authority to be worthy of credence and
the amount actually incurred towards charges for labour
and other services and profit relating to supply of labour
and services are not ascertainable, such charges for
labour and other services and such profit may, for the
purposes of deductions under clause (b) of sub-section
(2), be determined on the basis of such percentage of the
value of the (a) transfer referred to in clause (a) of subsection (1), whether such transfer was agreed to during
that assessment year or earlier, works contract as may be
prescribed and different percentages may be prescribed
for different types of works contract."
[2025] 10 S.C.R.
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M/s Aristo Printers Pvt. Ltd. v.
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(ii) Works Contract - Pre and Post 46th Amendment
21. We deem it necessary and appropriate to briefly refer to the history of
the law relating to works contracts. Entry 54 in List II of the Seventh
Schedule to the Constitution of India enables the State Legislature
to enact legislation providing for levying and collecting tax in respect
of the sale and purchase of goods. Article 286 of the Constitution
prohibits the State Legislatures from imposing tax on the sale or
purchase of goods where such sale or purchase takes place outside
the State, or in the course of the import of the goods into, or export
of the goods out of, the territory of India.
22. The scope and ambit of the powers of the States to levy sales tax
on goods involved in the execution of works contracts have been
the subject matter of several judicial pronouncements. The decision
of this Court in State of Madras v. Gannon Dunkerley & Co.
(Madras) Ltd., reported in 1958 SCC OnLine SC 100 (hereinafter,
"Gannon Dunkerley-I"), is the leading case on the subject. That
was a case where the assessee's (Gannon Dunkerley) business
primarily consisted of executing contracts for the construction of
buildings, bridges, dams, roads, and other structural projects. During
the relevant assessment year under consideration, sales tax was
levied under the Madras General Sales Tax Act, 1939, on the value of
materials used by the assessee in execution of the works contracts.
The assessee questioned the levy of sales tax on the ground that
there was no sale of goods as understood in India and therefore, no
sales tax could be levied on any portion of the amount which was
received by the assessee from the persons for whose benefit it had
constructed buildings. The Constitution Bench of this Court held:
a.
In a building contract where the agreement between the
parties was that the contractor should construct the building
according to the specifications contained in the agreement
and in consideration received payment as provided therein,
there was neither a contract to sell the materials used in the
construction nor the property passed therein as movables. It
was held that in a building contract, which is one entire and
indivisible contract, there was no sale of goods, and it was
not within the competence of the Provincial State Legislature
to impose tax on the supply of the materials used in such a
contract, treating it as a sale. In a building contract, the title
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to the materials used in the construction passes to the owner
of the land as an accretion, and there is no question of title to
the materials passing as movables in favour of the other party
to the contract.
b.
The expression "sale of goods" in Entry 48 in List II of the
Seventh Schedule to the Government of India Act, 1935 (similar
to Entry 54 in List II) must be construed in the same sense it
has been understood under the Sale of Goods Act, 1930 (for
short, "the Act, 1930") and to constitute "sale of goods", the
essential ingredients are: (a) there should be an agreement to
sell movables; (b) it should be for a price; and (c) there should
be passing of goods pursuant to the agreement.
Thus, by virtue of this Court's decision in Gannon Dunkerley-I
(supra), no sales tax could be levied on the amounts received under
a works contract by a building contractor even though it had supplied
goods for the construction of the building.
23. The decision of this Court in Gannon Dunkerley-I (supra) was
applied in various other decisions wherein courts were dealing with
the issue of transfer of goods in execution of works contracts. One
such example is the case of Northern India Caterers (India) Ltd. v.
Lt. Governor of Delhi, reported in (1978) 4 SCC 36. In this case,
this Court held that there was no sale when food and drink were
supplied to guests residing in a hotel and that the supply of meals
was essentially in the nature of a service provided to the guests and
could not be identified as a transaction of sale. This Court declined
to accept the position that the revenue was entitled to split up the
transaction into two parts, one of service and the other of the sale
of food items. Accordingly, the proprietor of the restaurant, who
provided many services in addition to the supply of food, was not
liable to pay sales tax on the value of the goods supplied by him.
24. A summary of the position of law with regard to taxation of goods
transferred in execution of works contracts before the enactment
of the Forty-sixth Amendment is as follows: (i) works contracts are
indivisible, i.e., the revenue could not split a single works contract
into two - one pertaining to the provision of goods and another
pertaining to the provision of services; (ii) to constitute 'Sale' all
ingredients as mentioned under the Act, 1930 had to be fulfilled; and
(iii) to determine whether a particular contract was a works contract
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or a contract for sale, the dominant nature of the contract was looked
into on a fact specific basis via the terms and conditions of contract
and other related aspects.
25. To overcome the effect of various judicial decisions, the Parliament
amended the Constitution by the Constitution (Forty-sixth Amendment)
Act, 1982. The constitutional amendments relevant for the purpose
herein are as follows:
Amendment of Article 366 - Insertion of clause (29-A)
"366. Definitions.-In this Constitution, unless
the context otherwise requires, the following
expressions have the meanings hereby
respectively assigned to them, that is to say-
(29-A) 'tax on the sale or purchase of goods'
includes-(a) [...]
(b) a tax on the transfer of property in goods
(whether as goods or in some other form)
involved in the execution of a works contract;
(c) to (f) [...]
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;"
Amendment of Article 286 - Insertion of clause (3)
"286. Restrictions as to imposition of tax on the
sale or purchase of goods
(3) Any law of a State shall, in so far as it
imposes, or authorises the imposition of,
(a) a tax on the sale or purchase of goods
declared by Parliament by law to be of special
importance in inter-State trade or commerce; or
(b) a tax on the sale or purchase of goods, being
a tax of the nature referred to in sub-clause
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(b), sub-clause (c) or sub-clause (d) of clause
(29-A) of article 366,
be subject to such restrictions and conditions
in regard to the system of levy, rates and other
incidents of the tax as Parliament may by law
specify."
Amendment of the Seventh Schedule - Insertion of
entry 92B
"92B. Taxes on the consignment of goods
(whether the consignment is to the person
making it or to any other person), where such
consignment takes place in the course of
inter-State or commerce"
26. In light of the Forty-sixth Amendment to the Constitution, several state
governments amended their sales tax laws and made provisions for
the imposition of sales tax in relation to works contracts. Each State
adopted its own method of determining taxable turnover either by
framing rules under its sales tax law or by issuing administrative
directions. The method adopted by the States for determining the
taxable turnover relating to works contracts for purposes of levy of
sales tax were such that sales tax had to be paid by the building
contractors not merely on the value of materials supplied by them in
connection with the works contracts but also on the expenditure they
had incurred in securing the services of architects and engineers who
had supervised the execution of the works, and also on the amount
which they were entitled to receive for supervising the execution
of the works. While levying sales tax on the price of the materials
supplied for the construction of houses, factories, bridges, etc.,
the sales tax authorities of the States did not take into account the
conditions and restrictions imposed by Article 286 of the Constitution
and the provisions of the Central Sales Tax Act, 1956 (for short, "the
Act, 1956").
27. The validity of such State legislations as well as the constitutional
validity of the Forty-sixth Amendment was considered by this Court
in Builders Association of India & Ors. v. Union of India & Ors.,
reported in (1989) 2 SCC 645. The Court upheld the constitutionality
of the Forty-sixth Amendment. On the issue of the validity of the
State legislations, it was contended by the States that:
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a.
When a works contract is executed, what is handed over is
a 'conglomerate' of all the goods used, and the goods pass
in an indivisible manner. In such cases, it was not possible to
disintegrate the contract into a contract for sale and a contract
for work, and thus, Article 366(29-A)(b) of the Constitution has
conferred on the legislatures of States the power to levy tax
on works contract; and
b.
The power to levy tax provided under Article 366(29-A)(b) was
independent of the power conferred on the legislatures of states
under Entry 54, and the same was not bound by restrictions
imposed under Article 286 and the Act, 1956.
28. Rejecting the aforesaid contentions, this Court made the following
pertinent observations:
"32 [...]Sub-clause (b) of clause (29-A) states that 'tax
on the sale or purchase of goods' includes among other
things a tax on the transfer of property in the goods
(whether as goods or in some other form) involved in the
execution of a works contract. It does not say that a tax
on the sale or purchase of goods included a tax on the
amount paid for the execution of a works contract. It refers
to a tax on the transfer of property in goods (whether as
goods or in some other form) involved in the execution
of a works contract. The emphasis is on the transfer of
property in goods (whether as goods or in some other
form). The latter part of clause (29-A) of Article 366 of the
Constitution makes the position very clear. While referring
to the transfer, delivery or supply of any goods that takes
place as per sub-clauses (a) to (f) of clause (29-A),
the latter part of clause (29-A) says that "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.
Hence, a transfer of property in goods under sub-clause
(b) of clause (29-A) is deemed to be a sale of the goods
involved in the execution of a works contract by the person
making the transfer and a purchase of those goods by the
person to whom such transfer is made. The object of the
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new definition introduced in clause (29-A) of Article 366
of the Constitution is, therefore, to enlarge the scope of
'tax on sale or purchase of goods' wherever it occurs in
the Constitution so that it may include within its scope the
transfer, delivery or supply of goods that may take place
under any of the transactions referred to in sub-clauses
(a) to (f) thereof wherever such transfer, delivery or supply
becomes subject to levy of sales tax. So construed the
expression 'tax on the sale or purchase of goods' in Entry
54 of the State List, therefore, includes a tax on the transfer
of property in goods (whether as goods or in some other
form) involved in the execution of a works contract also.
The tax leviable by virtue of sub-clause (b) of clause (29A) of Article 366 of the Constitution thus becomes subject
to the same discipline to which any levy under entry 54 of
the State List is made subject to under the Constitution.
The position is the same when we look at Article 286 of
the Constitution.[...]We are of the view that all transfers,
deliveries and supplies of goods referred to in clauses (a)
to (f) of clause (29-A) of Article 366 of the Constitution
are subject to the restrictions and conditions mentioned
in clause (1), clause (2) and sub-clause (a) of clause (3)
of Article 286 of the Constitution and the transfers and
deliveries that take place under sub-clauses (b), (c) and
(d) of clause (29-A) of Article 366 of the Constitution are
subject to an additional restriction mentioned in sub-clause
(b) of Article 286(3) of the Constitution.
xxx
36. Even after the decision of this Court in the State
of Madras v. Gannon Dunkerley & Co. (Madras) Ltd. it
was quite possible that where a contract entered into in
connection with the construction of a building consisted of
two parts, namely, one part relating to the sale of materials
used in the construction of the building by the contractor
to the person who had assigned the contract and another
part dealing with the supply of labour and services, sales
tax was leviable on the goods which were agreed to be
sold under the first part. But sales tax could not be levied
when the contract in question was a single and indivisible
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