The Supreme Court on Tuesday ruled that ink, chemicals and other processing materials used in printing lottery tickets are liable to trade tax, holding that such materials are “goods involved in the execution of a works contract” under the Uttar Pradesh Trade Tax Act, 1948.

A Bench of Justices JB Pardiwala and KV Viswanathan upheld the Allahabad High Court’s decision that printing lottery tickets constitutes a works contract and that the ink and chemicals used are transferred to the customer in some form.

 “The ink and chemicals are not merely consumed in the process but are transferred to the printed material — that is, the lottery ticket — and thus attract tax under Section 3F(1)(b) of the Act,” the court observed.

The ruling came in appeals filed by Aristo Printers Private Limited, a Ghaziabad-based printer, which had challenged a 2010 High Court order restoring the tax imposed by the Trade Tax Department.

The company argued that lottery tickets are not ‘goods’ but ‘actionable claims’ and that the ink and chemicals are consumables used up during printing and never transferred to the customer.

Rejecting these arguments, the apex court said the appellant had “misconceived the very basis of the levy.”

The tax, it clarified, “is not on the goods produced in pursuance of a works contract, that is, the lottery tickets, but on the goods involved in the execution of the contract, namely ink and processing material.”

Justice Pardiwala noted that for a levy under Section 3F(1)(b) to apply, three conditions must be met:

There must be a works contract.

Goods must be involved in executing that contract.

Property in those goods must be transferred to another party.

“In the present case, the first two conditions are admitted. The third is also satisfied since the ink and chemicals form an inseparable part of the printed product delivered to the client,” the court held.

The Bench cited precedents, including Larsen & Toubro Ltd v State of Karnataka (2014) and State of Karnataka v Pro Lab (2015), emphasising that a transfer of property may occur “even if the goods have been transformed or consumed in the process, so long as their substance forms part of the finished product.”

Terming the High Court’s reasoning “consistent with settled law,” the Supreme Court dismissed the appeals.

“The ink visibly remains on the printed paper. The transfer of its property, whether tangible or by accretion, is sufficient to attract levy,” the judgment said.

In conclusion, the court reaffirmed that consumables whose property is not transferred — such as electricity or fuel — are excluded from tax. However, materials like ink and chemicals, which are “integral to the final printed product,” cannot be so treated.