Works contract sale treatment defeats industrial exemption where tyre retreading involves no sale of the retreaded tyre itself.

The exemption under S.R.O. No. 968/80 applied only to turnover from the sale of goods produced and sold by new small-scale industrial units. In tyre retreading, the taxable element was confined to the deemed sale of materials involved in the works contract under Article 366(29A)(b) and the Kerala sales tax deeming provision; there was no sale of the retreaded tyre itself. Because the notification required a sale of the goods produced, the basic condition for exemption was not met, and denial of the benefit was upheld.

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Issues: Whether the assessee's tyre retreading unit was entitled to exemption under S.R.O. No. 968/80 on the turnover received as retreading charges, in the light of Article 366(29A)(b) of the Constitution of India and Explanation (3A) to Section 2(xxi) of the Kerala General Sales Tax Act.

Analysis: The exemption notification applied only to the turnover from the sale of goods produced and sold by new small-scale industrial units. After the constitutional amendment and the statutory deeming provision, only the transfer of property in goods involved in execution of a works contract was treated as a sale. In retreading activity, even if a manufacturing process was involved and a retreaded tyre emerged as a new article, the taxable element was only the deemed sale of materials used in the work, not a sale of the retreaded tyre as such. Since the notification required a sale of the goods produced, and no such sale of the retreaded tyre existed, the basic condition for exemption was not satisfied.

Conclusion: The assessee was not entitled to exemption under S.R.O. No. 968/80, and denial of the benefit was upheld.

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