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p. 452

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:

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“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,

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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

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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

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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

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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

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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

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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

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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

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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)

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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.