2008 Supreme(SC) 1280

2008(6) Supreme 245
Supreme Court of india
S.H. Kapadia and B. Sudershan Reddy, JJ.
State of Andhra Pradesh & Ors. — Appellant(s)
versus
Larsen & Tourbo Ltd. & Ors. — Respondent (s)
Civil Appeal No. 5239 of 2008
(Arising out of S.L.P. (C) No.12482 of 2007)
Decided on : 26-08-2008

Important Point
Once the work is assigned by a contractor to its sub-contractor(s), it ceases to execute the works contract.

Headnote:(a)Words and Phrases – Sale of goods – The expression “sale of goods” involves existence of an agreement between the parties for the sale of goods in which eventually property passes. (Para 13)

       (1958) 9 STC 353 – Relied upon.

       (b)Constitution of India, 1950 – Article 366 (29A)(b) – This enables States to levy tax on transfer of property in goods involved in the execution of works contract. (Para 14)

       (1989) 73 STC 370 – Relied upon.

       (c)Constitution of India, 1950 – Article 366 (29A)(b) – The measure for the levy of tax contemplated by Article 366(29A)(b) is the value of the goods involved in the execution of a works contract. (Para 15)

       (1993) 88 STC 204 – Relied upon.

       (d)Andhra Pradesh Value Added Tax Act, 2005 – Section 4(7) r/w Rule 17(1)(a), APVAT Rules 2005 – The taxable event is the transfer of property in goods involved in the execution of a works contract and transfer of property in such goods takes place when the goods are incorporated in the works – The value of the goods which constitutes the measure for the levy of the tax is the value of the goods at the time of the incorporation of the goods in the works. (Para 16)

       (e)Constitution of India, 1950 – Article 366 (29A)(b) – Once the work is assigned by a contractor to its sub-contractor(s), it ceases to execute the works contract. (Para 16)

       (1989) 73 STC 370 – Relied upon.

       (f)Andhra Pradesh Value Added Tax Act, 2005 – Section 4(7) r/w Rule 17(1)(a), APVAT Rules 2005 – 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 – In such a case the work, executed by a sub-contractor, results in a single transaction and not as multiple transactions. (Para 19)

       (g)APVAT Rules 2005 – Rule 17(1)(c) – 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 – 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. (Para 20)

       Facts of the case :

       1. Respondent - Larsen & Tourbo Ltd. (L&T) is engaged in executing civil, mechanical and other building works throughout India including Andhra Pradesh. During the relevant period it entered into contracts with its clients (contractees) under which the L&T, with the consent of the contractee, was permitted to assign parts of construction work to the sub-contractors.

       2.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 and they 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 and remained the property of the sub-contractors. The site was also 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 there was no provision for inclusion of sub-contractors’ turnover in the turnover filed by the Company; that, the scheme of the said Act at the relevant time did not contemplate for the declaration of sub-contractors’ turnover and, that, under the scheme of the said 2005 Act the sub-contractor was a “dealer”.

       4. The objections raised by the Company in its reply to the show cause notice were rejected by the A.O. and the Company was consequently served with an assessment order dated. 31.5.06 raising an additional tax payment of Rs.9,75,89,261/-.

       5. Aggrieved by the assessment order dated 31.5.06, for the aforestated period, the Company moved the Andhra Pradesh High Court.

       Finding of the Court :

       There is no infirmity in the impugned judgment.

       Result : Appeal dismissed