Smt. Geetha D. Raju vs State of Karnataka

N. Kumar, J.—S.T.A. NO. 25 of 2009 relates to the assessment year 2002-03 whereas S.T.A. No. 26 of 2009 relates to the assessment year 2003-04 in respect of the same, assessee who is the appellant before us. She has preferred this appeal challenging the order passed by the Additional Commissioner of Commercial Taxes in his revisional jurisdiction u/s 22A(1) of the Karnataka Sales Tax Act, 1957 (for short, hereinafter referred to as "the Act"). The assessee is an individual registered under the Act and is engaged in the business of civil contract work. She filed her monthly return in the prescribed form and also filed annual returns., During the year of assessment, she has assigned a part of the works contract to another registered dealer M/s. Paramount Constructions who is also registered under the Act. He also has filed regular monthly and yearly accounts and discharged the tax liabilities. The total value of the sub-contract is Rs. 65,50,005. The subcontractor had paid tax under the Act for the said turnover and she was also assessed on that basis. Correspondingly, the assessee was given the benefit of reduction in respect of the said turnover and assessment order was also passed. Subsequently, invoking the powers conferred u/s 12A of the Act, a show-cause notice was also issued calling upon her to show cause as to why the said exemption should not be withdrawn and proposing to levy resale tax u/s 6B of the Act. The assessee contested the said position. Not being satisfied with the reply, the assessing authority proceeded to revise the earlier order and imposed resale tax. Aggrieved by the said order, the assessee preferred an appeal before the Joint Commissioner of Commercial Taxes (Appeal), who allowed the appeal and set aside the imposition of resale tax. The Additional Commissioner of Commercial Taxes invoked the power conferred on him u/s 22A(1) of the Act and initiated proceedings for revision of the said order. After hearing the parties, he has set aside the order passed by the Appellate Commissioner and restored the order passed by the assessing authority holding that the assessee is liable to pay resale tax u/s 6B of the Act. Aggrieved by the same, the assessee is before this court.

The learned counsel appearing for the assessee, relying on the judgment of the apex court in the case of State of Andhra Pradesh and Others Vs. Larsen and Tourbo Ltd. and Others, and the judgment of a Division Bench of this court in the case of ECI Engineering and Construction Co., Ltd. Vs. Additional Commissioner of Commercial Taxes, Zone I, contended that there cannot be a multiple sale and consequently, there cannot be levy of tax on the same components, one as a sale and another as a resale and therefore, submits that the order passed by the revisional authority is contrary to the law laid down in the aforesaid judgments and requires to be set aside.

Per contra, the learned counsel for the Revenue supported the impugned order.

The apex court, in the case of State of Andhra Pradesh and Others Vs. Larsen and Tourbo Ltd. and Others, dealing with the question whether the turnover of the sub-contractors is to be added to the turnover of Larsen & Toubro, in other words, "Whether the goods employed by the sub-contractors occur in the form of a single deemed sale or multiple deemed sales?", answered the said question following the judgment of the apex court in Builders Association of India and Others Vs. Union of India (UOI) and Others, wherein it was held as under (pages 400 and 401 in 73 STC):

...Ordinarily unless there is a contract to the contrary in the case of a works contract the property in the goods used in the construction of a building passes to the owner of the land on which the building is constructed, when the goods or materials used are incorporated in the building...

Therefore, it was held, even if there is no privity of contract between the contractee and the sub-contractor, that would not do away the principle of transfer of property by the sub-contractor by employing the same on the property belonging to the contractee. This reasoning is based on the principle of accretion of property in goods. It is subject to the contract to the contrary. Thus, in our view, in such a case the work executed by a subcontractor, results in a single transaction and not multiple transactions. Further it was held, if the argument of the Department is to be accepted it would result in plurality of deemed sales which would be contrary to article 366(29A)(b) of the Constitution. It may result in double taxation which may make the Act vulnerable to challenge as violative of article 14 of the Constitution. Following the aforesaid judgment, a Division Bench of this court in ECI Engineering and Construction Co., Ltd. Vs. Additional Commissioner of Commercial Taxes, Zone I, has also held, once the said turnover is taxed in the hands of the sub-contractor, a deemed sale takes place and the very same turnover cannot be taxed again in the hands of the contractor u/s 6B on the ground of resale when there is no such resale. In view of the aforesaid legal position, the impugned order passed by the revisional authority is unsustainable and is liable to be set aside. Accordingly, it is set aside. Hence, the following order:

Both the appeals are allowed. The impugned order passed by the revisional authority is set aside. The order passed by the Appellate Commissioner is restored.