Repair-and-replacement compressor transactions can be treated as works contracts and taxed on the goods component.

A repair-and-replacement arrangement in which a defective compressor was exchanged for a reconditioned compressor, with repair charges collected, was treated as a works contract involving transfer of property in goods under the expanded meaning of sale in article 366(29A). The transaction was therefore taxable under section 3B of the Tamil Nadu General Sales Tax Act, 1959. Where no separate details of labour charges and material value were available, the authorities applied the standard 30% deduction for labour and taxed the remaining turnover, and that method was upheld on the record.

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Issues: (i) Whether the transaction of exchanging a defective compressor for a reconditioned compressor on receipt of repair charges constituted a works contract or deemed sale liable to tax under section 3B of the Tamil Nadu General Sales Tax Act, 1959. (ii) Whether the levy of tax with 30% deduction towards labour charges and taxation of the balance turnover was justified on the facts of the case.

Issue (i): Whether the transaction of exchanging a defective compressor for a reconditioned compressor on receipt of repair charges constituted a works contract or deemed sale liable to tax under section 3B of the Tamil Nadu General Sales Tax Act, 1959.

Analysis: The transaction was found to be an integrated repair arrangement in which the customer delivered a defective compressor and received a reconditioned compressor of the same model, with repair charges collected for the service rendered. The defective unit was later sent for rectification, but the exchange and delivery to the customer took place within the State. On these facts, the transaction involved transfer of property in goods in the execution of a works contract, which falls within the enlarged meaning of sale after the Forty-sixth Amendment under article 366(29A) of the Constitution of India.

Conclusion: The transaction was rightly treated as a works contract and was liable to tax.

Issue (ii): Whether the levy of tax with 30% deduction towards labour charges and taxation of the balance turnover was justified on the facts of the case.

Analysis: No separate particulars for labour charges and value of the materials transferred were available. In such circumstances, the authorities applied section 3B and allowed the standard deduction of 30% towards labour charges, taxing the remaining 70% of the turnover at the appropriate rate. The concurrent factual findings were supported by the record and disclosed no legal infirmity warranting interference.

Conclusion: The levy based on 70% taxable turnover after 30% labour deduction was upheld.

Final Conclusion: The revisions failed, and the assessment and levy made by the authorities were sustained.

Ratio Decidendi: A repair-and-replacement transaction involving supply of a reconditioned compressor against a defective compressor, with repair charges collected and no separate labour/material bifurcation, constitutes a works contract taxable on the value attributable to goods involved in execution of the contract.

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