1999 (11) TMI 853 - AT - VAT and Sales Tax

Issues Involved:
1. Levy of tax on materials utilized in retreading and recapping work.
2. Claim of exemption as inter-State sale works contract.
3. Application of Article 366(29A) of the Constitution and Section 3B of the Tamil Nadu General Sales Tax Act.
4. Determination of whether the transactions are inter-State sales or intra-State sales.

Detailed Analysis:

1. Levy of tax on materials utilized in retreading and recapping work:
The assessing authority held that the work relating to retreading and recapping of tyres received from customers outside Tamil Nadu commenced and completed within Tamil Nadu. Consequently, the claim of exemption on the ground that the movement of goods for such works contract emanated from outside the State was disallowed. The taxable turnover was fixed at Rs. 41,01,102 after allowing a 30% exemption towards labor charges. This view was confirmed by the first appellate authority and the Appellate Tribunal, which held that the turnover relating to works contract for retreading and recapping of tyres is liable to be treated as taxable under the Tamil Nadu General Sales Tax Act.

2. Claim of exemption as inter-State sale works contract:
The assessee claimed that the worn-out tyres were entrusted by customers residing outside Tamil Nadu and, after retreading, were delivered to customers in other States. Therefore, the transactions involved inter-State movement of goods and should be treated as inter-State works contracts, not liable to tax under the Tamil Nadu General Sales Tax Act. The Tribunal observed that the actual works of retreading took place within Tamil Nadu and thus did not cease to be a transaction under the Tamil Nadu General Sales Tax Act.

3. Application of Article 366(29A) of the Constitution and Section 3B of the Tamil Nadu General Sales Tax Act:
The petitioner argued that the entire transaction is an inter-State works contract involving movement of goods in the course of inter-State trade and commerce, and thus, no tax could be levied under section 3B of the Act. The Tribunal referred to Article 366(29A)(b) which includes a tax on the transfer of property in goods involved in the execution of a works contract. Section 3B of the Act was scrutinized, which levies tax on the transfer of goods involved in works contracts, subject to deductions for goods involved in inter-State trade or commerce. The Supreme Court's observations in Gannon Dunkerley & Co. v. State of Rajasthan were noted, indicating that the taxable event is the transfer of property in goods when they are incorporated into the works.

4. Determination of whether the transactions are inter-State sales or intra-State sales:
The Tribunal examined whether the movement of goods was an incident of the contract of sale. It was concluded that no goods moved from other States for completing the retreading work. The materials were incorporated in Tamil Nadu, and thus the sales took place in Tamil Nadu. The Tribunal cited various judgments to support the view that the materials used in the retreading work did not occasion the movement of goods, and therefore the transactions were intra-State sales. The Kerala High Court's decision in A. Anthony Swamy v. State of Kerala was referenced, affirming that there was no sale of the retreaded tyre as such, but only a deemed sale of the materials used in the retreading work.

Conclusion:
The Tribunal upheld the Appellate Tribunal's decision that the retreading and recapping work done by the appellant is exigible to tax under the Tamil Nadu General Sales Tax Act. The remand order for computing the turnover in light of the Supreme Court's decision and the Commissioner's instructions was deemed appropriate. The tax revision petition was dismissed, affirming the levy of tax on the materials used in the retreading work.

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