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2016 (9) TMI 519 - SUPREME COURT

2016 (9) TMI 519 - SUPREME COURT - TMI - Works contract - sub-contract - Is the assessee liable to turnover tax under Section 6-B of the Karnataka Sales Tax Act, 1957 on the payment made to the sub-contractor in spite of the fact that the sub-contractor had declared the turnover and paid taxes? - Held that: - 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. Thes .....

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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 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 pr .....

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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-contractors. For example, in Civil Appeal No. 2956 of 2007, the assessee had secured a contract to construct an indoor stadium styled 'Sree Kanteerava Indoor Stadium' in Bengaluru and the assessee assigned the work of finding their own materials .....

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l on regular basis. In the course of the assessment, 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 6-B of the Karnataka Act there being only one taxable event for the purpose of Article 366(29A)(b) of the Constitution of India. In nutshell, it was the submission of the assessee that value of the work entrusted t .....

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ade to the sub-contractor in spite of the fact that the sub-contractor had declared the turnover and paid taxes? (ii) Since the payment made to the sub-contractor does not amount to turnover within Section 2(i)(v) of the Karnataka Sales Tax Act, 1957, can such payment be part of total turnover as per Section 2(1)(u-2) of the Karnataka Sales Tax Act, 1957? The High Court decided the aforesaid questions against the assessee and thereby affirmed the view taken by the Appellate Tribunal which result .....

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hem, 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 .....

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same, though the two sets of judgments of the High Court are contrary to each other. 6) It may be pointed out at this juncture itself that in the case of this very assessee same question of law had arisen, albeit in the context of Andhra Pradesh Value Added Tax Act, 2005 (hereinafter referred to as the 'Andhra Pradesh Act'). This Court has decided the issue in its judgment known as State of Andhra Pradesh & Ors. v. Larsen & Toubro Limited & Ors. (2008) 9 SCC 191 (hereinafter .....

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visions of the Andhra Pradesh Act are materially different than that of the Karnataka Act and, therefore, the judgment in the Andhra Pradesh case need not be followed. Before adverting to the aforesaid judgment of this Court, it would be advisable to take note of the various provisions of the Karnataka Act. 7) For our purposes, definitions of 'sale', 'taxable turnover', 'total turnover' and 'turnover' are material, which are reproduced below: 2(i)(t) Sale with all .....

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s or in some other form) involved in the execution of a works contract; xx xx xx 2(i)(u-1) Taxable turnover means the turnover on which a dealer shall be liable to pay tax as determined after making such 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 .....

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ought 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 tax is on 'sale'. 'Sale' is defined as transfer of the property in goods by one person to another in the .....

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distributed or delivered or otherwise disposed of, in any of the ways referred to under Section 2(t), by a dealer is treated as 'turnover' within the meaning of Section 2(v) of the Karnataka Act. There are two variants of this turnover known as 'taxable turnover' and 'total turnover', the definitions whereof are already reproduced above. 'Total turnover' is defined as aggregate turnover in all goods of a dealer at all places of business in the State. However, from .....

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acts - Notwithstanding anything contained in sub-section (1) or sub-section (3) or sub-section (3-C) of Section 5, but subject to sub-section (4), (5) or (6) of the said section, every dealer shall pay for each year, a tax under this act on his taxable turnover of transfer of property in goods (whether as goods or in some other form) involved in the execution of works contract mentioned in column (2) of the Sixth Schedule at the rates specified in the corresponding entries in column (3) of the s .....

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le 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 .....

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f transfer of property in goods'. Additionally, in those cases where total turnover of a registered dealer in an year is not less than the turnover specified in sub-sections (1) and (2) of Section 10, such a dealer is liable to pay tax at the rate specified in Section 6-B of the Karnataka Act. 13) The question for determination is: for calculating the turnover for the purpose of payment of turnover tax under Section 6-B of the Karnataka Act, whether payments made to sub-contractor are to be .....

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aining the sale and, thus, in the process calculating the turnover/total turnover. It was submitted that 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. Tracing the history of works contract, the learned senior counsel submitted that in the case of The State of Madras v. Gannon Dunkerley & Co. (Madras) Limited AIR 1958 SC 560, while speaking of a building contract, this Court held that the property in goods .....

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Article 366(29-A)(b) in Builders' Association of India & Ors. v. Union of India & Ors. (1989) 2 SCC 645, reiterated 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 Article also identifies the transferor and transferee effecting the deemed sale and deemed purchase. The taxable person is the contractor executing the work .....

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x 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 con .....

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of the Karnataka Act, total turnover becomes relevant and, therefore, the value of the work entrusted to the sub-contractors is includible at the hands of the assessee. He further submitted that the High Court was right in pointing out that sales tax is leviable at a single point, whereas turnover tax is leviable at a multi-point, both at the hands of the main contractor and sub-contractor and, therefore, the question of double taxation does not arise. 17) After bestowing our due consideration t .....

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of a dealer, for the purposes of the Act, shall be the aggregate of. - xx xx xx (c) the total amount paid or payable to the dealer as the consideration for transfer of property in goods (whether as goods or in some other form) involved in the execution of works contract; and includes any amount paid as advance to the dealer as a part of such consideration. xx xx xx 18) What is significant is that total amount paid or payable to the dealer as a consideration for 'transfer of property in goods .....

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s 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 t .....

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and, where necessary, supply and erect equipments such as lifts, hoists, etc. The materials were brought to the site and they remain the property of the sub-contractor. The site was occupied by the sub-contractor and the materials were erected by the sub-contractor. In this backdrop, after taking note of some provisions of the Andhra Pradesh Act, the Court explained the legal position in the following manner: 16. By virtue of Article 366(29-A)(b) of the Constitution, once the work is assigned by .....

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of a retransfer, whether as goods or in some other form. 17. The question which is raised before us is whether the turnover of the sub-contractors (whose names are also given in the original writ petition) is to be added to the turnover of L&T. In other words, the question which we are required to answer is whether the goods employed by the sub-contractors occur in the form of a single deemed sale or multiple deemed sales. In our view, the principle of law in this regard is clarified by thi .....

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