M/S|Larsen & Toubro Limited V. Additional Deputy Commissioner of Commercial Taxes &Anr., Civil Appeal No. 2956 of 2007, 2318 OF 2013 and 7241 of 2016, dated 5th September, 2016 (SC)

Facts:
The petitioner company, registered under the Karnataka Sales Tax Act and engaged in works contract had executed works contract and part of it or whole of it was given to another contractor as sub-contract and claimed deduction from total turnover for the purpose of levy of tax under section 6B of the Act in respect of value of contracts executed by sub-contractors. The department did not accept the claim of the company. The High Court in two periods denied the claim but in another appeal allowed the claim. The company filed appeal before the SC against the High Court judgment disallowing the claim and department filed appeal before the SC against the judgment of High Court allowing the claim. The SC by common judgment decided all three appeals involving identical issue for deduction of sub-contract value for levy of tax.

Held:
What is significant is that total amount paid or payable to the dealer as a consideration for ‘transfer of property in goods’, which is involved in execution of the works contract, is to be treated as ‘total turnover’.The Rule, thus, specifically restricts the total turnover in respect of those goods alone, where the property has been transferred. Thus, transfer of property in goods, becomes necessary event and unless there is a transfer of property, the amount paid is not to be included in the total turnover. The amount paid to the sub-contractor is not for transfer of property in goods. Accordingly, the SC held that the value of thework entrusted to the sub-contractors or payments made to them shall not be taken into consideration while computing total turnover for the purposes of Section6-B of the Karnataka Act. As a consequence, the two appeals which were filed by the company were allowed and the appeal preferred by the Revenue was dismissed by the SC.