2009 (6) TMI 938 - HC - VAT and Sales Tax

Whether, on the facts and in the circumstances of the appellant s case, was the revisional authority right in holding that the appellant was liable to resale tax under section 6B of the Act, in so far as the payments made to the sub-contractor? Held that - There is a registered sub-contractor to whom the work is entrusted by the appellant-contractors. It is not the case of Revenue that the sub-contractor is not a registered dealer under section 10 of the KST Act and not paid the tax on taxable turnover in respect of transfer of goods for the execution of work in favour of contractor. Thus we answer the substantial question of law in favour of the appellant-assessee.

Summary

Issues Involved:
1. Legality of resale tax levied under Section 6B of the Karnataka Sales Tax Act, 1957.
2. Applicability of the Supreme Court decision in State of Andhra Pradesh v. Larsen & Toubro Ltd. to the case.

Issue-wise Detailed Analysis:

1. Legality of Resale Tax Levied Under Section 6B of the Karnataka Sales Tax Act, 1957:

The core issue in these appeals is whether the resale tax levied by the respondent under Section 6B of the Act, considering the amounts paid by the appellant to the sub-contractor as representing turnover of deemed sale of goods, is legally justified. The appellants argued that the revisional authority's decision to impose resale tax on them, based on the payments made to sub-contractors, was incorrect. They relied on the budget speech by the Chief Minister and Finance Minister, which clarified that Section 6B was introduced to bring second or subsequent sales under the tax umbrella. The appellants also cited the Supreme Court's decision in Sole Trustee, Loka Shikshana Trust v. Commissioner of Income-tax and K.P. Varghese v. Income-tax Officer, which recognized budget speeches as aids for interpreting fiscal statutes to understand the intent behind new provisions.

The court found that the assessing officer assumed there was a resale of goods from the contractor to the sub-contractor, which was evident from the show-cause notices, assessing orders, and revisional authority's order. The court noted that the object of Section 6B, as explained in the budget speech, was to tax second or subsequent sales of goods. The court held that the sub-contractors were registered dealers who had paid taxes on the goods used for executing the works, and there was no resale by the contractor to the sub-contractor. The court concluded that the resale tax levied under Section 6B was not legally justified.

2. Applicability of the Supreme Court Decision in State of Andhra Pradesh v. Larsen & Toubro Ltd. to the Case:

The appellants contended that the revisional authority's reliance on the Division Bench decision in Larsen & Toubro Limited v. Addl. Deputy Commissioner of Commercial Taxes was misplaced, as the Supreme Court's decision in State of Andhra Pradesh v. Larsen & Toubro Ltd. clarified that there is no resale by the contractor to the sub-contractor. The Supreme Court held that once the work is assigned to the sub-contractor, the sub-contractor is responsible for the transfer of property in goods, and there is no retransfer by the contractor. The court emphasized that the property passes by accretion, and there is no property in goods with the contractor capable of resale.

The court agreed with the appellants, stating that the Division Bench's observation that turnover tax is leviable at the hands of both contractor and sub-contractor was incorrect in light of the Supreme Court's ruling. The court reiterated that the sub-contractor's turnover should not be added to the contractor's turnover, as it would result in double taxation and violate constitutional provisions. The court held that the revisional authority's reliance on the Division Bench decision was erroneous and that the Supreme Court's decision should prevail.

Conclusion:

The court answered the substantial questions of law in favor of the appellant-assessees, setting aside the orders passed by the revisional authority and the assessing officer. The appeals were allowed, and the court held that the resale tax levied under Section 6B of the Karnataka Sales Tax Act, 1957, was not legally justified, and the reliance on the Division Bench decision was incorrect in light of the Supreme Court's ruling in State of Andhra Pradesh v. Larsen & Toubro Ltd.