The court established that the turnover of sub-contractors does not add to the main contractor's turnover, affirming the single deemed sale principle and preventing double taxation under the Andhra Pradesh Value Added Tax Act.

1. Leave granted.

2. 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) 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 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 S.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 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. In this case the sub contractors were registered dealers. This point is not in dispute. It was submitted by the Company before the Assessing Authority that the transfer of property in goods, as effected by the sub contract, resulted in direct sale to the contractee and consequently it did not involve multiple sales either in favour of the main contractor or in favour of the contractee. By the said reply, the Company specifically stated that it did not claim 'input tax credit' (ITC) on the tax invoice of sub contractors. Accordingly, the Company objected to the proposal made in the show cause notice by the A.O. to recompute the tax liability adopting a uniform rate of 12.5% on the sub contractors' turnover.

5. 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/-.

6. Aggrieved by the assessment order dated 31.5.06, for the aforestated period, the Company moved the Andhra Pradesh High Court vide Writ Petition No.12124 of 2006 and challenged the following conclusion of the A.O. made in the assessment order dated 31.5.06 which reads as under:
"Main contractor is having an order from the contractee to purchase and sell goods in the course of execution of works contract and for that matter, the main contractor should acquire that goods from the sub contractor, by way of deemed sale as well as the main contractor, by way of deemed sale as well as the main contractor should transfer the value of the property by way of deemed sales to the contractee. The principles whatsoever apply to a sale in general squarely appl