The Hon’ble Supreme Court in the case of Ms. Aristo Printers Pvt. Ltd. v. Commissioner of Trade Tax, Lucknow, U.P. [Special Leave Petition (Civil) No. 15476/2011, order dated October 07, 2025] held that tax under Section 3F(1)(b) of the Uttar Pradesh Trade Tax Act, 1948, (‘the Act’) is leviable on ink, chemicals and other processing materials used in printing lottery tickets, as the property in these goods is transferred in execution of a works contract.
Facts:
Ms. Aristo Printers Pvt. Ltd. (‘the Appellant’) is engaged in the business of printing lottery tickets, using paper provided by its clients and procuring ink and chemicals itself.
Commissioner of Trade Tax, Lucknow, U.P. (‘the Respondent’) levied trade tax on the value of ink, chemicals, and packing material used by the Appellant for printing lottery tickets under Section 3F of the Act.
The Appellant contended that the ink, chemicals, and other processing materials were consumables used up in printing and did not get transferred to the customer, so their value could not be taxed under Section 3F.
The Respondent contended that both ink and chemicals were transferred to the customer when incorporated into the ticket, and thus were liable to tax.
The Appellant’s grievance was against the order of the High Court, which set aside appellate and tribunal orders deleting this tax, and restored the original assessment. The Appellant approached the Supreme Court in civil appeal.
Issue:
Whether tax can be levied under Section 3F of the U.P. Trade Tax Act, 1948, on ink and processing materials used by the appellant in printing lottery tickets, on grounds that their property is transferred in execution of a works contract?
Held:
The Hon’ble Supreme Court in Special Leave Petition (Civil) No. 15476/2011 held as under:
- Observed that, Section 3F(1)(b) of the Act, levies tax on the transfer of property in goods involved in the execution of a works contract, whether in their original form or altered through processing.
- Noted that, the contract for printing lottery tickets is a works contract as admitted by the appellant, and that ink, chemicals, and other processing materials are components involved in executing the works contract.
- Observed that, property in the ink and chemicals transfers to the customer at the moment these materials are applied to the paper, thereby becoming part of the completed ticket.
- Noted that, the taxable event i.e., the deemed sale, occurs at this point of incorporation of goods in the work, and the value of goods for tax purposes is their value at this time of incorporation.
- Observed that, the appellant’s contention that lottery tickets are actionable claims, not goods, is misplaced because tax is levied on materials involved in execution, not on the final ticket itself.
- Noted that, it is immaterial that these goods are consumed or altered in the process since the transfer of property in goods happens notwithstanding consumption.
- Held that, the tax levied under Section 3F(1)(b) is valid and dismissed the Appellant’s appeal, upholding the High Court’s order restoring the tax demand on ink, chemicals, and processing materials used for printing lottery tickets.
Our Comments:
The Supreme Court aligns with the rationale in Commissioner of Sales Tax v. Matushree Textile Ltd. [2003 SCC OnLine Bom 830] that the phrase “some other form” in the Works Contracts Act includes not only physical transformation of goods but also chemical forms. Thus, property in ink and chemicals transferred in the process of printing or dyeing is subject to works contract tax, regardless of whether remnants are discarded post-processing. The present judgment also relies on Gannon Dunkerley Co. v. State of Rajasthan [1993 1 SCC 364] which mandate that the taxable event is the incorporation of goods in the works.
The ruling diverges from Pest Control India Ltd. v. Union of India [1989 SCC OnLine Pat 288]. In this case, the Patna High Court considered whether the chemicals used in pest control contracts could be subjected to sales tax as goods transferred in execution of a works contract. The Court reasoned that although chemicals were necessary for carrying out the pest control service, there was no effective “transfer of property” in the chemicals to the customer. The chemicals were consumed and used up in the process of rendering the service, leaving nothing tangible that retained its identity or could be said to be transferred as goods. The Court concluded that the dominant intention was service, and the instant of use did not result in the transfer of goods as required under sales tax law. Thus, amounts spent on such consumables were not taxable as “deemed sales.” This stands in contrast to the present Supreme Court judgment, which holds that even if goods are consumed or altered, a deemed transfer occurs at the point of incorporation, making them liable to tax if any property in the goods passes during performance of the contract
Further in Deputy Commissioner of Sales Tax v. M.K. Velu [1993 SCC OnLine Ker 577], the Kerala High Court examined whether goods used and consumed during execution of certain works contracts (in this case, fireworks) could be considered “transferred” for the purposes of sales tax. The court concluded that when goods are used up in a manner where their distinct identity as “goods” is lost (for instance, where chemicals in fireworks are consumed in combustion), no transfer of property, either in original or any other form, passes to the purchaser. As a result, such consumables were not liable to sales tax as part of a works contract. The reasoning adopted focused on the principle that taxability under works contract provisions requires some identifiable property in the goods to pass to the other party. This is different from the principle laid down in the present Supreme Court case, which clarifies that transfer for tax occurs even if the goods are incorporated in the work or undergo transformation, where the focus is on the point of incorporation, not the ultimate survival of goods as a distinct entity.
Relevant Provisions:
Section 3F, Uttar Pradesh Trade Tax Act, 1948
“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—
(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 be deducted from the total amount received or receivable by a dealer in respect of 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 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.”
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