M/S Skyline Constructions And Housing ... vs Authority For Clarification And ... on 17 November, 2009

[Cites 9, Cited by 1]
Karnataka High Court

M/S Skyline Constructions And Housing ... vs Authority For Clarification And ... on 17 November, 2009

Bench: K.L.Manjunath, Aravind Kumar

IN THE HIGH COURT OF KARNATAKA, BANGALORE

DATED TI-HS THE 17TH DAY OF NOVEMBER. 

PRESENT

THE HON'BLE MR. JUSTICE   A'

AND . "

THE HON'BLE MR. JUsTIeE"ARAVINI_i  A

STA No.24 " '
BETWEEN 'A  

M/ s Skyiine Constructions &d.H0:usir1gLPvt.Ltdv..,AA 
Company registered ugider the Compaiiies Act, 1956
8: having its registered "ofﬁ.ee'--:tt No. 11;: Hayes Road,
Banga1ore-56O O25 " ._ C 1   
Represented bytits Diretttorf: A'

 """       Appellant.
(By S1'i.V_,SI'ir1iIVa.sei'Raghayan,[Advocate for Indus Law
Advoc"ate's} ' _    A'

AND:

 1v_;"E&1;t;hotjty for'C.Earif1cation and
" .Adva1io'e Rulings, Gandhinagar.
' ,.}3a»nga_i4o1<e'--<v5€5-O_O09.

*2."-Comm'¢-rc':a1 Tax Officer [VAT 20}
G---aondhinagar,
Bangalore-560 009.
 " : Respondents

A    'v{Srrit.Geetha Menon, Government Advocate.)



This appeal is filed under Section 86(1) of Katiiataka
Value Added Taxes Act, against the order dated 29432006
passed in AR.CLR.CR.480/06-07 on the file of the Aiithori-ty

for Clariﬁcation and Advance Rulings,   
activity of the Works contract of the sub--co,r_1tractor upto 
31--3~»2006 is liable to be taxed at the rates.«..afp.plicable __to" 

goods involved in the transfer of pr-operty. 

This appeal coming on 1"for'.A.Alh'earir1gg, ptliis

ARAVIND KUMAR J . deliveredthe foﬁowing   
JUD(§1iEe'1v1"_V V 0 V 
The appellant   tinder the
Karnataka Value   .A'_{h%feinafter referred

to as the   is engaged execution of the works

contrac-'t'l"f'ora. of residvential apartments. The
appellant lsaidlllto'b:e'=-paying tax at 4% in terms of

notiﬁcation0"--l\0To;FlTl)  2005(7) dated 23-3-2005 and in

 the*"i?..ot1:rseVV%_ of AAthev.....e*{ecution of the works contract the

 'appellant'cIairns_to employ subwcontractors who are also said

tophb-ed  under KVAT and pay taxes as per the

'V provuisitofis  the Act and the Rules made thereunder. The

 0;f.,appiellant sought for an advance ruling under Section 60 of



the KVAT Act read with Rule 163 to 165 of KVAT Rules 2005
as to whether the works entrusted to sub»contractVors_}w.ou1d

also come within the total turn over of the appe11'éint§_*  ;. é 

2. The above said Authority-after.hee,'riné' dpﬁelléixit V b

herein held as follows:

(a) In the absenc--er~e..V_ of s'pe_c1'fic  for"

deduction on the t11«rno'ver'--~.of the 'subrvcontractor,
upto 31--3-20'G8ﬁT-thc__et--ctivit}i?_otﬁ the works contract
is eydgiblhe t;oV'"tax:d¥a_t"'the_V1~ette«.:.e1$p1icab1e to goods

irndroixteddiiifi-til of property under KVAT

 Act;  4(c) of the KVAT Act with
ueffect  '1tg4'--:§o06;

  The  made to the sub~contractors are not
 for deduction up to 31-3-2006. And,

A"  vv(t3)"V'd'.l-'igefh"sub-contractor turnover is eligible for

 H  deduction with effect from 1--4~2006 by virtue of

'' Notification dated 27-5-2006.



3. We have heard Sri.V.Srinivas Raghavan appearing

for the appellant and Smt.Geetha Menoniw 'learned

Government Advocate appearing for the respfaridents

perused the order dated 29-7-2006 passed eA:utholb)r*it3: 

for Clarification 8: Advance Rulings.

4. It is the contentio'h._'o*£..the l'earnedl'cou:nse1..for the-L'

appellant that the activity of  contract'i1.pAtoJ"31--3~«2006
is exigible to the  by the Authority is

erroneous for the following.reaSon»s: ' 'V

 "  'V  b   sub--contractor in the
V l  of of Works Contract awarded
 .v%[V1"?.°3VA'~.».apli*)nVe11ant cannot be treated as
 consideration received by the appellant and it is
  -be treated as consideration received by the

b  j_ sub--contractors.
ii .. .V4f'I'here would be double ' taxation on the

transaction since the sub~contractors are also

 -



registered under the KVAT Act and '-piozttion

of the sub--contract the sale 

respect of those portions directly"ivn.::f;1v'ot1r-- of a%_he~w , 

owner of the land or the personea,andl"he'11lC-&:__ t'e1;er'e

is no sale in favour of"'t}v_1e prin.Cipal_eont§ract0.r'>

and contends thatwthe_said"pa§frnents made to
sub--conti'ac'tf--or  ad" 'worl{«.Vexecuted by them

cannot be__ inhcluoied  in'."'t,he:f total consideration

    contractor.
   ddreerned sale involving the
it olt»'";ovrcpe;'ty in the goods which are
it  works as it constitutes the
'V  devernedd sale and those in respect of part
 ,.j§70rl/rsﬂdddlaxdivarded to the subcontractor by the
hi contractor does not exclude those parts,

it therefore there is no deemed sale at the hands of

the main contractor i.e., appellant herein.

#2'



5. In support of the above raised conter1jti'oris,p."'the

learned counsel for the appellant would rely  

decision of the Hon'ble Supreme Court in  of"S'ta,tei'.olfu '

Andhra Pradesh and others Vs:':.pLaLr_'_sen 

and others reported in 2008'{9]'"E'a.CC 191:.

6. Per contra the leaI'r1ed'V{.l}overnmentAAdvocate would
submit that the issue  v"ur_id,er*--.eonsideration before
the Hon'ble Supreme  the amendment of

Rule 17 of A;.*P."af.7A;Ru;l.es  the amendment

brougi'1t"'tou..At3:ie ll{':11'na'taka Value'V4Added Tax subsequently
whichll"-:i_s   Rule 17 of the Andhrapradesh

Value Added  iiazogs is applicable only from 14-2006

  ﬁnd hth«e.....Ru1es made thereunder and hence said

' pju'd.g1prient w§'u1_a not be applicable to the facts of the present

case'.

  'slibstantial questions of law were formulated:

  "the time of admission of this appeal the following



Whether under Karnataka Value Added
Act, 2003 for the period from  
31.3.2006, in respect of principalV__clo'ntractors 0'
involved in the businessof 'carry.i_1'1g_: bworkss 
contract of "construction of;'_'_'bi;£ildl1r1gs  if

purpose of compu.ti11.g liabliiivtji to pays taiges on it

composition basis  Sectio_n'*1  vvhether
the consideration 0. ~  ' -execution ' --of  Works
contract eXec:uted_p    consideration
received for e2:ecu.tior__i  w'orl{s..'contract by the
principai;  or includes
 1'ece'1_ved» but paid to sub-
Q.,;,p'tra.ctorsb_'a§5¢orlsider§ation for portions of

Worlt executedgby su.b--contractors.

" ur1déii,p:Secti0n 15 of the KVAT Act,

'QOGSllforl'.'tl1e':'_"_.period prior to 1.3.2006 the

priricip'al contractors involved in the business

of carryinglvout work contract of constructing

 ;bujild_ings is entitled for deduction of payment

  by them to sub--contractors who are

' registered dealers to Whom portions of the

work has been sub-contracted, as

consideration to them for the portions of the

work executed by such contractors, from the

 l



total consideration received by the 

contractor.

