Supreme Court upholds tax on ink, chemicals used in printing lottery tickets

New Delhi: The Supreme Court on Tuesday upheld the levy of trade tax on ink and processing materials used by a firm in printing lottery tickets, while deciding an over 25-year-old matter.

A bench comprising Justices J B Pardiwala and K V Viswanathan held that ink and processing materials used in printing lottery tickets form part of the goods transferred in the execution of a works contract under Section 3F of the Uttar Pradesh Trade Tax Act, 1948.

The verdict came on an appeal of Ghaziabad-based printing company, M/s Aristo Printers Pvt Ltd, against a 2010 verdict of the Allahabad High Court which had allowed the revenue department's revision petitions and restored the tax demand.

The firm undertook printing of lottery tickets using paper supplied by its clients and procured its own ink, processing chemicals and other materials for carrying out the printing work.

The Trade Tax Officer, Ghaziabad, had in assessment orders dated October 28, 1999, levied trade tax on the value of ink, chemicals, and packing materials used by the firm during assessment years 1996–97 and 1997–98.

The levy was made under Section 3F of the U.P. Trade Tax Act, which imposes tax on the transfer of goods involved in the execution of a works contract.

After an appeal was filed, the Deputy Commissioner (Appeals) deleted the tax on ink and chemicals, holding that these materials were not transferred to the clients but only used in the printing process.

The tax on packing material, however, was upheld. Both sides appealed to the Trade Tax Tribunal, Ghaziabad, which ruled in favour of the assessee in 2002, deleting the levy even on packing material and dismissing the Revenue’s appeal.

The Allahabad High Court later overturned the Tribunal’s order in 2010, holding that the diluted ink, comprising ink and chemicals, was indeed transferred to the customers as part of the printed tickets.

Upholding the High Court’s decision, the top court observed that for a tax to be levied under the law, three conditions must be met, including that there must be a works contract and goods must be involved in the execution of the contract.

It said the property in those goods must be transferred to the client either as goods or in another form.

“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,” it held.

The verdict said there was a transfer of property in the ink and chemicals used in the printing of the lottery tickets.

“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) 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,” it said and dismissed the plea.