Sales Tax; Larsen & Toubro Limited Vs. Additional Deputy Commissioner of Commercial Taxes [Supreme Court of India, 05-09-2016]

Sales Tax Act, 1957 (Karnataka) – S. 6 B – Turnover Tax – Levy of – Sub contractors – Held, the value of the work entrusted to the sub-contractors or payments made to them shall not be taken into consideration while computing total turnover.


IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

(A.K. SIKRI) AND (ROHINTON FALI NARIMAN) JJ.

SEPTEMBER 05, 2016

CIVIL APPEAL NO. 2956 OF 2007

LARSEN & TOUBRO LIMITED …..APPELLANT(S)

VERSUS

ADDITIONAL DEPUTY COMMISSIONER OF COMMERCIAL TAXES & ANR. …..RESPONDENT(S)

W I T H

CIVIL APPEAL NO. 2318 OF 2013

A N D

CIVIL APPEAL NO. 7241 OF 2016

J U D G M E N T

A.K. SIKRI, J.

Same parties are entangled in these three appeals which arise out of the provisions of the

Karnataka Sales Tax Act, 1957

(hereinafter referred to as the ‘Karnataka Act’). Two appeals are preferred by the assessee, viz. Larsen & Toubro Ltd., and one appeal is filed by the Revenue, i.e. the Sales Tax Department of Karnataka.

2) The assessee is doing the business of engineers and contractors and in this process it, inter alia, executes projects under contracts with public sector undertakings, local bodies as well as the Union and the State Governments, besides 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 and laying foam concrete to M/s. Lloyd Insulation (India Limited). This sub-contractor was registered with the Deputy Commissioner of Commercial Taxes, Assessment-IX City Division, Bengaluru, and accordingly it had submitted returns and paid taxes for the execution of the works contract and was duly assessed under Sections 5-B and 6-B of the Karnataka Act. A certificate dated April 10, 1998 to that effect had been marked before the authorities. Likewise, returns are filed by the assessee as well 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 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 to the sub-contractor could not be taken into account while computing total turnover of the assessee for the purpose of taxation under the Karnataka Act. This submission of the assessee was, however, negatived by the Assessing Officer as well as the Karnataka Appellate Tribunal. In the revision filed under Section 23 of the Karnataka Act, the appellant raised the following questions:

(i) 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?

(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 resulted in dismissing the revision petition of the assessee vide judgment dated February 03, 2006. This judgment is the subject matter of challenge in Civil Appeal No. 2956 of 2007, which pertains to the Assessment Year 1997-1998.

3) Likewise, for the Assessment Year 2002-2003 (Civil Appeal No. 2318 of 2013), the assessee has been meted out the same treatment whereby the work awarded to the sub-contractors, who are the registered dealers and have paid sales tax in respect of the works undertaken by them, 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 Officer as well as the Appellate Tribunal had included the cost of work awarded to the sub-contractors, the High Court has held that value of the work awarded to the sub-contractors cannot be included for computing the total turnover of the assessee and has, thus, allowed the revision petition preferred by the assessee. Against that order, the Revenue is in appeal.

5) The aforesaid brief resume of the three appeals makes it clear that the question of law involved in all these three cases is the 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 referred to as ‘Andhra Pradesh judgment’). The question of law is answered in favour of the assessee. Taking aid of the said judgment, the assessee has argued that the instant appeals should be decided in its favour. On the other hand, plea of the Revenue is that that view taken by the High Court, which is in favour of the Revenue, is the correct view and should be maintained having regard to the provisions of the Karnataka Act. The endeavour of the Revenue is to demonstrate that the provisions 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 its grammatical variation and cognate expressions means every transfer of the property in goods (other than by way of a mortgage, hypothecation, charge or plede) by one person to another in the course of trade or business for cash or for deferred payment or other valuable consideration, and includes, –

(i) a transfer otherwise than in pursuance of a contract of property in any goods for cash, deferred payment or other valuable consideration;

(ii) a transfer of property in goods (whether as goods 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 territory of India;

(u-2) “Total turnover” means the aggregate turnover in all goods of a dealer at all places of business in the State, whether or not the whole or any portion of such turnover is liable to tax, including 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 goods into the territory of India;

(v) “Turnover” means the aggregate amount for which goods are bought 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 course of trade or business for consideration and it, inter alia, includes a transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract. Thus, even in respect of works contract whenever there is a transfer of property in goods, that is deemed as ‘sale’.

9) An essential element to constitute a transaction as ‘sale’ is the transfer of property in goods. Aggregate amount for which the goods are bought or sold, or supplied or 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 this aggregate turnover, certain deductions are permissible under the provisions of the Karnataka Act and when those deductions are allowed from the total turnover, we get ‘taxable turnover’ on which a dealer is liable to pay tax.

10) Section 5-B of the Karnataka Act is the charging section in respect of execution of the works contract and it reads as under:

“5-B Levy of tax on transfer of property in goods (whether as goods or in some other form) involved in the execution of works contracts – 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 said Schedule.”

11) There is a levy of turnover tax as well, which is provided under Section 6-B of the Karnataka Act. At the relevant time, this provision was in the following form: