Holding

The Court held that tax is leviable under Section 3F(1)(b) because a works contract exists, the ink and chemicals are goods involved in its execution, and property in those goods is transferred to the customer at the moment of incorporation into the printed ticket.

Summary

M/s Aristo Printers Pvt. Ltd. prints lottery tickets for its customers and procures its own ink and processing chemicals. The Uttar Pradesh Trade Tax Officer levied tax under Section 3F(1)(b) of the Uttar Pradesh Trade Tax Act, 1948 on the value of the ink and chemicals, arguing that they were transferred to the customer in the execution of a works contract. The assessee contended that the ink and chemicals were consumables and that lottery tickets are actionable claims, not goods, so no transfer of property occurred. The Supreme Court examined the statutory definition of a works contract, the concept of transfer of property in goods (including in chemically altered form), and the jurisprudence on deemed sales in works contracts. It held that the ink and chemicals become part of the printed ticket at the moment of application, constituting a tangible transfer of property, and therefore satisfy all conditions for tax under Section 3F(1)(b). Consequently, the Court dismissed the appeals and upheld the tax liability.

Issues considered

Whether tax can be levied under Section 3F(1)(b) of the Uttar Pradesh Trade Tax Act, 1948 on the ink and processing material used by the appellant in the printing of lottery tickets.

Legislation cited

Central Sales Tax Act, 1956s. 14, s. 15
Constitution (Forty-sixth Amendment) Act, 1982
Uttar Pradesh Trade Tax Act, 1948s. 2(d), s. 2(h), s. 2(m), s. 3F

Headnote

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), – 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

Subjects

TaxInk and processing material used in undertaking the printing workWorks contractTax on the right to use any goods or goods involved in the execution of works contractPrinting work of lottery ticketsLevy of trade taxWorks contract for printing of lottery ticketsTransfer of property in the ink and chemicals used in the printing of the lottery ticketsThe worksDeemed saleIncorporation in the works

Judgment

[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.

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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.

Supreme Court Reports

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 1996-
1997 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.
414 [2025] 10 S.C.R.

Supreme Court Reports

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 [2025] 10 S.C.R.

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. 417

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 sub-
clause 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
418 [2025] 10 S.C.R.

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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 sub-
section (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. 419

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

(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
420 [2025] 10 S.C.R.

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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
[2025] 10 S.C.R. 421

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

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
422 [2025] 10 S.C.R.

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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:
[2025] 10 S.C.R. 423

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

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
424 [2025] 10 S.C.R.

Supreme Court Reports

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 (29-
A) 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
[2025] 10 S.C.R. 425

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

works contract. After the 46th Amendment the works
contract which was an indivisible one is by a legal fiction
altered into a contract which is divisible into one for sale
of goods and the other for supply of labour and services.
After the 46th Amendment, it has become possible for the
States to levy sales tax on the value of goods involved
in a works contract in the same way in which the sales
tax was leviable on the price of the goods and materials
supplied in a building contract which had been entered into
in two distinct and separate parts as stated above. It could
not have been the contention of the Revenue prior to the
46th Amendment that when the goods and materials had
been supplied under a distinct and separate contract by
the contractor for the purpose of construction of a building
the assessment of sales tax could be made ignoring the
restrictions and conditions incorporated in Article 286 of
the Constitution. If that was the position can the States
contend after the 46th Amendment under which by a legal
fiction the transfer of property in goods involved in a works
contract was made liable to payment of sales tax that they
are not governed by Article 286 while levying sales tax on
sale of goods involved in a works contract? They cannot
do so. When the law creates a legal fiction such fiction
should be carried to its logical end. There should not be
any hesitation in giving full effect to it. If the power to tax
a sale in an ordinary sense is subject to certain conditions
and restrictions imposed by the Constitution, the power
to tax a transaction which is deemed to be a sale under
Article 366(29-A) of the Constitution should also be subject
to the same restrictions and conditions[…]
xxx
39.In view of the foregoing statements with regard to the
passing of the property in goods which are involved in works
contract and the legal fiction created by clause (29-A) of
Article 366 of the Constitution it is difficult to agree with
the contention of the States that the properties that are
transferred to the owner in the execution of a works contract
are not the goods involved in the execution of the works
contract, but a conglomerate, that is the entire building
426 [2025] 10 S.C.R.

Supreme Court Reports

that is actually constructed. After the 46th Amendment it
is not possible to accede to the plea of the States that
what is transferred in a works contract is the right in the
immovable property.
40. We are surprised at the attitude of the States which
have put forward the plea that on the passing of the 46th
Amendment the Constitution had conferred on the States
a larger freedom than what they had before in regard to
their power to levy sales tax under Entry 54 of the State
List. The 46th Amendment does no more than making it
possible for the States to levy sales tax on the price of
goods and materials used in works contracts as if there was
a sale of such goods and materials. We do not accept the
argument that sub-clause (b) of Article 366(29-A) should
be read as being equivalent to a separate entry in List II
of the Seventh Schedule to the Constitution enabling the
States to levy tax on sales and purchases independent
of Entry 54 thereof. As the Constitution exists today the
power of the States to levy taxes on sales and purchases
of goods including the “deemed” sales and purchases of
goods under clause (29-A) of Article 366 is to be found
only in Entry 54 and not outside it. We may recapitulate
here the observations of the Constitution Bench in the case
of Bengal Immunity Co. Ltd.- in which this Court has held
that the operative provisions of the several parts of Article
286 which imposes restrictions on the levy of sales tax by
the States are intended to deal with different topics and
one could not be projected or read into another and each
one of them has to be obeyed while any sale or purchase
is taxed under Entry 54 of the State List”
(Emphasis supplied)

Thus, this Court in Builders Association (supra) clarified that the
power to levy tax under Article 366(29A)(b) did not vest in the States
the power to tax works contracts themselves, nor did it allow the
States to levy taxation dehors the restrictions imposed under Article
286 of the Constitution and the Act, 1956.
29. In Gannon Dunkerley & Co. & Ors. v. State of Rajasthan & Ors.,
reported in (1993) 1 SCC 364 (hereinafter, “Gannon Dunkerley-II”),
[2025] 10 S.C.R. 427

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

once again, this Court was faced with a host of questions pertaining
to the imposition of tax on the transfer of property in goods involved
in the execution of works contracts. One of the contentions raised
herein was that after the enactment of the Forty-sixth Amendment,
no amendment was brought to the Act, 1956, applying its provision
to the transfer of property in goods involved in the execution of the
works contracts. Consequently, Sections 3, 4 and 5 of the Act, 1956
would not be applicable to such transfers. This Court held as follows:
“31. The legislative power of the States under Entry 54 of
the State List is subject to two limitations — one flowing
from the entry itself which makes the said power “subject
to the provisions of Entry 92-A of List I”, and the other
flowing from the prohibition contained in Article 286. Under
Entry 92-A of List I, Parliament has the power to make
a law in respect of taxes on sale or purchase of goods
other than newspapers where such sale or purchase takes
place in the course of inter-State trade or commerce. The
levy and collection of such tax is governed by Article 269.
This shows that the legislative power under Entry 54 of
the State List is not available in respect of transactions of
sale or purchase which take place in the course of inter-
State trade or commerce. Similarly clause (1) of Article
286 prohibits the State from making a law imposing or
authorising the imposition of a tax on the sale or purchase
of goods where such sale or purchase takes place (a)
outside the State or (b) in the course of the import of goods
into or export of the goods out of the territory of India.
As a result of the said provision, the legislative power
conferred under Entry 54 of the State List does not extend
to imposing tax on a sale or purchase of goods which
takes place outside the State or which takes place in the
course of import or export of goods. In view of the aforesaid
limitations imposed by the Constitution on the legislative
power of the States under Entry 54 of the State List, it is
beyond the competence of the State Legislature to make
a law imposing or authorising the imposition of a tax on
transfer of property in goods involved in the execution of
a works contract, with the aid of sub-clause (b) of clause
(29-A) of Article 366, in respect of transactions which take
place in the course of inter-State trade or commerce or
428 [2025] 10 S.C.R.

Supreme Court Reports

transactions which constitute sales outside the State or
sales in the course of import or export. Consequently,
it is not permissible for a State to frame the legislative
enactment in exercise of the legislative power conferred
by Entry 54 in State List in a manner as to assume the
power to impose tax on such transactions and thereby
transgress these constitutional limitations. Apart from
the limitations referred to above which curtail the ambit
of the legislative competence of the State Legislatures,
there is clause (3) of Article 286 which enables Parliament
to make a law placing restrictions and conditions on
the exercise of the legislative power of the State under
Entry 54 in State List in regard to the system of levy,
rates and other incidents of tax. Such a law may be in
relation to (a) goods declared by Parliament by law to be
of special importance in inter-State trade or commerce, or
(b) to taxes of the nature referred to in sub-clauses (b),
(c) and (d) of clause (29-A) of Article 366. When such a
law is enacted by Parliament the legislative power of the
States under Entry 54 in State List has to be exercised
subject to the restrictions and conditions specified in
that law. In exercise of the power conferred by Article
286(3)(a) Parliament has enacted Sections 14 and 15 of
the Central Sales Tax Act, 1956. No law has, however,
been made by Parliament in exercise of its power under
Article 286(3)(b).
xxx
34. The question is whether in the absence of an
amendment in the Central Sales Tax Act specifically
applying its provisions to a transfer of property in goods
involved in the execution of a works contract, the provisions
of Sections 3, 4 and 5 contained in Chapter II can be
held applicable to such a transfer. In this context, it may
be mentioned that prior to the Forty-sixth Amendment, a
distinction was being made between a ‘works contract’
which was entire and indivisible and a works contract
composed of two distinct and separate contracts — one, for
transfer of materials and other, for payment of remuneration
for services and for work done. The non-availability of the
[2025] 10 S.C.R. 429

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

legislative power of the States under Entry 54 of the State
List, as construed by this Court in the Gannon Dunkerley
case was confined, in its application, to works contracts
falling in the first category, i.e., contracts which were entire
and indivisible and it was permissible for the States to
impose tax on sale or purchase of goods where the parties
had entered into distinct and separate contracts one for
the transfer of materials and other for payment of service
and for work done. The provisions of Sections 3, 4 and 5
of the Central Sales Tax Act were applicable where there
were two separate contracts[...]
35. This would mean that as a result of the Forty-sixth
Amendment, the contract which was single and indivisible
has been altered by a legal fiction into a contract which is
divisible into one for sale of goods and other for supply of
labour and services and as a result such a contract which
was single and indivisible has been brought on a par with
a contract containing two separate agreements. Since the
provisions of Sections 3, 4 and 5 were applicable to such
contracts containing two separate agreements, there is
no reason why the said provisions should not apply to
a contract which, though single and indivisible, by legal
fiction introduced by the Forty-sixth Amendment, has been
altered into a contract which is divisible into one for sale
of goods and other for labour and services[...]
36. If the legal fiction introduced by Article 366(29-A)(b)
is carried to its logical end it follows that even in a single
and indivisible works contract there is a deemed sale of
the goods which are involved in the execution of a works
contract. Such a deemed sale has all the incidents of a
sale of goods involved in the execution of a works contract
where the contract is divisible into one for sale of goods
and the other for supply of labour and services.
37. For the reasons aforesaid, we are of the view that even
in the absence of any amendment having been made in
the Central Sales Tax Act (after the Forty-sixth Amendment)
expressly including transfers of property in goods involved
in execution of a works contract, the provisions contained in
430 [2025] 10 S.C.R.

Supreme Court Reports

Sections 3, 4 and 5 would be applicable to such transfers
and the legislative power of the State to impose tax on
such transfers under Entry 54 of the State List will have to
be exercised keeping in view the provisions contained in
Sections 3, 4 and 5 of the Central Sales Tax Act. For the
same reasons Sections 14 and 15 of the Central Sales Tax
Act would also be applicable to the deemed sales resulting
from transfer of property in goods involved in the execution
of a works contract and the legislative power under Entry
54 in State List will have to be exercised subject to the
restrictions and conditions prescribed in the said provisions
in respect of goods that have been declared to be of special
importance in inter-State trade or commerce.
xxx
41. It must, therefore, be held that while enacting a law
imposing a tax on sale or purchase of goods under Entry
54 of the State List read with sub-clause (b) of clause
(29-A) of Article 366 of the Constitution, it is not permissible
for the State Legislature to make a law imposing tax on
such a deemed sale which constitutes a sale in the course
of inter-State trade or commerce under Section 3 of the
Central Sales Tax Act or an outside sale under Section 4
of the Central Sales Tax Act or sale in the course of import
or export under Section 5 of the Central Sales Tax Act.
So also it is not permissible for the State Legislature to
impose a tax on goods declared to be of special importance
in inter-State trade or commerce under Section 14 of
the Central Sales Tax Act except in accordance with the
restrictions and conditions contained in Section 15 of the
Central Sales Tax Act.”
(Emphasis supplied)
30. After laying down the scope of power of the State legislatures to
enact laws imposing tax on the transfer of property in goods involved
in the execution of a works contract, the Court discussed various
aspects relating to such laws. One important aspect discussed by
the Court was when the tax could be imposed, on what value it
was to be imposed, and how to measure such value. The relevant
observations read thus:
[2025] 10 S.C.R. 431

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

“45. On behalf of the contractors, it has been urged that
under a law imposing a tax on the transfer of property in
goods involved in the execution of a works contract under
Entry 54 of the State List read with Article 366(29-A)(b),
the tax is imposed on the goods which are involved in
the execution of a works contract and the measure for
levying such a tax can only be the value of the goods so
involved and the value of the works contract cannot be
made the measure for levying the tax. The submission is
further that the value of such goods would be the cost of
acquisition of the goods by the contractor and, therefore,
the measure for levy of tax can only be the cost at which
the goods involved in the execution of a works contract
were obtained by the contractor. On behalf of the States, it
has been submitted that since the property in goods which
are involved in the execution of a works contract passes
only when the goods are incorporated in the works, the
measure for the levy of the tax would be the value of the
goods at the time of their incorporation in the works as
well as the cost of incorporation of the goods in the works.
We are in agreement with the submission that measure
for the levy of the tax contemplated by Article 366(29-A)
(b) is the value of the goods involved in the execution of
a works contract. In Builders’ Association case it has been
pointed out that in Article 366(29-A)(b), “[t]he emphasis is
on the transfer of property in goods (whether as goods or
in some other form)”.)This indicates that though the tax is
imposed on the transfer of property in goods involved in
the execution of a works contract, the measure for levy of
such imposition is the value of the goods involved in the
execution of a works contract. We are, however, unable to
agree with the contention urged on behalf of the contractors
that the value of such goods for levying the tax can be
assessed only on the basis of the cost of acquisition of
the goods by the contractor. Since the taxable event is
the transfer of property in goods involved in the execution
of a works contract and the said transfer of property in
such goods takes place when the goods are incorporated
in the works, the value of the goods which can constitute
the measure for the levy of the tax has to be the value of
432 [2025] 10 S.C.R.

Supreme Court Reports

the goods at the time of incorporation of the goods in the
works and not the cost of acquisition of the goods by the
contractor. We are also unable to accept the contention
urged on behalf of the States that in addition to the value
of the goods involved in the execution of the works contract
the cost of incorporation of the goods in the works can be
included in the measure for levy of tax. Incorporation of
the goods in the works forms part of the contract relating
to work and labour which is distinct from the contract for
transfer of property in goods and, therefore, the cost of
incorporation of the goods in the works cannot be made
a part of the measure for levy of tax contemplated by
Article 366(29-A)(b).
xxx
47. Keeping in view the legal fiction introduced by the
Forty-sixth Amendment whereby the works contract which
was entire and indivisible has been altered into a contract
which is divisible into one for sale of goods and other
for supply of labour and services, the value of the goods
involved in the execution of a works contract on which
tax is leviable must exclude the charges which appertain
to the contract for supply of labour and service[...]The
value of the goods involved in the execution of a works
contract will, therefore, have to be determined by taking
into account the value of the entire works contract and
deducting therefrom the charges towards labour and
services which would cover—
(a) Labour charges for execution of the works;
(b) amount paid to a sub-contractor for labour and services;
(c) charges for planning, designing and architect’s fees;
(d) charges for obtaining on hire or otherwise machinery
and tools used for the execution of the works contract;
(e) cost of consumables such as water, electricity, fuel, etc.
used in the execution of the works contract the property
in which is not transferred in the course of execution of a
works contract; and
[2025] 10 S.C.R. 433

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

(f) cost of establishment of the contractor 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.”
(Emphasis supplied)

Thus, this Court in Gannon Dunkerley -II (supra) held that the taxable
event is the transfer of property in goods involved in the execution
of a works contract, and that transfer occurs when the goods are
incorporated in the “works”. Consequently, it is the value of goods
at the time of incorporation which have to constitute the measure
for the levy of the tax.
31. A Three-judge Bench of this Court in Larsen and Toubro Limited
& Anr. v. State of Karnataka & Anr., reported in (2014) 1 SCC
708, was faced with the question whether taxing the sale of goods
in an agreement for the sale of a flat by a developer/promoter was
permissible. This Court, when dealing with the said issue, made
some pertinent observations with regard to: (i) the interpretation of
Article 366(29-A)(b) of the Constitution; (ii) the scope and meaning
of works contract; and (iii) the application of the dominant intention
test. They read as follows:
“56. It is important to ascertain the meaning of sub-clause
(b) of clause (29-A) of Article 366 of the Constitution.
As the very title of Article 366 shows, it is the definition
clause. It starts by saying that in the Constitution unless
the context otherwise requires the expressions defined in
that article shall have the meanings respectively assigned
to them in the article. The definition of expression “tax
on sale or purchase of the goods” is contained in clause
(29-A). If the first part of clause (29-A) is read with sub-
clause (b) along with latter part of this clause, it reads like
this: “tax on the sale or purchase of the goods” includes
434 [2025] 10 S.C.R.

Supreme Court Reports

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 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. The definition of
“goods” in clause (12) is inclusive. It includes all materials,
commodities and articles. The expression “goods” has a
broader meaning than merchandise. Chattels or movables
are goods within the meaning of clause (12). Sub-clause
(b) refers to transfer of property in goods (whether as
goods or in some other form) involved in the execution of
a works contract. The expression “in some other form” in
the bracket is of utmost significance as by this expression
the ordinary understanding of the term “goods” has been
enlarged by bringing within its fold goods in a form other
than goods. Goods in some other form would thus mean
goods which have ceased to be chattels or movables
or merchandise and become attached or embedded to
earth. In other words, goods which have by incorporation
become part of immovable property are deemed as goods.
The definition of “tax on the sale or purchase of goods”
includes a tax on the transfer of property in the goods
as goods or which have lost its form as goods and have
acquired some other form involved in the execution of a
works contract.
57. Viewed thus, a transfer of property in goods under
clause (29-A)(b) of Article 366 is deemed to be a sale of
the goods involved in the execution of a works contract
by the person making the transfer and the purchase of
those goods by the person to whom such transfer is made.
58. The States have now been conferred with the power
to tax indivisible contracts of works[…]The taxable event
is a deemed sale.
59. […] It is open to the States to divide the works contract
into two separate contracts by legal fiction : (i) contract
for sale of goods involved in the works contract, and
(ii) for supply of labour and service. By the Forty-sixth
[2025] 10 S.C.R. 435

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

Amendment, the States have been empowered to bifurcate
the contract and to levy sales tax on the value of the
material in the execution of the works contract.
60. Whether the contract involved a dominant intention
to transfer the property in goods, in our view, is not at
all material. It is not necessary to ascertain what is the
dominant intention of the contract. Even if the dominant
intention of the contract is not to transfer the property
in goods and rather it is the rendering of service or the
ultimate transaction is transfer of immovable property,
then also it is open to the States to levy sales tax on the
materials used in such contract if it otherwise has elements
of works contract. The view taken by a two-Judge Bench
of this Court in Rainbow Colour Lab that the division of
the contract after the Forty-sixth Amendment can be made
only if the works contract involved a dominant intention to
transfer the property in goods and not in contracts where
the transfer of property takes place as an incident of
contract of service is no longer good law, Rainbow Colour
Lab has been expressly overruled by a three-Judge Bench
in Associated Cement.
xxx
68. There is no doubt that to attract Article 366(29-A)
(b) there has to be a works contract but then what is its
meaning. The term “works contract” needs to be understood
in a manner that Parliament had in its view at the time of
the Forty-sixth Amendment and which is more appropriate
to Article 366(29-A)(b).
xxx
72. In our opinion, the term “works contract” in Article
366(29-A)(b) is amply wide and cannot be confined to
a particular understanding of the term or to a particular
form. The term encompasses a wide range and many
varieties of contract. Parliament had such wide meaning
of “works contract” in its view at the time of the Forty-sixth
Amendment. The object of insertion of clause (29-A) in
Article 366 was to enlarge the scope of the expression
“tax on sale or purchase of goods” and overcome Gannon
436 [2025] 10 S.C.R.

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Dunkerley (1). Seen thus, even if in a contract, besides
the obligations of supply of goods and materials and
performance of labour and services, some additional
obligations are imposed, such contract does not cease to
be works contract. The additional obligations in the contract
would not alter the nature of contract so long as the contract
provides for a contract for works and satisfies the primary
description of works contract. Once the characteristics or
elements of works contract are satisfied in a contract then
irrespective of additional obligations, such contract would
be covered by the term “works contract”. Nothing in Article
366(29-A)(b) limits the term “works contract” to contract
for labour and service only. The learned Advocate General
for Maharashtra was right in his submission that the term
“works contract” cannot be confined to a contract to provide
labour and services but is a contract for undertaking or
bringing into existence some “works”. We are also in
agreement with the submission of Mr K.N. Bhat that the
term “works contract” in Article 366(29-A)(b) takes within
its fold all genre of works contract and is not restricted to
one specie of contract to provide for labour and services
alone. Parliament had all genre of works contract in view
when clause (29-A) was inserted in Article 366.
xxx
87. It seems to us (and that is the view taken in some of
the decisions) that a contract may involve both a contract
of work and labour and a contract of sale of goods. In
our opinion, the distinction between contract for sale
of goods and contract for work (or service) has almost
diminished in the matters of composite contract involving
both a contract of work/labour and a contract for sale for
the purposes of Article 366(29-A)(b). Now by legal fiction
under Article 366(29-A)(b), it is permissible to make such
contract divisible by separating the transfer of property in
goods as goods or in some other form from the contract
of work and labour. A transfer of property in goods under
clause (29-A)(b) of Article 366 is deemed to be a sale of
goods involved in the execution of a works contract by
the person making the transfer and the purchase of those
[2025] 10 S.C.R. 437

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

goods by the person to whom such transfer is made. For
this reason, the traditional decisions which hold that the
substance of the contract must be seen have lost their
significance. What was viewed traditionally has to be now
understood in light of the philosophy of Article 366(29-A).”
(Emphasis supplied)

32. This Court in the Kone Elevator India Private Limited v. State of
Tamil Nadu, reported in (2014) 7 SCC 1, and in State of Karnataka
& Ors v. M/s Pro Lab & Ors., reported in (2015) 8 SCC 557
respectively, once again reiterated that the dominant intention test
is not applicable when determining whether a particular contract is a
works contract for the purposes of Article 366 (29-A) (b). In Larsen
and Toubro (supra) and Pro lab (supra) respectively, this Court
specifically reiterated that the ruling in Rainbow Colour Lab (supra)
was overturned by a Three-judge Bench of this Court in Associated
Cement Companies Ltd v. Commissioner of Customs, reported
in (2001) 4 SCC 593.
33. The position of law with regard to taxation of goods transferred under
works contracts after the enactment of the Forty-sixth Amendment
may be summarised as follows:
a. Vide Article 366(29-A)(b), the States can only tax the transfer
of property in goods (whether as goods or in some other form)
involved in the execution of a works contract and not the works
contract itself;
b. States cannot exercise the power conferred upon them under
Article 366(29-A)(b) dehors the restrictions imposed under
Article 286 of the Constitution and the Act, 1956 (specifically
Sections 3, 4, 5, 14 and 15 respectively);
c. Indivisible works contracts are now, by virtue of the legal fiction
created under Article 366(29-A)(b), divided into two parts, one
for the sale of goods and the other for the supply of labour
and services;
d. A transfer of property in goods under Article 366(29-A)(b) is
deemed to be a sale of the goods. Article 366(29-A)(b) serves
to bring transactions where essential ingredients of “sale”
defined in the Act, 1930 are absent within the ambit of sale or
438 [2025] 10 S.C.R.

Supreme Court Reports

purchase for the purposes of levy of sales tax. In other words,
the transfer of movable property in a works contract is deemed
to be a sale even though it may not be considered as “sale”
within the meaning of the Act, 1930;
e. The term “works contract” in Article 366(29-A)(b) takes within
its fold all genres of works contracts and is not restricted to one
particular specie of contract to provide for labour and services
alone; and
f. The dominant nature test is no longer applicable and has lost its
significance where transactions are of the nature contemplated
in Article 366(29-A).

