Supreme Court Rules: Printing Materials Used in Works Contracts Subject to Trade Tax

Introduction

• The Supreme Court has affirmed the levy of trade tax on ink and processing materials used in the printing of lottery tickets. The ruling resolves a dispute that has been pending for over 25 years under the Uttar Pradesh Trade Tax Act, 1948.
• The bench, comprising Justice J.B. Pardiwala and K.V. Viswanathan, held that ink and processing materials fall within the scope of goods transferred in a works contract under Section 3 of the U.P. Trade Tax Act, 1948.
• The decision was issued in response to an appeal filed by M/s Aristo Printers Pvt. Ltd., a printing company based in Ghaziabad. The appeal questioned the 2010 judgment of the Allahabad High Court, which had reinstated the tax demand raised by the state revenue department.

Overview of the case

• The case pertains to the assessment years 1996–97 and 1997–98, during which the Trade Tax Officer, Ghaziabad, levied tax on the value of ink, chemicals, and packing materials used by the assessee in printing lottery tickets. While the client supplied the paper, the assessee independently procured the ink and other materials required for printing the tickets.
• Initially,​the Deputy Commissioner removed the tax on ink and chemicals, noting that they were only utilised during printing and not delivered to the client. Nevertheless, the tax on packaging materials was upheld.
• The Trade Tax Tribunal, Ghaziabad, in 2002, held in favour of the assessee, removing the levy of tax even on packaging materials and rejecting the Revenue’s appeal. This decision was overruled by the Allahabad High Court in 2010, which observed that the diluted ink and chemicals were indeed transferred to the customer as part of the printed tickets.

Supreme Court’s View

The Supreme Court agreed with the High Court’s reasoning, noting that three key conditions must be satisfied for the imposition of tax under Section 3F of the UP Trade Tax Act, 1948: 

1  A work contract exists

2  Goods are utilised in performing the contract

3. Property in those goods must be transferred to the client, either in the same or a transformed form.

Also court observed that Aristo Printers had itself accepted that the printing of lottery tickets was executed under a works contract. 

The bench in its judgment observed:

“From the record, it is clear that the ink, chemicals, and other processing materials were involved in the printing of the lottery tickets. There was a transfer of property in these goods used during the execution of the works contract.”

Accordingly, the Court held that all conditions under Section 3F(1)(b) required for a valid tax levy were satisfied and upheld the tax demand..

Conclusion

The Supreme Court rejected the company’s appeal. It confirmed that ink and chemicals used in printing amount to a transfer of goods under a works contract. These are taxable under the U.P. Trade Tax Act, 1948.

The judgment underscores the Court’s consistent position that any materials used in the execution of a works contract that result in the transfer of property are subject to trade tax.