8. As per Section 3(1) of the KVAT  an 

goods in the State by registered dealerotrv 

V 1

to tax in accordance with the provisions oaf"t}';ecV'Act.:; '£ne*.

works contract having deﬁnedliulnder Section '22 [37] is also

leviable to tax where   oipropertv involved.

9. The Karnatakal  2003 came to

be arnended_by:  N945,/'2oo5VA'v;%r;Ve;¢ iriclause [c] to sub-

Secticln (lV}l'ofl'S_ection  amended which reads as follows:

V * p"lln .re'sp'ect'~oi"<fransfer of property in goods
[whlere as Vgo.odsV Sloan some other form} involved in

 the execution 'of works contract specified in

_ S  (2)  the Sixth Schedule, subject to
3  -- Q4 and 15 of the Central Sales Tax Act,
1V9.';3.V!?i{_Central Act 74 of 1956), at the rates
sgoeciiied in the corresponding entries in column

S.  of the said Schedule"



'§'%3:a3.$, $€€?.iOﬂ 4 is the chargzlzig S¢::'.i.iQ;: 1%}:-'s§:'i §"az9_':;3_S"'i;*éanséé1"« V'

sf pr<2g}»*3:  :3? geaéis é:}:2:s::>§..2z@.:§ in €316 e§§?:::s;%:1:§<»_%._:':"~<7;f° *;Eéc '%'is%r§1*§£:S

{'f€_':€1'E'§'f£'>,'-,%,=:'i.'§.,

ii}: '?§:':€ 2a§>ps:};12m£ Ems   §¢m:gu;:;§i:;:§§g in {$321313
étsf §_3.:"0%.i§si(m iE§"i{§.€3' E§{:A::?;;{.:{r;:;'  ;;_:':;E'.f.  Eur: 25393 mac}
u;~*1?%'h :1<;ii§ii:a€i.s:m__   :i33~3ai2{}GE3 paid

mg; at {Em ;re;_%::s  }§:*'2a§.}  $¢i£::gg3§  ' ;;:;:;*~s;'m: WA'? Asa 29(}:3

:*ea<:§s ..::s"'§:s§:§:%i:é:. ii if; V' »

I ._ --  Q" iégaxz {E} S5':2§':_§@{:2: ii; guszfzg
:§:%%;V2V{§é§ti::}.:':.;~:.V_§é,¢?§3<L§--  {i'1§1"C'1E£I1S§§§ii'§{'€S 3.5; may 33??

_ g::*:':$.€,*:",-:-'.'%%:s¥:'-,.:§. ':i§3$;._ €:§i.%é§{:<§' s:3'%':§3:{*.:' $3222.21 3. {§:;*a3;$:f 26:0
vgség?c%22;$§::*&»s~<3:jj_'_§{§i2i:3.§:2§; g;{;:::{§3 {E53211 mziisalzéﬁr $23 E:°~§'€2s.:.€:
 zmtsééiée E:§:3=:% §'£:':§":"§§,{}§'_'§.' af Ezzaiifigii, §,E,2;25§}E€ :5 page?

V' =   ::§}c_%z:':§;?'f.zi£i in E§€€:'::§s;2:.: I? a2':e:§;«
'  §°l:--;} ' 3*«£§"si}§§€? égaiiai 'm.:*:3.s:;*«;€:* ii': 5: psigéisiﬁ. 3'? 'E3321:

3 .f<1{::{§::3%:{?:,1§':ivs =;.§§::a:"'§==..'~:r§; {ism :20? séxcééé. 3:3.
:.:::m;:;2.§"£. sag may 'gm :1z:s:i§iz:{§ 33}; '£2: 3:312:
§:%0é?€§"§}?:E§E'£f:E xa-'§.':..3*.§:%}§ giiaﬁ gs? ﬁxcsezé 5&3; iaéiié
mzgmesﬁ ami asgha £5 m}: :9: iiﬁaéﬁr fzsiiiizg aéfaiiéir

®/

ﬁfiéiiiﬁiffé {Es} 9:' {<3} :23: {ii} §§5§.§:w;§



10

[13] who is a dealer €X€CUfiI1g~~""V'?QI'K3_.'