(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?
34. Section 3F(1)(b) of the Act, 1948, levies tax on the “transfer of property
in goods (whether as goods or in some other form) involved in the
execution of a works contract”.
35. In the case at hand, the principal question that falls for our
consideration is whether there has been a transfer of property in the
ink and other processing materials used for the purpose of printing
lottery tickets, thereby making them liable to the levy of tax under
Section 3F(1)(b) of the Act, 1948.
36. The principal contention put forward by the appellant is that the
lottery tickets are not ‘goods’ and are rather ‘actionable claims’.
Since ‘actionable claims’ are not considered as ‘goods’ under
Section 2(d) of the Act, 1948, according to the appellant, the lottery
tickets cannot be brought within the ambit of Section 3F(1)(b) of
the Act, 1948. Consequently, it is not liable to pay any tax under
the said section.
37. The aforesaid contention of the appellant is devoid of any merit.
On a close reading of Section 3F(1)(b) of the Act, 1948, it is amply
clear that the tax levied is not on the ‘goods’ produced in pursuance
of a works contract, i.e., the lottery tickets in the case at hand. The
tax under Section 3F(1)(b) of the Act, 1948, is rather on the ‘goods’
which are involved in the execution of the works contract. Thus,
the appellant’s contention is misplaced, as it equates lottery tickets
[2025] 10 S.C.R. 439

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

with goods involved in the execution of the works contract, which is
clearly not the case.
38. In order to sustain a levy of tax under Section 3F(1)(b) of the Act,
1948, three conditions must be fulfilled: (i) there must be a works
contract; (ii) the goods should have been involved in the execution
of the works contract; and (iii) the property in those goods must be
transferred to a third party either as goods or in some other form.
39. In the facts of the present case, it is not in dispute that the first two
conditions are fulfilled. The appellant has admitted that the contract
for printing lottery tickets is a works contract. Based on the judgments
of this Court discussed above, it cannot be said otherwise. Further,
from the record, it is clear that the ink, chemical and other processing
material were involved in the printing of the lottery tickets.
40. The primary subject of disagreement is with regard to the third
condition. On one hand, the appellant contends that the ink and
chemical are consumed in the process of printing the tickets and
thus, there is no transfer of property in those goods. Consequently,
no tax under Section 3F(1)(b) of the Act is maintainable. On the
other hand, the Revenue contends that the ink and chemicals have
been transferred to the third party in execution of the work contract,
i.e., printing work.
41. This Court and various High Courts have, in a plethora of judgments,
discussed this aspect of the transfer of property in goods involved in
the execution of works contracts. For the convenience of exposition,
these cases are categorised under three broad heads, in accordance
with the ratio laid down in the judgments: (a) tangible transfer of
property; (b) no transfer of property due to consumption of goods;
and (c) transfer of property despite consumption of goods.

a. Tangible Transfer of property
42. In Matushree (supra) the question before the Bombay High Court
was whether the coloured shade/print passed on to the fabric in the
course of dyeing and printing amounts to transfer of property of the
materials used in dyeing and printing under the Maharashtra Sales
Tax on the Transfer of Property in Goods involved in the Execution
of Works Contracts Act, 1989 (for short, “Maharashtra Works
Contracts Act”). In the said case, the primary contention of the
respondent was that the colours, dyes and chemicals are consumed
440 [2025] 10 S.C.R.

Supreme Court Reports

in the process of dyeing and therefore, the property in those goods
was not transferred as goods or in any other form. Rejecting the
said contention, the Bombay High Court held as follows:
“32. […]According to Mr. Joshi, unless the materials used
in dyeing and printing pass in some or the other physical
form, there is no passing of property in goods. In other
words, according to Mr. Joshi if the property in goods
passes as a result of some chemical reaction, then such
passing of the property in goods is by accretion and not
by transfer of the property in goods. The arguments put
forth by Mr. Joshi can be best understood by referring to
the different forms of water (as and by way of analogy),
as stated hereinbelow:
“Water in the normal temperature is in liquid form,
in high temperature it is in the vapour form and
in low temperature it is in the solid form. These
are all different physical forms of water. However,
when the water is subjected to electrolysis and
an electric current is passed through water, due
to chemical reaction, the water molecules break
into two, namely, hydrogen and oxygen. Thus,
on chemical reaction the water is converted into
a chemical form or gaseous form comprising of
hydrogen and oxygen. According to Mr. Joshi,
property in water can be said to pass, only if,
there is transfer in any physical form (i.e., either
in liquid form, solid form or vapour form) and not
in its chemical form or gaseous form (i.e., as
hydrogen and oxygen).”
33. We see no merit in the contentions raised by the
respondents. When the term “sale” in the Works Contracts
Act has been defined to include by a deemed fiction, the
transfer of property in goods in any form, there is no reason
to restrict the definition to cover only those transactions
which involve transfer of goods in some physical form and
not in some chemical form. In our opinion, the words “some
other form” used in the definition of “sale” in the Works
Contracts Act apply to the transfer of property in goods in its
[2025] 10 S.C.R. 441

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

every form, i.e., physical form or any other form, including
the chemical form. In other words, transfer of property in
goods used in the execution of a works contract, either in
its physical form or any other form including the chemical
form constitutes sale under the Works Contracts Act. In the
present case, the coloured shade is passed to the fabrics
due to the chemical reaction of the materials used in the
process of dyeing. Coloured shade may be due to the
chemical reaction of one or more materials. The coloured
shade represents the inherent chemical property of the
materials used. Once there is passing of the chemical
property of the materials used in the execution of works
contract, then under the Works Contracts Act, there is a
deemed sale of the materials used in the execution of the
works contract. Accordingly we hold that in the process
of dyeing, the coloured shade passed on to the fabrics
constitutes sale of the materials used in dyeing, under the
Works Contracts Act.
xxx
36. […]In the present case, due to the chemical reaction
of colours, chemicals and dyes, the inherent property in
those goods are passed on to the fabrics. The fact that
after the inherent property in those goods is transferred
to the fabrics the remaining solution is thrown out as
waste or affluent, does not in any way affect the taxability
on transfer of the property in goods already effected on
the fabrics. Admittedly, after dyeing, the solution made of
colours, chemicals and dyes is thrown as waste, because,
on transfer of the property in the form of coloured shade,
the said solution becomes worthless. Therefore, the
Legislature has sought to tax the property in goods which
passes and not the remnants or the affluent that remain
after the passing of the inherent property in those goods.
xxx
39. Now, turning to the second question, the Tribunal has
held that the coloured shade passed on to the fabrics
represents very small quantity of the materials used in
dyeing and hence the Works Contracts Act is not applicable.
442 [2025] 10 S.C.R.

Supreme Court Reports

As rightly contended by the counsel for the Revenue, under
the Works Contract Act, what is relevant is the passing
of property 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[…]”
(Emphasis supplied)

Thus, the Bombay High Court interpreted the meaning of the phrase
“some other form” to include the transfer of goods not just in their
physical form but also in other forms, such as in their chemical form.
Having regard to the facts at hand, the High Court held that the
inherent property in the colours, dyes and chemicals could be said
to have been transferred in their chemical form to the cloth which
was being dyed.
43. In Teaktex Processing Complex Limited v. State of Kerala, reported
in 2002 SCC OnLine Ker 720, the Kerala High Court addressed a
similar question, i.e., whether dyes and chemicals used in the process
of dyeing should be considered as consumables under Section 5C of
the Kerala General Sales Tax Act, 1963. The Kerala High Court held
that the ‘dye’ used in the process cannot be treated as a consumable.
According to the High Court, if an item which is used in the process
is not in existence in any form in the end-product, then it is to be
treated as a consumable. Since the dyes used existed in the form
[2025] 10 S.C.R. 443

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

of colour, the High Court held that it was inevitable that the property
in them was transferred.
44. In Hari and Company (supra), the respondent-assessee was
engaged in the business of photocopying, and for this purpose, it used
its own paper and ink. The question before the Bombay High Court
was whether the paper and ink used by the respondent-assessee
in the course of executing photocopying works would constitute a
transfer of property, and thus be liable to the levy of tax under the
Maharashtra Works Contracts Act. The Bombay High Court, relying
on its own decision in Matushree (supra), held that the moment
paper and ink changed hands, it could be construed as a sale within
the works contract.
45. In Commissioner of Sales Tax, Maharashtra State, Bombay v.
Ramdas Sobhraj, reported in 2012 SCC OnLine Bom 1608, a
reference was made by the Maharashtra Sales Tax Tribunal to the
Bombay High Court. The respondent-assessee was engaged in
the works of plate and film making. The activities undertaken by
the respondent-assessee are described as follows by the Bombay
High Court:
“In the job-work of plate making the customers of the
respondent-assessee supplies to the respondent-assessee
duly grained zinc or aluminium plates. On receipt, plates
are coated by dipping in water wherein gun bio chromate is
dissolved. Thereafter positives are exposed on the treated
plates by halogen lamps. The image is formed by the
positives on the plates and the same is developed in the
solution of calcium, lactic acid ferric chloride, cupric chloride
and hydrochloride. The plates are thereafter washed in
industrial solvent, as a result of which all the chemicals
are washed out and only the images remain on the plates.
Thereafter, lacquer and ink are applied on the plates. On
a specific query, we were informed that lacquer and ink
are applied on the plates so as to ensure that the images
on the plates do not get disturbed/smudged by constant
use. After the above process the plates are dried and
again washed with water and returned to the customers.
The activity of pure labour job consists of positive making.
In this activity, the customer supplies a design to the
444 [2025] 10 S.C.R.

