Work assigned to sub-contractors or payments made to them not part of total turnover us 6B of the Karnataka Sales Tax Act 1957 – Supreme Court
ABCAUS Case Law Citation:
1009 2016 (09) SC
Important Judgments Cited:
State of Andhra Pradesh & Ors. v. Larsen & Toubro Limited & Ors (2008) 9 SCC 191
Builders’ Association of India & Ors. v. Union of India & Ors.(1989) 2 SCC 645
Brief Facts of the Case:
The assessee was doing the business of engineers and contractors executing projects under contracts with public sector undertakings (PSU), local bodies and the Union and the State Governments along withprivate sector. The assessee was registered under the Karnataka Sales Tax Act.
The contracts which are secured by the assessee were mainly the works contracts and a part thereof were generally given on sub-contract basis.
During the course of the assessment for the Assessment Year 1997-1998, the assessee submitted that the sub-contractors were the parties who executed the works contract and since the transfer of property involved in such execution had already been taxed, the appellant cannot be taxed again under Section 6B of the Karnataka Sales Tax Act there being only one taxable event for the purpose of Article 366(29A)(b) of the Constitution of India or in simple words, the value of the work entrusted to the sub-contractor could not be taken into account while computing total turnover of the assessee for the purpose of taxation under the Karnataka Sales Tax Act.
However, the submission of the assessee were rejected by the Assessing Officer as well as the Karnataka Appellate Tribunal. Aggrieved, the appellant assessee filed revision petition before the High Court under Section 23 of the Karnataka Act. The High Court affirmed the view taken by the Appellate Tribunal and dismissed the revision petition of the assessee.
Similarly, for the Assessment Year 2002-2003 the matter was remanded to the Assessing Officer for ascertaining the liability of the assessee under Section 5B and Section 6B of the Karnataka Sales Tax Act in respect of total turnover of the assessee.
In a turn of events, for the Assessment Year 1999-2000 though the Assessing Officer as well as the Appellate Tribunal had included the cost of work awarded to the sub-contractors, the High Court had held that value of the work awarded to the sub-contractors cannot be included for computing the total turnover of the assessee and has, thus, allowed the revision petition preferred by the assessee.
Thus it could be seen that the question of law involved in all these three cases was the same, though there were two judgments of the High Court contradicting each other.
Thus In the present case, the Apex Court was dealing with three appeals, two preferred by the assessee, (Larsen & Toubro Ltd.) and one appeal filed by the Revenue, (the Sales Tax Department of Karnataka.)
Contentions of the Appellant:
there was no sale of goods involved in the execution of a works contract as in such contracts the property does not pass as movables. It was submitted that in a works contract property in goods passes out as movable but on the theory of accretion. It was further submitted that the property passes by accession just once which, by a fiction, is taxed as a sale. The taxable person is the contractor executing the works contract so that the main contractor, who assigns the work to another person to execute the work, cannot be a transferor, nor any property in goods vest in the main contractor, when the contract is executed by a sub-contractor.
According to the petitioner, if the point of view of the Revenue was accepted, it would amount to double taxation inasmuch as sub-contractors were also registered dealers who had paid sales tax under the Karnataka Act and by including the payments made to them in the total turnover of the assessee, tax was sought to be levied on the same amount all over again.
Observations made by the Supreme Court:
The Court noted that as per clause (c) of sub-Rule (1) of Rule 6 of the Karnataka Sales Tax Rules, 1957, it was significant that total amount paid or payable to the dealer as a consideration for ‘transfer of property in goods’, which is involved in execution of the works contract, is to be treated as ‘total turnover’.
According to the Apex Court, this clause 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, the amount paid is not to be included in the total turnover and the amount paid to the sub-contractor is not for transfer of property in goods.
Referring to its earlier judgment in Andhra Pradesh case, which was on identical facts, it was held that the value of the work entrusted to the sub-contractors or payments made to them shall not be taken into consideration while computing total turnover for the purposes of Section 6-B of the Karnataka Sales Tax Act.