The main legal point established in the judgment is that the consideration for works contract does not include payments to sub-contractors, and the principal contractor is entitled to deduction of payments made to registered sub-contractors, subject to proof of tax payment by the sub-contractors.

ARAVIND KUMAR :- The appellant is a registered dealer under the Karnataka Value Added Tax Act, 2003 (hereinafter referred to as "the KVAT Act") and is engaged in the execution of the works contract for construction of residential apartments. The appellant is said to be paying tax at four per cent in terms of notification No. FD 55 CSL 2005 (7) dated March 23, 2005 and in the course of the execution of the works contract the appellant claims to employ sub-contractors who are also said to be registered under the KVAT Act and pay taxes as per the provisions of the Act and the Rules made thereunder. The appellant sought for an advance ruling under section 60 of the KVAT Act read with rules 163 to 165 of the KVAT Rules, 2005 as to whether the works entrusted to sub-contractors would also come within the total turnover of the appellant.

The abovesaid authority after hearing the appellant herein held as follows :

(a) In the absence of specific provisions for deduction on the turnover of the sub-contractor, up to March 31, 2006 the activity of the works contract is exigible to tax at the rate applicable to goods involved in the transfer of property under the KVAT Act, 2003 and section 4(1)(c) of the KVAT Act with effect from April 4, 2006;

(b) The payments made to the sub-contractors are not eligible for deduction up to March 31, 2006; and

(c) The sub-contractor turnover is eligible for deduction with effect from April 1, 2006 by virtue of notification dated May 27, 2006.

We have heard Sri V. Srinivasa Raghavan appearing for the appellant and Smt. Geetha Menon, the learned Government Advocate appearing for the respondents and perused the order dated July 29, 2006 passed by the Authority for Clarification and Advance Rulings.

It is the contention of the learned counsel for the appellant that the activity of works contract up to March 31, 2006 is exigible to the KVAT Act, 2003 as ruled by the authority is erroneous for the following reasons :

(i) Works executed by the sub-contractor in the course of execution of works contract awarded to the appellant cannot be treated as consideration received by the appellant and it is to be treated as consideration received by the sub-contractors.

(ii) There would be double taxation on the transaction since the subcontractors are also registered under the KVAT Act and in that portion of the sub-contract the sale takes place in respect of those portions, directly in favour of the owner of the land or the person and hence there is no sale in favour of the principal contractor and contends that the said payments made to the sub-contractor in a work executed by them cannot be included in the total consideration received by the principal contractor.

(iii) There is only one deemed sale involving the transfer of property in the goods which are employed in the works as it constitutes the single deemed sale and those in respect of part works awarded to the subcontractor by the main contractor do not exclude those parts, therefore there is no deemed sale at the hands of the main contractor, i.e., the appellant herein.

In support of the above-raised contentions, the learned counsel for the appellant would rely upon the decision of the honourable Supreme Court in the case of State of Andhra Pradesh v. Larsen & Toubro Ltd. reported in [2008] 17 VST 1; [2008] 9 SCC 191.

Per contra the learned Government Advocate would submit that the issue which was under consideration before the honourable Supreme Court was prior to the amendment of rule 17 of the Andhra Pradesh Value Added Tax Rules, 2005, and as such the amendment brought to the Karnataka Value Added Tax Act subsequently which is in pari materia with rule 17 of the Andhra Pradesh Value Added Tax Rules, 2005 is applicable only from April 1, 2006 including and the Rules made thereunder and hence said judgment would not be applicable to the facts of the present case.

At the time of admission of this appeal the following substantial questions of law were f