Supreme Court Reports

respondent-assessee for the purpose of positive making.
The respondent-assessee thereafter takes a photograph
of the design in four different colours, i.e., yellow, red,
blue and black for obtaining the final negatives. Out of
the aforesaid final negatives the respondent-assessee
obtains/prepares a number of positives as required by
its customers. It is the case of the respondent-assessee
that the aforesaid activity is highly skilled activity requiring
expertise and skill.”
The question that fell for consideration before the Bombay High Court
was whether the tribunal was justified in holding that there was no
transfer of property in ink and lacquer when undertaking the works
in the post Forty-sixth Amendment era. The Bombay High Court,
relying upon its decision in Matushree (supra), held that lacquer
and ink were materials used in the plate making process, and the
property in the same is passed on in the execution of the contract
under the Maharashtra Works Contracts Act.
46. In M/s Mohan Offset Printers v. State of Tamil Nadu, reported in
2010 SCC OnLine Mad 587, the petitioner-assessee was engaged
in the business of printing and supplying labels, cartons and drapers
for notebooks on a work contract basis. While the paper was supplied
by the customers, the printing ink was prepared by the petitioner-
assessee. The petitioner in the said case sought to challenge the
tribunal’s decision, which held that the printing ink used by the
petitioner in the works contract would amount to a transfer of property,
and thus was liable to sales tax under Section 3B of the Tamil Nadu
General Sales Tax Act, 1959. Section 3B of the Tamil Nadu General
Sales Tax Act, 1959 dealt with “levy of tax on the transfer of goods
involved in works contract”. It was the petitioner’s contention that
when ink is used for printing the materials on a work contract basis,
such ink is consumed and no transfer of property in the ink occurs.
Rejecting the contention of the petitioner, the Madras High Court
held that in the printing work undertaken, the ink is transferred onto
the papers in a tangible manner and without it, the works contract
would not be completed. Therefore, the printing ink could not be
considered a consumable and is liable to be taxed under Section
3B of the Tamil Nadu General Sales Tax Act, 1959.
47. In Unique Traders v. Commercial Tax Officer-1, reported in 2020
SCC OnLine Mad 1155, a Three-judge Bench of the Madras High
[2025] 10 S.C.R. 445

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

Court was hearing a reference that originated when a Division
Bench, noting conflicting decisions among other Division Benches
of the High Court, deemed it necessary for the law on the subject
to be settled. The appellant in this case was involved in performing
job work, wherein it would receive polythene rolls from various
parties and thereafter print on them using purchased ethyl acetate,
toluene, and ink. The question before the court was whether the
ink used in printing would amount to a transfer of property and
thus be liable to tax under Section 3B of the Tamil Nadu General
Sales Tax Act, 1959. In resolving this issue, the Three-judge Bench
extensively examined the various precedents of this Court, its own
decisions, and those of other High Courts. The court answered
the reference in favour of the revenue and held that the ink used
in printing would be liable to be taxed under Section 3B of the
Tamil Nadu General Sales Tax Act, 1959. In addition, the court in
the case also delineated very clearly as to which precedents of
its High Court on this aspect of law were binding and which were
erroneous in law.
48. The issue before this Court in Xerox Modicorp Ltd v. State of
Karnataka, reported in (2005) 7 SCC 380, was whether toners and
developers supplied in pursuance of maintenance contracts entered
into between the parties were subject to the levy of sales tax. It was
the contention of the appellant-assessee therein that the toners and
developers are consumed in the process of the execution of the
maintenance agreement itself, and by virtue of Explanation I to Rule
6(4) of the Karnataka Sales Tax Rules, such consumables could not
be made subject to the levy of sales tax. Rejecting this contention,
this Court held as follows:
“16. We have considered the rival submissions. As set
out hereinabove the word consumable in Explanation I to
Rule 6(4) refers to such items which get consumed before
the property in the goods can pass. We are informed that
toners and developers are liquids which are put in the
Xerox machine. They perform, to put it simply, the same
function as ink in printers. Under the Sale of Goods Act
if specified goods in a deliverable state are delivered the
property in the goods passes. It could not be disputed
that the toner and developer will be delivered in bottles/
containers. In FSMA supplies are left with the customer.
446 [2025] 10 S.C.R.

Supreme Court Reports

Thus clause 9 of the section dealing with the customer’s
obligation provides as follows:
“The Customer
***
9. shall be accountable to MX for xerographic
supplies stock left in trust with the customer who
shall ensure that such stock is used only in the
equipment under this agreement. MX reserves
the right to charge the customer for any stocks
which are unaccounted for, to MX’s satisfaction,
at the then prevailing MX prices.”
Thus for the extra stock there is a provision which provides
that it is left in trust. However once the toner and developer
are put into the machine they are no longer in trust. This
is because the property in the toner and developer passed
the moment they are put into the Xerox machine. Now they
belonged to the customer. At this stage they are tangible
movables in which property can pass. This is clear from the
provision that the appellants will charge for unaccounted
stock at prevailing prices. That they are goods in which
property can pass is also clear from the fact that in SSMA
the customer has to buy the toner and developer. If as
now claimed they are consumables in which property
cannot be transferred how are the appellants charging
for toners and developers. In our view, Mr Iyer is right.
The sale i.e. transfer of property takes place before the
goods are consumed. The transfer takes place in respect
of tangible goods. Just like petrol is consumed after sale
or ink is consumed after sale in this case also the toners
and developers get consumed after sale. The property
passes the moment they are put in the machine. At that
stage they are not consumed but are tangible goods in
which property can pass.”
(Emphasis supplied)

49. In the aforementioned cases, the Courts were primarily dealing with
situations where the transfer of property resulted in a tangible and
observable presence in the final product. The judicial reasoning
[2025] 10 S.C.R. 447

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

focused on how the inherent properties of the goods were physically
incorporated and remained as a component of the works delivered
to the customer.

b. No transfer of property due to consumption of goods
50. In Pest Control (supra), the petitioner was engaged in providing
services such as pest control, household disinfection, and anti-
termite treatment. The question before the Patna High Court was
whether there was a transfer of property in the chemicals that were
involved in providing the aforementioned services. The court upheld
the contention of the petitioner that there was no transfer of property
in the chemicals and held as follows:
“12. From the plain reading of sub-clause (b) of clause
(29-A) of article 366 of the Constitution of India it appears
that there must be a transfer of property in goods whether
as goods or in some other form involved in the execution
of a works contract. Clause (12) of article 366 and section
2(h) of the Bihar Finance Act, 1981 give some indication as
to what is meant by “goods”. The inclusive definition in the
Constitution as well as in the Bihar Finance Act refers to
materials, commodities and articles or all kinds of movable
property, all materials, commodities and articles, as such
or in some other form. Before a tax can be levied on a
works contract, it must be established that there is transfer
of property in goods involved in the execution of a works
contract. The goods may have undergone a change of form.
But in whatever form, there must be transfer of property
in goods. This presupposes that the goods existed and
that either in its original form or in some other form, it is
transferred to the principal by the contractor. If the goods
do not exist in any form whatsoever and are consumed
in the processor execution of the work, can it be said that
in such a case there is a transfer of property in goods? In
my view, the transfer of goods implies the existence of the
goods in some form or the other. If the goods do not exist,
there is no question of transfer of property in goods. In
Northern India Caterers (India) Ltd. v. Lt. Governor of Delhi
[1978] 42 STC 386 ; (1978) 1 SCR 557, the Supreme Court
quoted with approval a passage from Electa B. Merrill v.
448 [2025] 10 S.C.R.

