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Issues: Whether a contractor executing fabrication, supply and installation of kitchen cabinets is totally barred from compounding, and whether the contract must be split so that specified goods are taxed at the scheduled rate while the remaining works portion may still be assessed at the compounded rate.
Analysis: The charging provisions under the Kerala Value Added Tax Act distinguish between transfer of goods in the form of goods as such and transfer in some other form. The clarification under section 94 proceeded on the footing that supplied items in the works contract attracted tax at the scheduled rate and that compounding was wholly unavailable because of the second proviso to section 8(a)(ii). The substituted clause contemplated compounding in divisible works contracts, especially where goods are brought in from outside the State and taxed at the scheduled rate on their purchase value, with the balance portion of the contract treated as works execution. The nature of kitchen cabinet contracts was held to vary from customer to customer, and the mere inclusion of standard manufactured goods did not convert the whole contract into a sale of goods. The assessing authority was therefore required to examine whether the contract was divisible and, if so, to separate the value of specified goods from the works portion.
Conclusion: There is no absolute bar against compounding for the works portion of such contracts, but the specified goods component remains taxable at the scheduled rate.
Final Conclusion: The clarification was sustained only to the extent that specified goods attract scheduled-rate tax, while the denial of compounding for the entire remaining works component was set aside and the matter was left for fresh assessment on the nature of each contract.
Ratio Decidendi: In a divisible works contract involving both supply of standard goods and execution of works, the goods component may be taxed at the scheduled rate while the balance works portion can still qualify for compounding if the statute so permits.
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