contracts; or

{(3} who is a hotelier, resta,u'rateur; 'caterer 

[or bakery or any other class of

may be notified the G'oVe;mn_1er1:t]  

{d} who  also-mecloanised clrushivng unit
producing' Eéranite {or other metals];
may elect to paypyyinf  amount of tax
payable.  hiin   by way of
 ainount~..atIsuehmrate not exceeding

five per   tzirnover or on the total

,eonsiCie.ratiori_ fo_1f"the Worlis contracts executed or

not: exceeding tw_o'--._1aif_h rupees for each crushing

maCh_ine{per_  as may be notiﬁed by the

V ' Government];

[2}VF'o'1'-""the purposes of sub--section [1] a

V' *  y  mean any period ending on final day of

 tl1e"_~v.._rno1'1ths of March, June, September and

D_.ecer?%:ber.

(3) Any dealer eligible for composition of tax

if  iinder sub~secti0n {1} may report, to the prescribed

' authority, the exercise of his option and he shall pay



such amount due and furnish a return 

manner as may be prescribed.

under sub--section (1) shall notA>be«per'rnitted'tr_J_ claim

any input tax on any purchases hfiade   «V ~  A

(4) Any deaier option for compoysitjoriiof 'taut 

(5) Notwithstan'din~gp anything, §:tm'£a;i£ied"' in

sub--sections (1) and [4}.--_____  '

(a) a d'eafe--r eiicecgztiing works contracts and
who purchases or'V'obtain.s"go:od's from outside

thefState or from outside the territory of India

  tg,V03;-tdforiicomposition under
1:  and  the property in such
('whether as""go'ods or in some other
' -. ._transferr'ed in any works contract
 executed'  the deaier shall be iiable to
'payrtax on  value of such goods at the rate
 spec'ifi.ed..«i11 section 4, and such Value shall
._fb.e' deducted from the totai consideration of
V works contracts executed on which an
"»r:'1..V_::d11ount as notified is payable under sub-

 section (1) by way of composition in iieu of

the tax payable under the Act;



--V..productic»n'--. of ~ 

12

(b) in the case of a dealer exeCutingj&nror*.3ts'.VA'
contracts and opting for  _
under subwsection (1), no   of 
composition shall be p'aya'o<le&_ol1f1  

pain to a sub--contractor  'considerationt"for7]A

execution of WO1'VKS_. contract whetlaeriétngrhdlllyll
or partly and  amounttshl-I  be
deducted from "consideration of the
works contrlactsg  --_on which an
amount as__not1fied  g5ayabive~V"under under

sul:-«--..sectio:n (l)  wlayjjofvcofrnposition in lieu

wof  ujndegrt the Act subject to

that such sub~

cvontra7eto:«'is..l_a registered dealer liable to tax

ll  l and that such amounts are

 included: Inlﬂthe return filed by such sub-

contractor:

,uA.[c] in the case of a dealer executing works
V contracts, after opting for composition of tax
blunder sub~section [1], effects sale of any

"V 4' goods liable to tax under the Act other than

by transfer of the property in such goods

(whether as goods or in some other from} in

 I



any works contract executed by 
dealer shall be liable to pay tax on_;'t11e.fu 
of such goods at the rate specifiectinvsection
4, without any deduction  V

purchase of such goods IIt'ad.e' 'him?

{d) in the cas_e"~»..of  dealer»,  "for
composition of taxldunder clause (la) or (c) of
sub--sectio'n*{_1]. jfhe_turnoV'er on which tax is

leviable under sub? ;sectiot:._['2). of section 3
shalt be   turnover on
 an  is payable
 lltzbylway of composition

~ . in liéﬁ; of mgrax p*"yab1e under the Act.]"

