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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 ..... on 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 disclose the sub- contractors' turnover of Rs.111,53,05,835/- in the returns filed upto 31.1.06 for the period 1.4.05 to 31.1.06. In reply, L&T submitted that under Section 4(7)(a) of the Andhra Pradesh Value Added Tax Act, 2005 ("2005 Act", for short) there was no provision for inclusion of sub-contractors' turnover in the turnover filed by the Company; that, the scheme of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 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 material directly or otherwise, whether for cash or for deferred payment, or for commission, remuneration or other valuable consideration, and includes: (a) a company, a Hindu undivided family or any society including a co-operative society, club, firm or ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... luding 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 g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AND CALCULATION OF TAX Section 4 - Charge to tax.- (7) Notwithstanding anything contained in the Act;- (a) Every dealer executing works contracts shall pay tax on the value of goods at the time of incorporation of such goods in the works executed at the rates applicable to the goods under the Act: Provided that where accounts are not maintained to determine 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 rece ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... transfer of property in goods whether as goods or in some other form involved in the execution of works contract, if such transfer from the contractor to the contractee constituted a sale in the course of interstate trade or commerce under section 3 or a sale outside the State under section 4, or a sale in the course of import or export under section 5 of the Central Sales Tax Act, 1956; (h) no tax shall be payable under 8[clauses (a) or (b) or (c) of] this sub-section on the turnover relating to amounts paid to a sub- contractor as consideration for the execution of works contract whether wholly or partly subject to the production of proof that such sub- contractor is registered as a VAT dealer under the Act and the turnover of such amount is included in the return prescribed filed by such sub-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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... works; (ii) Charges for planning, designing and architect's fees; (iii) Charges for obtaining on hire or otherwise machinery and tools used for the execution of the works contract; (iv) Cost of consumables such as water, electricity, fuel, etc., used in the execution of the works contract, the property in which is not transferred in the course of execution of a works contract; (v) Cost of establishment of the contractor to the extent it is relatable to supply of labour and services; (vi) Other similar expenses relatable to supply of labour and services; (vii) Profit earned by the contractor to the extent it is relatable to supply of labour and services;" 10. We also quote Article 366(29A)(b) of the Constitution of India which reads as under: "366. Definitions. In this Constitution, unless the context otherwise requires, the following expressions have the meanings hereby respectively assigned to them, that is to say - & ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent of the Constitution Bench of this Court in the case of M/s Gannon Dunkerley and Co. and others v. State of Rajasthan and others - [(1993) 88 STC 204], the measure for the levy of tax contemplated by Article 366(29A)(b) of the Constitution is the value of the goods involved in the execution of a works contract. 16. In this case we are concerned with Andhra Pradesh Value Added Tax Act, 2005. Section 4 is the charging section. It comes in Chapter III which deals with `incidence, levy and calculation of tax'. In this case, we are concerned with the taxability of works contract. That subject is dealt with by Section 4(7) of the said 2005 Act. In our view, Section 4(7) is a Code by itself. It begins with a non-obstante clause. It, inter alia, states that every dealer executing works contract shall pay tax on the value of goods at the time of incorporation of such goods in the works executed at the rates applicable to the goods under the Act. The point to be noted is that Section 4(7)(a) of the 2005 Act indicates 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 w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... building passes to the owner of the land on which the building is constructed, when the goods or materials used are incorporated in the building." (emphasis supplied by us) 18. As stated above, according to the Department, there are two deemed sales, one from the main contractor to contractee and the other from sub-contractor(s) to the main contractor, in the event of the contractee not having any privity of contract with the sub-contractor(s). 19. If one keeps in mind the above quoted observation of this Court in the case of Builders' Association of India (supra) the position becomes clear, namely, that even if there is no privity of contract between the contractee and the sub- contractor, that would not do away the principle of transfer of property by the sub-contractor 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 value of goods at t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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