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TMI Blog2008 (8) TMI 21X X X X Extracts X X X X X X X X Extracts X X X X ..... l, mechanical and other building works throughout India including Andhra Pradesh. During the relevant period it entered into contracts with its clients (contractees) whose names are given in the annexure to the original writ petition filed in the High Court of Andhra Pradesh. Under the Contract, L T, with the consent of the contractee, was permitted to assign parts of construction work to the sub-contractors whose names are also given in the list annexed to the original writ petition filed in the High Court. Accordingly, L T placed orders on such sub-contractors for agreed price, inclusive of applicable taxes. The overall work was done under the supervision of the consultants nominated by the contractee. The sub-contractors were registered dealers. The sub-contractors purchased goods and chattel like bricks, cement and steel and, where necessary, supply and erect equipments such as lifts, hoist, etc. The materials were brought to site. They remained the property of the sub- contractors. The site was occupied by sub-contractors. The materials were erected by the sub-contractors. 3. L T was served with a notice dated 10.3.06 in which it was alleged that the Company had failed to di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act giving a similar treatment to a deemed sale that is given to a sale in general. It being so, there are two deemed sales one from main contractor to contractee and the other from sub-contractor to the main contractor in the event of contractee not having any privity of contract with sub-contractor." (emphasis supplied by us) 7. The question which needs consideration in this civil appeal is : whether the A.O. was right in his conclusion, namely, that in this case there were two deemed sales, one from main contractor to the contractee and the other from the sub-contractors to the main contractor as there was no privity of contract between the contractee and the sub-contractors. 8. To answer the above issue we need to quote relevant provisions of the 2005 Act which reads as under: "CHAPTER -I PRELIMINARY SECTION 2 - Definitions.- In this Act, unless the context otherwise requires:-- (10) 'Dealer' means any person who carries on the business of buying, selling, supplying or distributing goods or delivering goods on hire purchase or on any system of payment by instalments, or carries on or executes any works contract involving supply or use of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ution of goods by a society (including a co-operative society), club, firm or association to its members, but does not include a mortgage, hypothecation or pledge of, or a charge on goods. Explanation VI:- Whenever any goods are supplied or used in the execution of a works contract, there shall be deemed to be a transfer of property in such goods, whether or not the value of the goods so supplied or used in the course of execution of such works contract is shown separately and whether or not the value of such goods or material can be separated from the contract for the service and the work done. (29) 'Sale Price' means :- (a) the total amount set out in the tax invoice or bill of sale; or (b) the total amount of consideration for the sale or purchase of goods as may be determined by the assessing authority, if the tax invoice or bill of sale does not set out correctly the amount for which the goods are sold; or (c) if there is no tax invoice or bill of sale, the total amount charged as the consideration for the sale or purchase of goods by a VAT dealer or TOT dealer either directly or through another, on his own account or on account of o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ne the correct value of goods at the time of incorporation, such dealer shall pay tax at the rate of 12.5% on the total consideration received or receivable subject to such deductions as may be prescribed; (b) Any dealer executing any works contracts for the Government or local authority may opt to pay tax by way of composition at the rate of 4% on the total value of the contract executed for the Government or local authority 1[***]; (c) Any dealer executing works contracts other than for Government and local authority may opt to pay tax byway of composition at the rate of 4% 2[***] of the total consideration received or receivable for any specific contract subject to such conditions as may be prescribed; (d) Any dealer engaged in construction and selling of residential apartments, houses, buildings or commercial complexes may opt to pay tax by way of composition at the rate of 4%of twenty five percent (25%) of the consideration received or receivable or the market value fixed for the purpose of stamp duty whichever is higher subject to such conditions as may be prescribed [(e) Any dealer having opted for composition under 4[Clauses (b) or (c) or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ub-contractor.] 8 [(i) no tax shall be payable under clause (d) of this sub-section on the turnover relating to the consideration received as a sub-contractor if the main contractor opted to pay tax by way of composition subject to the condition that the sub-contractor shall pay tax in respect of any goods purchased or received from outside the State of Andhra Pradesh or from 5 Renumbered by Act No.23 of 2005, w.e.f. 29.08.2005 6 The proviso was omitted by Act 5 of 2007, dt.22.01.2007, w.e.f. 01.09.2006. The earlier proviso: "Provided further that no tax shall be payable under this sub-section on the turnover relating to the consideration received as a sub-contractor if the main contractor opted to pay tax by way of composition subject to the condition that the sub-contractor shall pay tax in respect of any goods purchased or received from outside the State of India or from any person other than a Value Added Tax dealer in the State on the value of such goods at the rates applicable to them under the Act". 7 Added by Act 5 of 2007, dt.22.01.2007, w.e.f. 01.09.2006 8 Added by Act No.39 of 2007, dt. 18.12.2007, w.e.f. 01.09.2006 any p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f a works contract; and such transfer, delivery or supply of any goods shall be deemed to be a sale of those goods by the person making the transfer, delivery or supply and a purchase of those goods by the person to whom such transfer, delivery or supply is made;" 11. The only question which we are required to decide is : whether the turnover of Rs.111,53,05,835/- of the sub- contractors is liable to be added to the turnover of L T? On the turnover of L T, it is liable to pay the tax and that is not in dispute. What is in dispute is the addition of sub- contractors' turnover to the turnover of L T. 12. A contract of work, i.e., "works contract" involves transfer of property and also element of service or work rendered. That is why it is called composite contract. Works contracts can be of two types only: (a) Works contracts for constructions; and (b) Works contract in relation to any movable property like repairs to vehicles, printing contracts etc. 13. In the first case of The State of Madras v. M/s. Gannon Dunkerley Co., (Madras) Ltd.- [(1958) 9 STC 353] this Court held that if the words "sale of goods" have to be incorporated in their legal sense, that sense can onl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lace in Rule 17(1)(a) of the APVAT Rules 2005, quoted hereinabove. It is important to note that each of the sub-contractors of L T is registered dealer. None of them are unregistered. Under Section 4(7)(a) read with Rule 17(1)(c), quoted above, where VAT dealer awards any part of the contract to a sub-contractor, such sub-contractor shall issue a tax invoice to the contractor for the value of the goods at the time of incorporation in such sub-contract. The tax charged in the tax invoice issued by the sub-contractor shall be accounted by him in his returns. Therefore, the scheme indicates that there is a "deemed sale" by the dealer executing the work, i.e., the sub-contractor. It is only the sub- contractor who effects transfer of property in goods as no goods vests in the respondent company (contractor) so as to be the subject-matter of a retransfer. By virtue of Article 366 (29A)(b) of the Constitution once the work is assigned by the contractor (L T), the only transfer of property in goods is by the sub-contractor(s) who is a registered dealer in this case and who claims to have paid taxes under the Act on the goods involved in the execution of the works. Once the work is assign ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 20. Before concluding, we may refer to one more aspect. It appears that after the impugned judgment, the Department has amended Rule 17 of the APVAT Rules, 2005 vide Government Order dated 20.8.2007. The position has been clarified vide Rule 17(1)(c) (as amended). It is now clarified that where a VAT dealer awards any part of the contract to a registered sub-contractor, no tax shall be payable on the consideration paid for the sub-contract. Therefore, in our view, the principle to be adopted in all such cases is that the property in the goods would pass to the owner/contractee on its incorporation in the works executed. This principle finds place in sub-section 7(a) of Section 4 of the said 2005 Act. 21. On the facts of the case, it has been urged on behalf of the Department that the respondent company has not complied with the provisions of Rule 17(1)(c) as it stood at the relevant time, which require the sub-contractor(s) t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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