Tyre retreading treated as a works contract, with taxation governed by the residuary schedule entry

Tyre retreading using customer-supplied tyres was treated as a works contract rather than a sale of materials as such, because the tread rubber and allied materials were applied in the course of the service and transferred only in another form. The assessing authority's use of the first schedule basis was rejected. In the absence of any specific entry for tyre retreading, the activity was held to fall under the residuary entry in the Fourth Schedule of the Kerala General Sales Tax Act, 1963, and was taxable only at the rate applicable to that entry. The assessments were set aside and consequential action was left to be taken accordingly.

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Issues: (i) Whether tyre retreading work was liable to tax as a works contract involving transfer of goods in the form of goods under the Kerala General Sales Tax Act, 1963; (ii) Whether, in the absence of a specific entry, the activity fell under the residuary entry in the Fourth Schedule.

Issue (i): Whether tyre retreading work was liable to tax as a works contract involving transfer of goods in the form of goods under the Kerala General Sales Tax Act, 1963.

Analysis: The activity involved customer-supplied tyres being retreaded and returned after the application of tread rubber and allied materials. The materials used were not sold as such to the customer. On that basis, the activity was treated as works contract involving transfer of goods not in the form of goods but in some other form, and not as a sale of materials in the ordinary sense. The authorities below had erred in treating the transaction as falling within the first schedule category and in applying tax on that footing.

Conclusion: The tyre retreading activity was not taxable under the first schedule basis adopted by the assessing authority, and the assessee's contention on the nature of the transaction was accepted.

Issue (ii): Whether, in the absence of a specific entry, the activity fell under the residuary entry in the Fourth Schedule.

Analysis: The Fourth Schedule covered works contracts where the transfer was not in the form of goods but in some other form, and there was no specific entry dealing with tyre retreading work. Since the activity was a works contract of that nature and no separate specific entry applied, the residuary entry had to govern the tax treatment. The broad definition of goods did not alter that conclusion on the facts found.

Conclusion: Tyre retreading work fell under Entry 22 of the Fourth Schedule to the Kerala General Sales Tax Act, 1963 and was taxable only at the rate applicable to that residuary entry.

Final Conclusion: The revision petitions succeeded, the assessments were set aside, and the matter was left for consequential action in accordance with the determination that tyre retreading work was covered by the residuary schedule entry.

Ratio Decidendi: Where a works contract involving tyre retreading does not involve a sale of materials as such and no specific schedule entry applies, the transaction is governed by the residuary entry applicable to works contracts involving transfer of goods in some other form.

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