### Fabrication and Erection Charges Incurred Prior to Incorporation in Works Contract Are Taxable as Part of Unspecified Goods Legal Brief: * Facts: Ircon International Ltd. (Petitioner) was awarded a works contract by East Central Railways for the construction of a rail-cum-road bridge. The Petitioner purchased structural steel (declared goods under Section 14 of the CST Act) and engaged sub-contractors for fabrication, transportation, and erection. The Petitioner claimed these expenses as labor deductions and sought a 5% tax rate. The Revenue reassessed the transaction under Section 31 of the Bihar VAT Act, 2005, treating the final "steel superstructure" as a distinct, unspecified commodity taxable at 13.5%. * Issue: Whether the conversion of structural steel into a bridge superstructure constitutes a new commercial commodity, and whether fabrication/erection costs are deductible as labor or part of the taxable value of goods. * Ruling: The Patna High Court dismissed the writ petitions, holding that the "taxable event" in a works contract is the transfer of property at the point of incorporation into the work. Since the structural steel underwent significant transformation via fabrication into a "steel superstructure" before incorporation, it became a distinct commercial commodity not listed as "declared goods." Relying on *Gannon Dunkerley*, the Court ruled that while labor for *incorporation* is deductible, costs incurred to bring the goods into their final form (fabrication, transport, and assembly) prior to shifting ownership to the contractee form part of the taxable value of the goods. The Court affirmed the 13.5% tax rate for unspecified goods.

The Petitioner, a Public Limited Company, was awarded a works contract by East Central Railways for the construction of a rail-cum-road bridge across the River Ganga.

The contract was divisible into schedules for the supply of material (structural steel, cement) and fabrication/erection.

For the assessment year 2014-15, the Petitioner claimed that the structural steel supplied fell under "declared goods" (iron and steel) as per Section 14 of the CST Act, taxable at 5%.

They also claimed a deduction of approx. ₹172 Crores paid to sub-contractors for fabrication, transportation, and erection as "labour charges".

The Assistant Commissioner (Respondent No. 2) issued a notice under Section 31 of the Bihar VAT Act, 2005, for reassessment.

The authority held that the process of fabrication converted structural steel into a distinct commercial commodity—"steel superstructure/triangulated girders"—which was an unspecified item taxable at 13.5%, and rejected the labor deductions by including fabrication costs in the value of the goods at the time of incorporation.

Whether the sale/transfer of "steel superstructure/triangulated steel girders" qualifies as "iron and steel" under Section 14(iv) of the Central Sales Tax Act or as an unspecified commodity under the Bihar VAT Act.

Whether the expenses incurred for fabrication, transportation, and erection of the steel structure are deductible as labour charges or form part of the "value of goods" at the time of incorporation.

Whether the reassessment under Section 31 of the Bihar VAT Act was validly initiated without a specific finding of "change of opinion".

The court applied Article 286(3) of the Constitution, which restricts State taxation on "declared goods" of special importance.

It relied on Section 14 and 15 of the Central Sales Tax (CST) Act, 1956, noting that the list of "iron and steel" is exhaustive due to the phrase "that is to say".

The primary precedents were Gannon Dunkerley & Co. v. State of Rajasthan (1993) 1 SCC 364, establishing that the measure of tax is the value of goods at the "time of incorporation" including cost of transport but excluding labour.

And B. Narasamma v. Dy. Commr. Commercial Taxes (2016) 15 SCC 167, regarding the point of accretion.

The "transformation and marketability" tests for defining "manufacture/goods" were derived from Quippo Energy Ltd. v. Commr. of Central Excise (2025) 152 GSTR 264.

The Court reasoned that under a works contract, the taxable event is the transfer of property at the moment of incorporation into the work.

Applying the transformation test, the Court found that the structural steel (angles, channels) underwent an extensive fabrication process in specialized workshops, emerging as a "triangulated steel girder," a commercially distinct entity with unique functional utility not listed in Section 14 of the CST Act.

Consequently, the 5% cap for declared goods did not apply, and the item was correctly classified as "unspecified" at 13.5%.

Regarding deductions, the Court followed the Gannon Dunkerley principle, holding that while pure labour is deductible, the "value of goods" for taxation is their value at the time they are launched/erected.

Since the ownership of the fabricated structure remained with the Petitioner until the moment of incorporation/launching onto the pillars, the fabrication and transportation costs paid to sub-contractors were embedded in the final value of the structure and thus not deductible.

The Court further held that res judicata does not apply to tax proceedings, allowing the authority to depart from the 2010-11 assessment as the specific legal classification of girders had not been adjudicated then.

The Court upheld the Assessing Officer's decision to disallow deductions for fabrication and related costs of ₹172,15,39,774.61, as these costs form part of the value of the goods at the time of incorporation into the bridge.

The reassessment under Section 31 of the Bihar VAT Act and the resulting demand notices were sustained as valid.