11".Q_In relspeéct  sub--contract entrusted by the

apgiellaiat, th;::-.s;;t:'d sub--contractor executes the part of the

.' 'c.ontra:ct.and._transfer of property as the goods involved in

  thelllwork executed by them goods are transferred

to"thev--._customer directly and thus there is no sale between

 contractor and the subcontractor. It is the claim of the

' '''._lappellant that the sub--contractors are also registered under

or



the KVAT Act and the Rules made thereunder

would also be liable to tax and are in fact paying  

this contention of the appellant i_s.to__'be  'as

rightly contended by the learned coéurlsel

would amount to double 

12. In this regard the delci-s:i0n_V.0f arid Toubro
referred to supra   be extracted the
relevant paragraph nagocljf   as follows:

 'cased :wella1"'e" concerned with
Andiira_;it"Rradeshl"':XZalu-cl.r Added Tax Act, 2005.
:v:Secti.onl'l'vzi},Av...is<.the:_"charging section. It comes in
 with 'incident, levy and
calculation' of  this case, we are concerned

 with the 'itaxlability of works contract. That subject
V' fde"a1'twithllbly Section 4(7) of the said 2005 Act.

it   Section 4(7) is a Code by itself. It
A beg?;tj1:slA'x2l}ith a non--obstante clause. It, inter alia,
states; that every dealer executing works contract
"shall pay tax on the value of goods at the time of

H incorporation of such goods in the works executed

W"



l5

at the rates applicable to the goods under the Act.
The point to be noted is that Section 4('7)(a) of the
2005 Act indicates that the taxable event'4"1VS"the"

transfer of property in goods involved  d *

execution of a works contractmand the ..transfe1"  it
of property in such goodsizhitalies .rplac(='A  
goods are incorporated in the 
the goods which constitutes the  the
levy of the tax is the valueiof the  at  time
of the incor"p0ra'ti..on odnfmtheé goods inlvthe" works.
What is stated hereiriab.o{§.§C::. place in Rule
17[1)(a) of the" HMVATA<__r{{i1_eg.'* 152005, quoted

hereinahofre';'g  that each of

  of is registered dealer.

None of Vthv"em'=arelignregistered. Under Section

4(7--}(a}" read.\iiéiVtli~  17(1}(c), quoted above, Where

VAT dealer "lawards any part of the contract to a

V  :sub*=contractor,'V such sub»contractor shall issue a
   'iint/'oice to the contractor for the value of the

the time of incorporation in such sub-

cuntifact. The tax charged in the tax invoice issued

~~  the sub--contractor shall be accounted by him in

his returns. Therefore, the scheme indicates that

there is a "deemed sale" by the dealer executing the

W.



work, i.e, the sub--contractor. It is only the sub-
contractor who effects transfer of property in'_
as no goods vests in the respondent;'_'co:npanj*:.;:_ _
(contractor) so as to be the subject§n§attteiff."~of  
retransfer. By virtue of Art--ic1e~-- the 
Constitution once the work 
contractor [L 8: T}, the only transfer of
goods is by the Su1'fj';.,/,_.Qv:Vf3;',l)[I'8.C.J[CVJ'1V'.(:S};A,   a
registered dealer. in this---c.ase"~~and '\2vho..,cla'§ims to
have paid taxesvunfder   goods involved

in the execution  the work is
assigned«*h:y':-L Sr'TgtojitsA'sub_;cornractor(s), L 8: T

ceases to elgecuvte'  works contract in the sense

  366[29A3[b} because
iprodpertyj dnachcretion and there is no
property in  the contractor which is
'icapahalee-. of'"a retransfer, whether as goods or in

V   other 'fo1"1"ri. "

  _ contract for work ie, works contract involves

transfer o'f'j_pi'operty and also element of service or work

 rendered; and thus called as composite contract. The

A  contract in question is a works contract for construction.

Q/»



E7

The taxable event in a works contract is a transfer of

property in goods and the said transfer of property 

goods takes place when the goods are incorporaitedid--«ir1~.'..the.v:_ _

work. The value of the goods which const1tute..t.he.Vo1eas.ure_' "

in the levy of tax is the value of the goods ':  

incorporation of the goods ingothte   
contractor to whom the workddviiég. 1;.ee11*"to is
required to maintain an tadzvcvddiiniivroice as
required under Section 2(i3V2}'.:_g in the tax

invoice issued bythe'_' su13{--cor1trac'tor'hastodbe accounted to

in his return.s. VV"i"§':1.a.s,"'iit ind'icat--es there is "deemed sale'' by
the dealer e2:_ect1ting.the"wor1-(pg i.e., sub--contractor. In effect it

is the fsubfcontractovr who effects transfer of property in

   goods vest in the contractor so as to be subject

 Hence by virtue of Article 366 (29A)(b)

  of  Constitution once the work is assigned by the

""3--:ie"V"wcontractor...the only transfer of property in goods is by the

it  sub4vc,on--tractors and who claims to have paid tax under the



Act on the goods involved in the execution of the works.

