The Kerala High Court has held that the appropriate rate of tax on the sale of tread rubber by the assessee would have to be taken as 12.5% for the assessment year 2011-12 and 14.5% for the assessment year 2013-14.
The bench of Justice A.K. Jayasankaran Nambiar has observed that the processes undertaken by the assessee were sufficient to rob the tread rubber strips manufactured by it of their original identity and shape while being incorporated into the works contract of retreading the old tyre. The transfer of goods involved in the execution of the works contract in the instant cases was not in the form of goods but in some other form.
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Background
The Revision Petitions have been preferred by the State challenging the orders of the Kerala Value Added Tax Appellate Tribunal that found that the rate of tax applicable on the sale of retread rubber that was used for the execution of a works contract should be 5% as contended by the assessee as against 12.5% / 14.5% as claimed by the department.
The assessee was engaged in retreading of tyre by using tread rubber manufactured by it for the purposes of resoling the tyres handed over to it by various customers. In essence, while carrying out the job of retreading, the assessee would use the tread rubber manufactured by it, and incorporate it into the old tyre that was brought by the customer through various processes, and on completion of the said processes, the tread rubber manufactured by it would effectively be fused in an inseparable manner on to the tyre that was brought by the customer.
The fact that the entire process involves a works contract is not in dispute before us for, even in the bill raised by the assessee on the customer there are separate charges shown for the value of the tread rubber strips used by the assessee for the works contract undertaken and towards the labour component.
The labour component, without anything more, in a bill issued by the assessee, would be sufficient indication that the job undertaken by the assessee for its customers involved a works contract and not a sale simplicitor.
Issue Raised – VAT On Sale Of Tread Rubber
The question then arises as to what would be the rate applicable to the tread rubber that was sold by the assessee to the customers in the course of execution of the works contract ?
Arguments
The department contended that in as much as it is the transfer of goods not in the form of tread rubber but in some other form during the course of execution of the works contract, the applicable rate would be 12.5% / 14.5% for the assessment years 2011-12/ 2013-14 respectively.
The assessee contended that even if the nature of the transaction reveals it to be a works contract, in as much as the transfer of the goods was in the form of goods and not in some other form, it is the normal rate of tax applicable to the goods [5% ad valorem] that would apply.
Appellate Authorities Decision – Rate Of VAT On Sale Of Tread Rubber
The Assessing Authority and the First Appellate Authority rejected the contention of the assessee by holding that the transfer of goods in the course of execution of the works contract was not in the form of goods but in some other form since the tread rubber strips used by the assessee had been fused into the old tyres that were brought by the customers and the goods manufactured by the assessee had lost their identity as those goods during the process of the works contract.
The Appellate Tribunal, on the other hand, accepted the plea of the assessee and found that the transfer of the goods was in the form of goods and not in some other form. The appeals of the assessee were, therefore, allowed by the Tribunal by the orders.
Conclusion
The court held that apart from the fact that the clarificatory order dated 7.4.2016 admittedly governed the parties for the assessment years 2011-12 and 2013-14 respectively, the process adopted by the assessee for the purposes of retreading works involved the incorporation of a tread rubber strip manufactured by it on to the old tyres that were brought by the customers for retreading.
The court found that the process of works contract apparently involved the scraping of the outer layer of the old tyre so as to make it suitable for the affixation/fusion of the tread rubber strips manufactured by the assessee onto it. There may have been other processes including vulcanization which were necessary for the purposes of effective retreading done on an old tyre.
The court allowed the department’s petition.
Case Title
Case Title: The State Of Kerala Versus M/S. Vasava Tyre Remoulding Works
Case No.: O.T.REV.NO.126 OF 2019
Date: 07/10/2024
Counsel For Petitioner: Resmitha Ramachandran
Counsel For Respondent: N.Muraleedharan Nair