“Embedded Value, Embedded Tax: Supreme Court’s Verdict Bridges Trade Tax and GST. The Continuing Legacy of Section 3F(1)(b) in the GST Era.

M/s Aristo Printers Pvt. Ltd. v. Commissioner of Trade Tax, Lucknow 2025 INSC 1188 (07.10.2025) -Hon’ble Mr. Justice J.B. Pardiwala

Headnote

U.P. Trade Tax Act, 1948 – Section 3F(1)(b) – Works Contract – Printing of Lottery Tickets – Held–printing job constitutes works contract; ink, chemicals and processing materials used therein are goods involved in execution of the works contract – though consumed or diluted, their property stands transferred “in some other form” onto the printed paper – hence liable to tax under Section 3F(1)(b).

The Section 3F(1)(b) of the Uttar Pradesh Trade Tax Act, 1948

“Tax on the transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract.”

This provision empowers the State to tax not merely the sale of tangible goods but also goods that transfer their property in altered or incorporated form during execution of a works contract.

Case in Brief

The assessee, M/s Aristo Printers Pvt. Ltd., was engaged in printing lottery tickets on paper supplied by its clients, using its own ink, chemicals, and processing materials. The Assessing Authority levied trade tax under Section 3F(1)(b) of the U.P. Trade Tax Act, 1948, treating the printing job as a works contract involving transfer of property in goods.

The Appellate Authority and the Trade Tax Tribunal deleted the levy, holding that the ink and chemicals were merely consumed in printing and not transferred to the customer.

The Allahabad High Court, on revision, reversed this finding, holding that the ink and chemicals were visibly transferred onto the printed paper, forming part of the final product.

The Supreme Court upheld the High Court’s view, ruling that tax under Section 3F(1)(b) is levied not on the end product but on the goods involved in the execution of a works contract. Since the ink and chemicals became an integral part of the printed tickets “in some other form,” their transfer attracted liability under Section 3F(1)(b).

Core Principles Laid Down

1. Tax on Goods Involved, Not Final Output:
   Levy under Section 3F(1)(b) falls on goods used in executing the contract, not on the resultant product.
2. Wide Meaning of “Works Contract”:
   The term covers all composite contracts combining supply and service — such as printing, dyeing, photography, or fabrication — not limited to building or construction.
3. Dominant Intention Test Rejected:
   Post-46th Amendment, whether the contract’s dominant purpose is service or sale is irrelevant. Tax applies wherever there is transfer of property in goods.
4. Transfer “in Some Other Form”:
   Property may transfer even if goods chemically or physically change form — e.g., ink pigments on paper or dyes in fabric.
5. Consumables vs. Incorporated Goods:
   Consumables like fuel or electricityare exempt; materials incorporated in the finished product are taxable.
6. Measure of Tax:
   Tax is computed on the value of goods at the time they are incorporated into the works, excluding labour, design, and service costs.
7. Printing as Works Contract:
   Printing involves transfer of ink and processing materials — hence, a taxable works contract under Section 3F(1)(b).

Verdict

The Supreme Court dismissed the assessee’s appeal, holding that the ink, chemicals, and processing materials used in printing lottery tickets were goods transferred “in some other form” to the customer. Accordingly, the levy of tax under Section 3F(1)(b) was valid and justified.

Practical Implications

1. Broader Tax Net for Service-Based Contracts:
   Activities like printing, advertising, packaging, photography, and fabrication are now clearly taxable as works contracts if material value is embedded in the output.
2. Transfer in Altered Form is Taxable:
   Even chemical or microscopic incorporation (e.g., ink on paper, coating on labels) amounts to transfer of property for tax purposes.
3. Consumables vs. Transferable:
   Only materials completely consumed or evaporated escape tax; everything else that survives in the finished article attracts levy.
4. Contractors’ Compliance:
   Dealers must maintain detailed accounts of materials used and incorporated to avoid notional taxation under Section 3F(3).
5. Printing & Advertising Sector Impact:
   Printers, publishers, and advertising agencies must account for thevalue of materials used in execution and collect applicable trade tax or VAT.
6. Bridge to GST Era:
   Though decided under the Trade Tax regime, this judgment aligns conceptually with composite supply principles under GST, reinforcing the notion of single taxable supply combining goods and services.
7. Administrative Clarity:
   Provides clear guidance for assessing authorities to treat embedded material transfersas taxable events, ensuring uniformity across similar service industries.

List of Cases Relied Upon

1. State of Madras v. Gannon Dunkerley & Co. (Madras) Ltd., 1958 SCC OnLine SC 100
2. Builders Association of India v. Union of India, (1989) 2 SCC 645
3. Gannon Dunkerley & Co. v. State of Rajasthan, (1993) 1 SCC 364
4. Larsen & Toubro Ltd. v. State of Karnataka, (2014) 1 SCC 708
5. Associated Cement Co. Ltd. v. Commissioner of Customs, (2001) 4 SCC 593
6. State of Maharashtra v. Sarvodaya Printing Press Fine Art Printer, (1999) 112 STC 424
7. Commissioner of Sales Tax v. Matushree Textile Ltd., 2003 SCC OnLine Bom 830
8. Commissioner of Sales Tax v. Hari & Co., 2006 SCC OnLine Bom 1466
9. Deputy Commissioner of Sales Tax (Law) v. M.K. Velu, 1993 SCC OnLine Ker 577
10. Pest Control India Ltd. v. Union of India, 1989 SCC OnLine Pat 288

Authored by:
Abhijit Banerjee, Advocate-on-Record & Arguing Counsel,Supreme Court of India
 Published on: 7th October 2025

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