Larsen and Toubro Limited v. Additional Deputy Commissioner of Commercial Taxes and Ors. - (Supreme Court) (05 Sep 2016)

Value of work entrusted to sub-contractors or payments made shall not be taken into consideration while computing total turnover

MANU/SC/0975/2016

Sales Tax/VAT

Assessee was doing business of engineers and contractors and in this process it, executed projects under contracts with public sector undertakings, local bodies as well as Union and State Governments, besides private sector. Contracts which were secured by Assessee were works contracts and a part thereof was generally assigned to sub-contractors. In course of assessment, Assessee submitted that, sub-contractors were parties who executed works contract and since, transfer of property involved in such execution had already been taxed, Appellant cannot be taxed again under Section 6-B of Karnataka Act, there being only one taxable event for the purpose of Article 366(29A)(b) of the Constitution of India. Submission of Assessee was, however, negatived by Assessing Officer as well as Karnataka Appellate Tribunal. High Court decided questions against Assessee and thereby affirmed view taken by Appellate Tribunal.

Section 5-B of Karnataka Act deals with levy of tax on transfer of property in goods involved in execution of works contract. It is, thus, a special provision made for imposing sales tax on works contract and tax is payable on 'taxable turnover of transfer of property in goods'. Additionally, in those cases where total turnover of a registered dealer in an year is not less than the turnover specified in Sub-sections (1) and (2) of Section 10, such a dealer is liable to pay tax at rate specified in Section 6-B of Karnataka Act.

Total amount paid or payable to dealer as a consideration for 'transfer of property in goods', which is involved in execution of works contract, is to be treated as 'total turnover'. This Rule, thus, specifically restricts the total turnover in respect of those goods, alone, where the property has been transferred. Thus, transfer of property in goods, becomes necessary event and unless there is a transfer of property, amount paid is not to be included in the total turnover. The amount paid to the sub-contractor is not for transfer of property in goods. Ratio laid down by this Court in Andhra Pradesh judgment clearly applies. As in that case also Court noticed that Section 4(7) of Andhra Pradesh Act indicated that the taxable event is the transfer of property in goods involved i execution of a works contract and said transfer of property in such goods takes place, when the goods are incorporated in the works. The Court held that value of goods which constitute the measure for the levy of tax is the value of goods at the time of the incorporation of goods in works.

Facts and the issue involved were identical, i.e. Assessee had assigned parts of construction work to sub-contractors who were registered dealers. These sub-contractors had purchased goods and chattels like bricks, cement and steel and, where necessary, supply and erect equipments such as lifts, hoists, etc. The materials were brought to the site and they remain the property of sub-contractor. Site was occupied by the sub-contractor and the materials were erected by the sub-contractor. Supreme Court while allowing appeals of Assesse held that, value of work entrusted to sub-contractors or payments made to them shall not be taken into consideration while computing total turnover for purposes of Section 6-B of Karnataka Act.

Relevant : State of Andhra Pradesh and Ors. v. Larsen and Toubro Limited and Ors. [ MANU/SC/3876/2008]: (2008) 9 SCC 191, Section 6B, 5-B of Karnataka Sales Tax Act, 1957

Tags : PAYMENT SUB-CONTRACTOR INCLUSION TOTAL TURNOVER