Taxation of Decorative Glass sold by trading unit

A question was raised about subject matter and it was informed that activity of glass decoration and subsequent sale is being done by engaging two units. The method, as understood, is shown in the following flow chart.

Regarding above followings transactions needs clarification;

  1. Whether the above procedure, in the chart, satisfies the ‘VAT’ and ‘Service Tax’ rules?
  1. The procedure is cumbersome because of dual documentation. Customer gets 2 invoices of different units and gets confused. Moreover, it increases the clerical and accounting work. Other traders buy the glass, undertake similar process, and sell the decorated glass on singleSale Invoice. They pay only VAT on the entire amount and don’t bifurcate it for the purpose of Service Tax. Is it correct?


1st Case: – Here property in glass passes to the customer before undertaking decoration process. So, working upon customer’s property constitutes “Service” and attract “Service Tax”. Therefore, method shown in the flow chart is correct.

2nd Case: – If “Decorative Glass” is supplied to the customer then it would be simple sale transaction. VAT is payable on the sale price of the “Decorative Glass”, property of which is transferred to the customer.

Both scenarios stand covered by a single judgment of the Apex court, in the case of M/s Kone Elevators (India) Ltd. The Hon’able court, very succinctly and precisely held the following;

“If the intention is to transfer for a price a chattel in which the transferee had no previous property, then the contract is a contract for sale……… In a “contract of sale”, the main object is the transfer of property and delivery of possession of the property, whereas the main object in a “contract for work” is not the transfer of the property but it is one for work and labour. 

Another test often to be applied to is: when and how the property of the dealer in such a transaction passes to the customer: is it by transfer at the time of delivery of the finished article as a chattel or by accession during the procession of work on fusion to the movable property of the customer? If it is the former, it is a “sale”; if it is the latter, it is a “works-contract”.

From the above findings, supported by Supreme Court’s judgment, it may be appreciated that both the transactions are correct. So, any method, which is more convenient, may be adopted.

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