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James W. Hodson LRA 1915-B 481, dealing with a case
of supply of food or drink to customers, wherein it was
held that such supply did not partake the character of a
sale of goods. It was observed: “The necessary incident
of this service or ministry is the consumption of the food
required. This consumption involves destruction and
nothing remains of what is consumed to which the right
of property can be said to attach. Before consumption title
does not pass; after consumption there remains nothing
to become the subject of title.”
13. While it is true that in view of the Constitution (Forty-
sixth Amendment) Act, 1982, what was earlier considered
to be one indivisible contract is by legal fiction altered
into a contract which is divisible into one for the sale of
goods and the other for supply of labour and services.
It is now possible for the State to levy sales tax on the
value of goods involved in a works contract. But even so
this presupposes the existence of goods, because there
can be no transfer of property in goods unless the goods
themselves exist. In the instant case, it is not disputed
that the chemicals are used for the purpose of eradicating
pests. The chemicals are sprayed through machines so
that when the process ends, nothing tangible remains in
which property is transferred. By the process of spraying
or applying chemicals, a place is treated against insects
and pests but in the process the chemicals are themselves
consumed and there remains nothing in which property is
transferred. I am of the view that a transaction as the one
in question really does not involve transfer of any goods
as understood in sub-clause (b) of clause (29-A) of article
366 of the Constitution of India or under the provisions of
the Bihar Finance Act, 1981. It is a service contract pure
and simple and does not involve any sale of goods since
there are no goods in which property can be transferred.
I am, therefore, of the view that the contract between the
petitioner-company and M/s. Tata Iron & Steel Co. Ltd. is
a mere service contract for eradication of pests, rodents,
termites, etc., and does not fall within the purview of a
contract for the supply of goods as envisaged under the
[2025] 10 S.C.R. 449

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

Constitution of India and the Bihar Finance Act, 1981. In
such a transaction, there being no transfer of property in
goods, no sales tax is leviable under the provisions of the
Bihar Finance Act, 1981.”
(Emphasis supplied)

51. The Kerala High Court in M.K. Velu (supra) dealt with whether sales
tax could be levied on the fireworks used in execution of a contract for
fireworks display. Holding in the negative, the court held as follows:
“4. […]The only further question is whether the Appellate
Tribunal was justified in holding that no transfer of property
takes place in the display of fireworks. As the explosives
are consumed, nothing tangible remains, in which property
could be transferred. It is a matter of common knowledge
that in the display of fireworks, the explosives are spent
and do not remain, once the display takes place. In the
process of execution of the work, the goods themselves
(explosives) ceased to exist. No tangible property remains.
So, there could be no transfer of property. We concur with
the decision of the Patna High Court in Pest Control India
Ltd. v. Union of India [1989] 75 STC 188. There can be
no transfer of property unless the goods themselves exist.
That is not the case herein. The decision of the Appellate
Tribunal taking the said view is justified in law.”
(Emphasis supplied)

52. In Dynamic Industrial and Cleaning Services (P) Ltd. v. State of
Kerala & Anr, reported in 1994 SCC OnLine Ker 379, the petitioner
company was engaged in the business of cleaning of boilers in
plants like thermal power stations and fertiliser complexes. For the
process of cleaning, the petitioner used chemicals like citric acid,
hydrochloric acid and the like, after determining the precise type of
cleaning agent to be used in a particular plant. The petitioner, being
aggrieved by the levy of sales tax on these chemicals, contended
that the chemicals are consumed in the process of cleaning and
removing the impurities in the plants, and as such no transfer of
goods was involved. Accepting the said contention, the Kerala High
Court held as follows:
450 [2025] 10 S.C.R.

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“2. A bare perusal of the above Explanation is sufficient
to show that transfer of property in goods (whether as
goods or in some other form) is the sine qua non for its
application. The mere execution of a works contract does
not by itself attract liability for tax under the Act unless it
is accompanied by transfer of property in goods, involved
in the execution of the contract. The emphasis is on the
transfer of property in goods-Builders Association of India
v. Union of India [1989] 73 STC 370 (SC) at page 396.
When goods used in the process of executing a works
contract are consumed in the process, as in the case of
the chemicals used by the petitioner or fuel and power,
there is no transfer of any goods from the contractor to
the awarder of the contract, attracting liability to tax. I draw
inspiration for this conclusion from the decision of this
Court in Deputy Commissioner of Sales Tax v. Thomas
Stephen and Co. Ltd. [1987] 66 STC 34 ; (1987) 1 KLT
161, (paragraph 5) which was affirmed by the Supreme
Court in Deputy Commissioner v. Thomas Stephen & Co.
Ltd. [1988] 69 STC 320 (at pages 324-325); (1988) 1 KLT
568 (paragraph 12).
3. The chemicals are being used by the petitioner only in
aid of the work undertaken by it, as a cleaning agent for
cleaning the boilers in the plant and they are extinguished
in the process. They are not transferred to the awarder in
any form, either as goods or otherwise. The work is more
or less a labour contract, in which the petitioner utilises the
chemicals just as it uses any other item of its machinery
or fuel or power in the performance of the work. There is
no transfer of property in goods and no sale liable for tax
under Explanation 3(A).”
(Emphasis supplied)

53. In Microtol Sterilization Services Pvt Ltd v. State of Kerala
reported in 2009 SCC OnLine Ker 1480 the question before the
Kerala High Court was whether there was any transfer of property
in ethylene oxide, which was used in the process of sterilization of
goods. The Court held as follows:
[2025] 10 S.C.R. 451

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

“5. Besides the above, section 5C(1)(c)(iii) provides for cost
of consumables used in the execution of works contract
eligible for deduction in the determination of taxable
turnover on works contract. It is obvious from the section
and the provisions providing for determination of taxable
turnover on works contract that sales tax is payable only on
the value of goods that got transferred from the contractor
in the execution of the works contract. Consumables
are items which are lost in the course of execution of
works contract. Even though 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 sterilisation with the use
of ethylene oxide. The assessee’s representative present
in court explained the sterilisation process as one involving
the use of a compact airtight room wherein the goods to
be sterilised 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 sterilisation, the
gas is released to air after neutralising it with carbon-
dioxide. Admittedly after sterilisation 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
sterilisation of the goods. On the other hand, it is used up
as a consumable in the service rendered by the assessee,
the value of which is to be excluded in the determination
of taxable turnover of works contract under section 5C
of the Act. The decision of the Patna High Court in the
case of application of pesticide and the other decisions
of this court in the case of fireworks squarely apply to the
facts of this case. The decisions cited by the Government
Pleader will not apply to this case because those are
cases involving dyeing work where the dye is transferred
to the fabric supplied by the customer and is retained in
the cloth. We are therefore unable to uphold the order of
452 [2025] 10 S.C.R.

Supreme Court Reports

the Tribunal confirming the levy and demand of tax on
the value of ethylene oxide used up in sterilisation work.
We therefore allow the sales tax revision by reversing the
order of the Tribunal confirming the assessment and by
declaring that no tax is leviable on the value of ethylene
oxide used in sterilisation work.”
(Emphasis supplied)

54. In the cases of Pest Control (supra), M.K. Velu (supra), Dynamic
Cleaning (supra) and Microtol Sterilization (supra) respectively, the
overwhelming focus of the courts was on the continued existence of
the good as a prerequisite for a transfer of property. The courts in
these cases operated on the notion that if the goods are completely
consumed or disappear during the execution of the works, leaving
no physical trace in the final product, then no transfer can logically
occur. Since a third party does not receive the goods themselves in
any form, the transaction is purely one of service, and the material
used is merely a consumable whose property is extinguished rather
than transferred.

c. Transfer of property despite consumption of goods
55. In Enviro Chemicals v. State of Kerala, reported in 2011 SCC
OnLine Ker 3685, the petitioner was engaged in providing a service
of chemical treatment of effluent water. For the purpose of treating
the effluent water, the petitioner used “envirofloc”, a chemical product
developed by it. Envirofloc was consumed during the treatment of
the effluent water. In such circumstances, the question before the
Three-judge Bench of the Kerala High Court was whether to treat
envirofloc as a consumable and exempt it from the levy of sales
tax under the Kerala General Sales Tax Act, 1963. The contention
of the petitioner in the said case was that since the chemical was
consumed and used up, there was no transfer of property. On the
other hand, the revenue contended that the chemical was transferred
the moment it was put into the effluent water, and the fact that it
was subsequently consumed would not absolve the petitioner of
its liability to pay tax as there was transfer of property. By a 2:1
majority, the court accepted the contention of the revenue. Justice
K.M. Joseph (as His Lordship then was), speaking for the majority,
made the following pertinent observations:
[2025] 10 S.C.R. 453

