The question of whether ink, chemicals, and other processing materials used in printing lottery tickets are liable to tax under the Uttar Pradesh Trade Tax Act, 1948, recently came before the Supreme Court of India in M/s. Aristo Printers Pvt. Ltd. v. Commissioner of Trade Tax, Lucknow.
This decision resolves a long-standing ambiguity over whether consumables used in printing contracts—especially for lottery tickets—constitute “goods transferred in the execution of a works contract” within the meaning of Section 3F(1)(b) of the Act.
The ruling holds significant implications not only for the printing industry but also for how work contracts are taxed across India, clarifying the fine line between consumption and transfer of property in goods.
Factual Background
M/s. Aristo Printers Pvt. Ltd., the appellant, was engaged in the business of printing lottery tickets. The company undertook printing work on paper supplied by various government and private entities. The paper was supplied by the contractee, whereas the ink, chemicals, and other processing materials required for printing were procured by the contractor itself.
The Assessing Authority levied trade tax on the value of ink and processing materials under Section 3F of the Uttar Pradesh Trade Tax Act, 1948 (“the Act”). This section imposes tax on the transfer of property in goods involved in the execution of a works contract.
The assessee challenged the assessment, arguing that the ink and chemicals were consumed during printing and no transfer of property occurred to the contractee. The Appellate Authority accepted this contention and deleted the tax on ink and chemicals, holding that such materials were not transferred but consumed.
However, the Trade Tax Tribunal upheld this decision, relying on Rainbow Colour Lab v. State of M.P. (2000) 2 SCC 385, which had treated photo-processing as a service.
Allahabad High Court, on Revenue’s revision, reversed the Tribunal’s decision, holding that both ink and chemicals are indeed transferred to the customer since they form part of the printed lottery tickets visible to the naked eye.
The matter finally reached the Supreme Court of India, which had to decide whether such materials used in printing attract tax under Section 3F(1)(b).
Issue
- Whether tax can be levied under Section 3F of the Uttar Pradesh Trade Tax Act, 1948, on the ink and processing material used by the appellant in undertaking the printing work?
In simpler terms, the issue was whether these printing consumables constitute “goods transferred” in the execution of a works contract or are merely consumed inputs, excluded from tax liability.
Relevant Legal Framework
1. Definition of Goods and Works Contract
Under Section 2(d) of the Act, “goods” include all materials, commodities, and articles involved in the execution of a works contract but exclude actionable claims.
A works contract, as per Section 2(m), covers any agreement for construction, manufacture, processing, or fabrication for valuable consideration.
2. Section 3F(1)(b) – Tax on Works Contract
Section 3F(1)(b) levies tax on:
“The transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract.”
However, sub-clause (x) of Section 3F(2)(b) exempts:
“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.”
Hence, the law differentiates between goods consumed and goods transferred—only the latter attract tax.
Appellant’s Arguments
Counsel for the appellant contended that:
- Lottery tickets are actionable claims, not “goods,” hence the printing thereof cannot be treated as the sale of goods.
- The ink and chemicals are merely consumed, not transferred, as their identity is lost during printing.
- The end-product—a printed lottery ticket—contains no separable or retrievable portion of the ink or chemical that could be treated as goods.
- Relying on Pest Control India Ltd. v. Union of India (1989 SCC OnLine Pat 288), it was argued that consumables used in performing a service cannot attract sales tax.
Therefore, tax on the value of ink and chemicals under Section 3F was impermissible.
Respondent’s Arguments
State of Uttar Pradesh argued that:
- The ink and chemicals used in printing are transferred to the customer in the form of the printed matter visible on the lottery ticket.
- Such materials are not evaporated or wasted but adhere permanently to the paper, thus constituting a transfer of property.
- Precedents such as Commissioner of Sales Tax v. Matushree Textile Ltd. and Commissioner of Sales Tax v. Hari & Co. support the view that in dyeing or printing processes, the colours and dyes are transferred to the goods.
Therefore, the levy under Section 3F(1)(b) was valid.
Supreme Court’s Analysis
1. Works Contract and Transfer of Property
The Court began by reiterating constitutional and judicial principles governing works contracts post the 46th Amendment [Article 366(29-A)(b)].
After tracing landmark rulings—Gannon Dunkerley I & II, Builders Association, and Larsen & Toubro v. State of Karnataka—the Court clarified that States can tax the transfer of property in goods involved in execution of a works contract, whether or not the goods retain their original form.
Thus, even if the ink or chemical changes form or merges with the paper, it can still constitute a deemed sale, provided the property passes to the contractee.
2. Nature of Lottery Tickets
- The appellant’s argument that lottery tickets are actionable claims was rejected.
- The Court reasoned that Section 3F(1)(b) taxes goods involved in the execution of the works contract, not the final product (lottery ticket). Hence, even if lottery tickets themselves are not goods, the ink and chemicals used in printing them remain goods under the Act.
3. Tangible v. Intangible Transfer
The Court categorised precedents into three groups:
(a) Tangible Transfer
Where physical property of goods is clearly transferred, such as dyes, paints, or ink, becoming part of the finished product (Matushree Textile).
