THIS ANSWER WAS TAKEN FROM TAX 4 INDIA.COM

ANSWER:
A works contract is an agreement, which is entered into for 
the following purposes: 

For carrying out construction, fitting out, improvement or 
repair of any building, road, bridge or other immovable or 
movable property. 
For cash, or for deferred payment, or for other valuable 
consideration. 
In other words, whenever there is a contract, by which one 
person promises to make something which, when made, will 
not be his absolute property, and by which, the other 
person promises to pay for the work done, will be 
considered to be a contract for work. This will be the case 
even if the payment maybe called a price for the thing and 
if the materials, of which the thing is made, may be 
supplied by the maker. 
Though the Central Sales Tax Act still has no definition 
for a contract or works contract, the definition of sale 
includes a transfer of property in goods, involved in the 
execution of a works contract. 

In order to prevent evasion of tax by the transfer of 
property through a works contract, the Indian Constitution 
was amended to make such transactions taxable. Works 
contracts are taxable under most State sales tax laws (but 
not under the Central Sales Tax Act). However, it is only 
taxable to the extent of the value of the goods that have 
been transferred. This means that the full value of the 
Works Contract is not taken into account while calculating 
tax that is payable under the state sales tax laws