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

“32. That the chemical in question is goods, is beyond
doubt. It cannot be disputed that the assessee was the
owner of the goods in question, namely, the chemical. It
is obviously the intention of the parties that the assessee
must use the chemical in the effluent treatment process.
It is equally indisputable that the assessee has actually
used it. No doubt, in the judgment of the apex court in
Xerox Modicorp Ltd. v. State of Karnataka [2005] 142 STC
209, the apex court found that the toners and developers
are liquids put into the xerox machine and they perform
essentially the same function as ink in the printers and
the court also relied on the provision in the contract that
the assessees in the said case would charge for the
unaccounted stock at prevailing prices. By using the
chemical, the petitioner/assessee rendered the effluent
compliant with the standards. It could probably be said that
in the case of the toner and developers as the function is
that of ink in printers, it shows up in the final product of the
xerox machines. But, the decision of the apex court is not
based on there being any requirement that the items which
are used should exist in any form in the resultant product
which is the principle laid down by this court in Teaktex
Processing Complex Limited v. State of Kerala [2004] 136
STC 435 and also in Microtrol Sterilization Services Pvt.
Ltd. v. State of Kerala [2009] 26 VST 213 (Ker).
33. We would think that the principle “quicquid plantatur
solo, solo cedit” is a principle which is apposite in the
context of a building and engineering contract. We get
the following account of the principle “quicquid plantatur
solo, solo cedit”:
“The well-known principle is that the property
in all materials and fittings, once incorporated
in or affixed to a building, will pass to the free-
holder quicquid plantatur solo, solo cedit. As
soon as materials of any description are used
in a building or other erection, they cease to be
the contractor’s property and become that of
the free-holder. The employer under a building
contract may not necessarily be the free- holder,
454 [2025] 10 S.C.R.

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but may be a lessee or licensee, or even have
no interest in the land at all, as in the case of
a sub-contract. However, once the builder has
affixed materials, the property in them passes
from him, and at least as against him, they
become the absolute property of his employer,
whatever the latter’s tenure of or title to the lands.
The builder has no right to detach them from
the soil or building, even though the building
owner may himself be entitled to sever them
as against some other person—for example,
tenant’s fixtures. Nor can the builder reclaim
them if the building owner or anyone else has
subsequently severed from the soil.
Materials worked by one, into the property of
another, becomes part of that property. This is
equally true whether it be fixed or moveable
property. Bricks built into a wall becomes part
of the house, thread stitched into a coat which
is under repair, or planks and nails and pitch
worked into a ship under repair, become part of
the coat or the ship. Until, however, the materials
are actually built into the work, in the absence of
some stipulation intended to pass the property in
them, when delivered on the site, they remain the
property of the contractor, notwithstanding that
they might have been approved by the employer
or his agent or brought into the site unless the
agreement between the parties evinces a clear
intention to the contrary.”
34. We would think that the said principle as such may
not advance the case of the Revenue in a case where
the works contract involves the effluent treatment process
wherein chemical is poured into the effluent.
35. When the assessee has used it, will it remain the
owner of the chemical any longer? Will not the property
in the goods pass to the awarder? We would think that
the moment the assessee pours the chemicals into the
[2025] 10 S.C.R. 455

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

effluent, he will cease to be the owner and at that point of
time the awarder must be deemed to have taken delivery
of the same. In our view the fact that upon it being poured
into the effluent, it loses its identity and that it is consumed
will not detract from the fact that there is delivery of the
same to the awarder. The assessee does not have a case
that the effluent belongs to the assessee. We do not think
that it can be their case that the effluent does not belong
to the awarder. Let us pose a question, if a complaint by
a third party is raised about the treated effluent, can the
awarder absolve itself of the ownership of the same? We
would think, it may not be possible. Therefore we would
be justified in holding that the effluent and the treated
effluent both belonged to the awarder. It is, therefore,
into the property of the awarder, namely the effluent, that
the assessee supplies the chemical. The apex court in its
decision in Gannon Dunkerley & Co. v. State of Rajasthan
[1993] 88 STC 204 ; (1993) 1 SCC 364 had, inter alia,
held that cost of consumables, such as, water, electricity,
fuel, etc., used in the execution of the works contract,
the property in which is not transferred in the course
of execution of a works contract, is to be deducted. In
section 5C also, the words “not involving any transfer of
property in goods” have been incorporated. Just like the
toner and developer having been put into xerox machine
becoming the property of the customer in the case before
the apex court in Xerox Modicorp Ltd. case [2005] 142
STC 209 and the sale taking place before the goods are
consumed, in the same way, the property in the chemical
passed to the awarder the moment they are put into the
effluent by the assessee and its subsequent consumption
is the consumption after sale and it does not detract from
the factum of sale and consequently the exigibility to tax
becomes unquestionable.”
(Emphasis supplied)

56. In State of Tamil Nadu v. S.S.M. Processing Mills, reported in
2013 SCC OnLine Mad 2539, the issue before the Madras High
Court was whether the chemicals used in the process of bleaching
456 [2025] 10 S.C.R.

Supreme Court Reports

were liable to the levy of sales tax under Section 3B of the Tamil
Nadu General Sales Tax Act, 1959. The court, relying on the Kerala
High Court’s decision in Enviro Chemicals (supra), answered in the
affirmative. The relevant observation reads thus:
“9. The fact that the chemicals used for bleaching is
washed away in the process, by itself, would not be a
justifiable ground to accept the case of the assessee that
there was no transfer of property of any goods. The very
fact of the yarn being bleached by a chemical process,
by applying the chemical, will clearly point out that there
is transfer of property of the chemical, hence, bleaching
contract attracts sales tax as in the case of dyeing contract,
when the chemicals are purchased from outside the State.
Consequently, this court allow the tax case (revisions)
filed by the State.”
(Emphasis supplied)

57. In the cases of Enviro Chemicals (supra) and S.S.M. Processing
Mills (supra) respectively, the focus of the courts decisively shifted
from the final existence of the good to the precise moment a transfer
of property occurred. The Kerala High Court, in Enviro Chemicals
(supra), held in the facts of that case that the transfer occurs the
moment the chemical is poured into the effluent water. Its subsequent
consumption does not negate the fact that a “deemed sale” has
already taken place.

d. Application to the facts at hand
58. It is true that determining whether a transfer of property in goods
has occurred is a fact-intensive enquiry, heavily dependent on the
circumstances surrounding a particular case, such as the subject
and terms of the work contract itself. In such a scenario, it is neither
possible to lay down any “general principles” nor is it advisable to do
so. At this juncture, it is apt to take note of the observations made by
this Court in Collector of Central Excise, New Delhi v. Ballarpur
Industries Limited, reported in (1989) 4 SCC 566:
“18. Now a word about Shri Ganguly’s insistence on
drawing a line of strict demarcation between what can
be said to be “goods” merely “used” in the manufacture
[2025] 10 S.C.R. 457

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

and what constitute goods used as “raw material” for the
purpose.
19. We are afraid, in the infinite variety of ways in which
these problems present themselves it is neither necessary
nor wise to enunciate principles of any general validity
intended to cover all cases. The matter must rest upon
the facts of each case. Though in many cases it might be
difficult to draw a line of demarcation, it is easy to discern
on which side of the borderline a particular case falls.
20. Shri Ganguly’s insistence, however, serves to recall
the pertinent observations of an eminent author on the
point. It was said:
“A common form of argument used by counsel
in legal cases is to suggest that if the court
decides in favour of the opposing counsel’s
arguments, it will become necessary to draw
lines which may be very difficult or impossible
to draw. “Where will you draw the line?” is, of
course, a question which must be faced by a
legislator who is actually proposing to lay down
lines for all future cases, but it is not a question
which needs in general to be faced by common
law courts who proceed in slow stages, moving
from case to case…”
The learned Author recalls Lord Lindley’s “robust answer”
to the question — Where will you draw the line?
“Nothing is more common in life than to be
unable to draw the line between two things. Who
can draw the line between plants and animals?
And yet, who has any difficulty in saying that an
oak-tree is a plant and not an animal?”
Again, Lord Coleridge in Mayor of Southport v. Morriss said:
“The Attorney General has asked where we
are to draw the line. The answer is that it is
not necessary to draw it at any precise point.
It is enough for us to say that the present case
458 [2025] 10 S.C.R.