Once the Work is assigned by the contractor to 

contractor, the contractor ceases to execute_.§V_the" _
because the property passes by accretion anti»»t.1}iere'=.is=no__ 

property in goods left with the contractor.xAthichis_'cabab:}e_ 

retransfer either as goods or in' any other forrn.v"'V'h'  
transfer of property is from sub--contractor to -t.he'vcoritracting
party that is contractee rianrely   'Hence the work
executed by the suVb--contrVacvtor 'xsVi'1_v1§ie transaction

and not as multi'P'1'C1:ttansactﬁolif    " 

14.:"*_Hence,_it':.\7voul<i'i'irbe,erroneous to hold that the

payments rna::le*by contractor to the sub--contractor

.-'v.wouId'i?eq»u1reM_ to be brought Within the total turnover of the

V7app«el'1ant--v or~Cont1'actor and if such an interpretation is to be

g1{re.ri  to double taxation and hence We are of

the opiiiiovnathat the question of law formulated herein above

 V'  benhelwd as follows: ﬂ



4":-

19

(i) The consideration for execution of works
contract executed refers to consideration

received by the principal contractor  

include the consideration received~..V»an:d'i.paid to 

sub--contractor. V V V H

(ii) Under Section 15 of   Aéiszoris
period up to  the   V
entitled for.deduction:lofuppayinentt'nia'de by sub-
contractors' e;_r"11yl'   vldregistered dealers

andftiie said su'i3~contfr--a_ctor:li'as accounted for it

_ if 'aha paid "thereon.
 Hence"for:_4th--eNaforesaid reasons, we find in the

facts " and circurnstances of the case that it is for the

 fﬂfficer tomexamine the claim of the appellant by

A   thee-iappellant to produce such particulars as may

be~«._requi1-ed" to ascertain as to whether the work involved in

 the sub :contract has resulted in tax yielding so as to ﬁnd out

$2,,



20

whether it has come within the scope of clause (c) of Sub-

Section (1) of Section 4 and it is for this precise reaisen we

are of the opinion that the same being a fact 

the Assessing Officer is hereby directed  

particulars either from the CO1'1t1"2:l'ClZOl_':"O1'~vl?$1?1b:rt3O1%1l,i'7§tC:lblf:E'f' 

ﬁnd out whether the work entrusted to. subactyntractorsl"has.L

come Within the turnover llvefrthe suh_--centractors after

examining the issue.an.§_1   ﬁxfictiing the1*een. In the
event the appellant or the the case may

be are unabl-;yr_V d:emQn;strate"'v"_;ha'tM:fthe works contract

entrusted :5 't}1e...si;b--crintractor has not been levied with the
tax it wonldrrbe "th:e"aJuth0rities to add the same to the

turtnover oflthecolntractor and not otherwise since it would

 " .air1onht* tel' double taication.

   '  éilﬁicclerdingly the following order is passed:

ORDER
ﬂy/,__ 353 21
(i) The order dated 29--"7~2006 passed by the Authority for Clarification and Advanceteféiilings bearing NO.AR. CLR. CR.48O / 06-07 __ is ' .; aside and the appeal is aiiowed. to observations made hc3,rein.ab§Jve_. " "
(ii) The substantial questionséof lawtarée favour of the assessee aI.id.__agauit1-stVV"t1*1'e' ievenue' as answered supifa--.« ' Sdfié...
Judge séie judge
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Karnataka High Court

M/S Skyline Constructions And Housing ... vs Authority For Clarification And ... on 17 November, 2009

Bench: K.L.Manjunath, Aravind Kumar
