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TMI Blog2016 (9) TMI 519X X X X Extracts X X X X X X X X Extracts X X X X ..... to them shall not be taken into consideration while computing total turnover for the purposes of Section 6-B of the Karnataka Act - appeal allowed - decided against Revenue. - Civil Appeal No. 2956 of 2007, Civil Appeal No. 2318 of 2013, Civil Appeal No. 7241 of 2016 - - - Dated:- 5-9-2016 - A. K. Sikri And Rohinton Fali Nariman, JJ. JUDGMENT A. K. Sikri, J. Same parties are entangled in these three appeals which arise out of the provisions of the Karnataka Sales Tax Act, 1957 (hereinafter referred to as the 'Karnataka Act'). Two appeals are preferred by the assessee, viz. Larsen Toubro Ltd., and one appeal is filed by the Revenue, i.e. the Sales Tax Department of Karnataka. 2) The assessee is doing the business of engineers and contractors and in this process it, inter alia, executes projects under contracts with public sector undertakings, local bodies as well as the Union and the State Governments, besides private sector. The assessee is registered under the Karnataka Act and files its returns for payment of sales tax thereunder. The contracts which are secured by the assessee are the works contracts and a part thereof is generally assigned to sub-c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llenge in Civil Appeal No. 2956 of 2007, which pertains to the Assessment Year 1997-1998. 3) Likewise, for the Assessment Year 2002-2003 (Civil Appeal No. 2318 of 2013), the assessee has been meted out the same treatment whereby the work awarded to the sub-contractors, who are the registered dealers and have paid sales tax in respect of the works undertaken by them, has been added in the total turnover of the assessee for the purposes of levying tax. However, here the matter is remanded to the Assessing Officer for ascertaining the liability of the assessee under Section 5-B as well as Section 6-B of the Karnataka Act in respect of total turnover of the assessee. 4) On the other hand, outcome of the proceedings in respect of the Assessment Year 1999-2000 (Civil Appeal No. 7241 of 2016) has taken a U-turn. For this Assessment Year, though the Assessing Officer as well as the Appellate Tribunal had included the cost of work awarded to the sub-contractors, the High Court has 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. Against ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uch deductions from his total turnover and in such manner as may be prescribed, but shall not include the turnover of purchase or sale in the course of inter-State trade or commerce or in the course of export of the goods out of the territory of India or in the course of import of the gods into the territory of India; (u-2) Total turnover means the aggregate turnover in all goods of a dealer at all places of business in the State, whether or not the whole or any portion of such turnover is liable to tax, including the turnover of purchase or sale in the course of inter-State trade or commerce or in the course of export of the goods out of the territory of India or in the course of import of the goods into the territory of India; (v) Turnover means the aggregate amount for which goods are bought or sold, or supplied or distributed or delivered or otherwise disposed of in any of the ways referred to in clause (t) by a dealer, either directly or through another, on his own account or on account of others, whether for cash or for deferred payment or other valuable consideration. 8) Since we are dealing with the sales tax under the Karnataka Act, obviously the said ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o is liable to get himself registered under sub-section (1) and (2) of Section 10 whose total turnover in a year is not less than the turnovers specified in the said sub-sections, whether or not the whole or any portion of such turnover is liable to tax under any other provisions of this Act, shall be liable to pay tax. (i) at the rate of one and half per cent of the total turnover, if the total turnover is not more than one thousand lakh rupees in a year; or (ii) at the rate of three per cent of the total turnover, if the total turnover is more than one thousand lakh rupees in a year; Provided that the rate of tax payable for any year shall be at one and half per cent on the turnovers up to one thousand lakh rupees and at three per cent on the turnovers exceeding one thousand lakh rupees, if, the total turnover in the year immediately preceding that year was not more than one thousand lakh rupees. 12) On a plain reading of Sections 5-B and 6-B of the Karnataka Act, it can be seen that Section 5-B deals with levy of tax on transfer of property in goods involved in the execution of the works contract. It is, thus, a special provision made for imposing sales ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Article also identifies the transferor and transferee effecting the deemed sale and deemed purchase. 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. 15) Proceeding further, by taking the aforesaid line of argument, the learned senior counsel submitted that if the point of view of the Revenue is 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. On the aforesaid premise, the learned senior counsel for the assessee submitted that precisely this argument in law has been accepted by this Court in the Andhra Pradesh judgment. He referred to the discussion contained in the said judgment in extenso. 16) Mr. K.N. Bhat, learned senior counsel appearing for the Revenue, per contra, heavily relied upon the reasoni ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r. The amount paid to the sub-contractor is not for transfer of property in goods. When matter is examined from this angle, the ratio laid down by this Court in the Andhra Pradesh judgment clearly applies inasmuch as in that case also the Court noticed that Section 4(7) of the Andhra Pradesh Act indicated that the taxable event is the transfer of property in goods involved in the execution of a works contract and the said transfer of property in such goods takes place when the goods are incorporated in the works. The Court held that the value of the goods which constitute the measure for the levy of tax is the value of goods at the time of the incorporation of the goods in the works. The Court further found that same was the position contained in Rule 17(1)(a) of the Andhra Pradesh Value Added Tax Rules, 2005. 19) It is not in dispute that the facts and the issue involved were identical, i.e. the assessee had assigned parts of the 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 brou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ractor by employing the same on the property belonging to the contractee. This reasoning is based on the principle of accretion of property in goods. It is subject to the contract to the contrary. Thus, in our view, in such a case, the work executed by a sub-contractor, results in a single transaction and not as multiple transactions. This reasoning is also borne out by Section 4(7) which refers to the value of goods at the time of incorporation in the works executed. In our view, if the argument of the Department is to be accepted, it would result in plurality of deemed sales which would be contrary to Article 366(29-A)(b) of the Constitution as held by the impugned judgment of the High Court. Moreover, it may result in double taxation which may make the said 2005 Act vulnerable to challenge as violative of Articles 14, 19(1)(g) and 265 of the Constitution of India as held by the High Court in its impugned judgment. This raison d'etre shall apply, in full force, while answering the question even in the context of the Karn5ataka Act. 20) We, therefore, hold that the value of the work entrusted to the sub-contractors or payments made to them shall not be taken into cons ..... 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