Supreme Court Reports

is on the right side of any reasonable line that
could be drawn.”
(Emphasis supplied)

59. Whilst acknowledging that there are no general rules that can be
universally applied, it is fundamental that any analysis must begin
with the correct identification of the taxable event. From the rulings
of this Court in Builders Association (supra), Gannon Dunkerley-II
(supra) and Larsen and Toubro (supra) respectively, it is clear that
the taxable event with respect to the transfer of property in goods
involved in works contracts is when the deemed sale occurs.
60. In Gannon Dunkerley-II (supra), this Court clarified that the
transfer of property in such goods takes place when the goods are
incorporated in the works. The Court’s use of the word ‘incorporated’
should not be mechanically interpreted to mean that a transfer of
property occurs only when a physical or tangible good is passed
on when executing a works contract. Rather, ‘incorporation’ is to
be understood contextually, defined by the specific nature of “the
works” contracted for.
61. Considering it from the aforesaid perspective, it is evident that the
Courts in Pest Control (supra), M.K. Velu (supra), Dynamic Cleaning
(supra) and Microtol Sterilization (supra) respectively, proceeded
on the wrong footing. The emphasis of the courts on ‘consumption’
in the aforesaid cases is incorrect on the following grounds:
a. First, the courts in the said cases completely overlooked the
taxable event as prescribed under Article 366(29A)(b) and the
relevant statute. The focal point of analysis by the courts should
have been not whether the goods have been consumed, but
rather whether the transfer of property has occurred. However,
the courts wrongly presumed that the transfer could not have
occurred as the goods had already been consumed.
b. Secondly, the courts in the said cases proceeded on the
incorrect assumption that all “consumables” were deductible
and exempt from the levy of tax. However, on reading the
observations of this Court in Gannon Dunkerley-II (supra) and
the relevant statutory provisions, it is amply clear that only those
consumables were exempt from tax, the property in which was
not transferred in the execution of the works contract. Thus, if
[2025] 10 S.C.R. 459

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

the transfer of property has occurred, and thereafter the goods
are consumed, it would still be liable to the levy of sales tax.
The position is the same even under the Act, 1948.
62. This Court in Xerox Modicorp (supra) and the Kerala High Court in
Enviro Chemicals (supra) correctly identified the taxable event as
the precise moment the contractor’s goods are incorporated into the
‘works’, i.e., when the toner is fitted into the machine or the chemical
is introduced into the effluent water. The subsequent consumption
of these items is irrelevant, as it does not negate the transfer of
property that has already occurred. The cardinal principle, which
must serve as the guiding light for any court or tribunal adjudicating
such disputes, is that the analysis must be anchored to a singular
question: has transfer of property in goods involved in the execution
of the works contract occurred?
63. In Enviro Chemicals (supra), the Kerala High Court correctly noted
that the items need not exist in any form in the resultant product.
To insist that a transfer of property is contingent upon the good’s
tangible presence in a final product is to impose a condition that
Article 366(29A)(b) does not contemplate and, in fact, is textually
contradictory. The statutory framework only requires that the goods be
“involved in the execution of the works contract”. It does not mandate
that the works contract must yield a physical end-product or that the
transfer must be tangible. To impose such a limitation would not only
lead to a gross misapplication of the law but would also defeat the
legislative intent of the Forty-sixth Amendment and the dictum of this
Court in various rulings. This Court allowed a broad interpretation
of the term ‘works contract’ in order to enable the taxing transfer of
property in goods in all genres of works contracts.
64. Many works contracts, particularly those for services and
transformations, do not result in a new end product or a tangible
transfer of property. For example, a works contract for providing
pest control or cleaning service (as was the case in Pest Control
(supra) and Dynamic Cleaning (supra), respectively) would not lead
to the creation of a new end product or a very tangible transfer of
property in goods. However, the chemicals used are indeed being
transferred, as without such transfer of goods, it would be impossible
to make an area clean or pest-free. Similarly, in M.K. Velu (supra)
and Microtol Sterilization (supra), the works contracts therein could
not have been executed successfully without the transfer of property
460 [2025] 10 S.C.R.

Supreme Court Reports

in the fireworks and ethylene oxide, respectively. The chemicals,
fireworks, and ethylene oxide are the primary goods facilitating the
works under the respective contracts. It is in this context that they
may said to be incorporated in the ‘works’ of the respective contracts.
Consequently, it is undeniable that the property in such goods is
being transferred when the respective works contracts are executed.
These goods differ from consumables such as water and electricity,
which merely aid in executing works contracts and the property in
them is not transferred before they are consumed.
65. Determining whether a transfer of property in goods has occurred is
undoubtedly more challenging when the good is consumed or the
transfer is intangible, as opposed to when it is tangibly present in a
final product. Thus, the courts and tribunals must be extra vigilant
when faced with such scenarios and must scrutinize the specific
facts and the nature of each works contract with great care to make
a correct determination as to whether or not a said item has been
incorporated in the ‘works’ of a contract.
66. In the facts of the present case, the levy of sales tax under Section
3F of the Act, 1948, is on the ink and the processing material used
by the appellant in printing the lottery tickets. The appellant has,
however, not provided an item-wise breakdown of such processing
material. The same was also noted by the Assessing Authority in
its orders dated 28.10.1999. If the appellant had provided an item-
wise breakdown, it would have facilitated in determining whether
there was a transfer of property with regard to each such item.
Consequently, we proceed to determine the issue on the basis of
the assumption the High Court seems to have drawn in its impugned
judgment, i.e., equating processing material with the chemical used
for diluting the ink.
67. Applying the principles laid down in the preceding paragraphs to the
facts at hand, we have no doubt in our mind that there is a transfer
of property in the ink and chemicals used in the printing of the lottery
tickets. The works contract in this instance is for the printing of lottery
tickets, and “the works” refers to the final, tangible printed ticket. The
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 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
[2025] 10 S.C.R. 461

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

of the diluted ink, a composite good comprising both the ink and the
processing chemicals.
68. As rightly held by the Bombay High Court in Matushree (supra),
the transfer of ink and chemicals in their chemically altered form
constitutes a valid transfer of property. Therefore, 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.
69. Thus, in the facts of the present case, all conditions required to
sustain a levy of tax under Section 3F(1)(b) of the Act, 1948, are
fulfilled. Consequently, the appellant is liable to pay tax under
Section 3F(1)(b) of the Act, 1948 on the ink and processing material.

E. CONCLUSION
70. In order to sustain a levy of tax under Section 3F(1)(b) of the Act,
1948, three conditions must be fulfilled: (i) there must be a works
contract; (ii) the goods should have been involved in the execution
of the works contract; and (iii) the property in those goods must be
transferred to a third party either as goods or in some other form.
71. The appellant has admitted that the contract for printing lottery tickets
is a works contract. Based on the judgments of this Court, it cannot
be said otherwise as well. From the record, it is clear that the ink,
chemical and other processing material were involved in the printing
of the lottery tickets.
72. Further, there is a transfer of property in the ink and chemicals
used in the printing of the lottery tickets. The works contract in this
instance is for the printing of lottery tickets, and “the works” refers to
the final, tangible printed ticket. The 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 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.
73. Thus, in the facts of the present case all three conditions required
to sustain a levy of tax under Section 3F(1)(b) of the Act, 1948, are
fulfilled : (i) a works contract exists for printing of lottery tickets; (ii)
462 [2025] 10 S.C.R.

Supreme Court Reports

ink and chemicals have been involved in the execution of the works
contract; and (iii) the property in the ink and chemicals has been
transferred in execution of the works contract. Consequently, the
appellant is liable to pay tax under Section 3F(1)(b) of the Act, 1948
on the ink and processing material.
74. For the foregoing reasons, the appeals fail and are hereby dismissed.
75. Before we close, we must clarify that we had heard in all four appeals.
This judgment disposes of Civil Appeal Nos. 703 & 705 of 2012
respectively. In so far as, the Civil Appeal Nos. 9189 & 8313 of 2015
respectively are concerned, we order that they be de-tagged as we
need to rehear them on a particular issue. Registry to notify these
two appeals for rehearing on any final hearing day in the month of
November 2025.

Result of the case: Civil Appeal No(s). 703 & 705 of 2012 disposed of.
Civil Appeal No(s). 9189 & 8313 of 2015 de-tagged.

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Headnotes prepared by: Nidhi Jain