(b) No Transfer (Complete Consumption)
Where materials are entirely consumed without transferring any property—for instance, fuel used to generate heat or chemicals that evaporate (Deputy Commissioner of Sales Tax v. Velu).
(c) Transfer Despite Consumption
Where the goods, though consumed or chemically altered, leave a traceable residue in the final product that can be considered a transfer of property.
The Court observed that ink and chemicals used in printing fall in the third category. They might undergo a chemical transformation, but still form part of the printed text or image visible on the lottery ticket.
4. Application to the Facts
Applying the above principles, the Court held:
- The ink, once printed, adheres to the surface of the paper and remains visible.
- The chemicals mixed with ink facilitate this adhesion and thus indirectly transfer their property to the paper.
- The transaction is not merely of service but involves the transfer of property in goods in some other form, satisfying the requirement of Section 3F(1)(b).
Consequently, the Court upheld the taxability of ink and chemicals used in printing lottery tickets.
Key Judicial Reasoning
A. Consumables v. Goods Transferred
The Court distinguished consumables whose property is not transferred (e.g., electricity, water) from those whose property does transfer, even if in an altered form. The decisive factor is whether the goods survive, even partially, in the finished product.
Since the ink remains on the printed ticket and the chemicals assist in that transfer, they qualify as “goods involved in the execution of a works contract.”
B. Nature of Works Contract After the 46th Amendment
The Court reiterated that the dominant intention (whether the contract is mainly for service or sale) is irrelevant. What matters is whether the transfer of property occurs at any stage of execution. Printing contracts, by their very nature, involve such a transfer.
C. Visibility Not Necessary but Evident
Even if transfer occurs at a molecular or chemical level, it is sufficient that the goods have a discernible presence in the output. In this case, the colour and print on the ticket are direct results of the ink’s transfer.
D. Precedents Cited
Commissioner of Sales Tax v. Matushree Textile Ltd., 2003 SCC OnLine Bom 830 – Transfer of dyes and chemicals used in dyeing and printing of cloth held taxable.
Commissioner of Sales Tax, Mumbai v. Hari and Company, 2006 SCC OnLine Bom 1466 – Xeroxing involves transfer of toner and ink; hence, taxable under works contract.
Associated Cement Companies Ltd. v. Commissioner of Customs, (2001) 4 SCC 593 – Held that supply of goods, even as part of a composite contract involving services, can amount to sale; broadening the scope of “transfer of property in goods.”
Thus, the Court aligned printing with other works contracts involving tangible outputs, distinguishing it from purely service-oriented jobs.
Decision of the Court
The Supreme Court concluded that:
- Printing lottery tickets constitutes a works contract under Section 2(m) of the Act.
- Ink, chemicals, and processing materials used in printing are goods involved in executing that contract.
- Their property is transferred to the contractee in some form (visible on the printed ticket).
- Therefore, tax is leviable under Section 3F(1)(b) of the Uttar Pradesh Trade Tax Act, 1948.
The Court dismissed the appeals and affirmed the High Court’s ruling that both ink and processing chemicals used for printing lottery tickets are taxable.
Implications of the Judgment
- Clarification for Printing and Packaging Industries: This decision provides clear guidance for printers and allied industries. Materials such as ink, toner, varnish, and coating agents used in printing labels, tickets, or packaging are taxable if their properties are transferred to the final product.
- Broader Interpretation of “Transfer in Some Other Form”: The judgment reinforces a liberal interpretation of “transfer of property … in some other form,” emphasising that goods need not remain in their original condition. Even a chemical or molecular transformation suffices, expanding the tax base for works contracts.
- Distinction Between Consumables and Transferred Goods: Tax exemption applies only when the consumable’s property does not pass to the client (e.g., lubricants, electricity, or cleaning agents). This sets a benchmark for distinguishing taxable goods from non-taxable consumables in works contracts.
- Uniformity with GST Principles: Though rendered under the pre-GST law, the reasoning aligns with GST’s treatment of composite supplies involving goods and services. Under GST, printing contracts are also classified as composite supplies, taxable depending on whether property in goods is transferred.
- Administrative Impact: Tax authorities can rely on this judgment to assess similar printing or packaging contracts where materials contribute to the final output. Contractors must maintain accurate cost bifurcation to distinguish taxable goods from exempt consumables.
Conclusion
The Supreme Court’s 2025 ruling in M/s. Aristo Printers Pvt. Ltd. v. Commissioner of Trade Tax conclusively establishes that materials used for printing lottery tickets—such as ink and chemicals—are liable to tax under Section 3F(1)(b) of the Uttar Pradesh Trade Tax Act, 1948.
By distinguishing consumption from transfer, and emphasising that transfer can occur even “in some other form,” the Court has reaffirmed a pragmatic interpretation of works-contract taxation consistent with constitutional and economic logic.
This judgment thus stands as a landmark in the evolution of indirect tax jurisprudence in India, bridging traditional sales-tax principles with the modern understanding of value transfer in composite contracts.
Important Link
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