Goods And Service Tax India

The High Court of Andhra Predesh, in L&T vs State of Andhra Predesh, has held that where a contractor sub-contracts a part of the contract to a sub-contractor, there is only one taxable event.

The commercial tax authorities contended that there is no provision to deduct the turnover of the sub-contractor, on which value added tax has been paid by the sub-contractor, from the turnover of the main contractor. They also refused to give credit for the tax paid by the sub-contractor in computing the tax payable by the main contractor.

The AP High Court said, “To hold that there are two taxable events in such a transaction, enabling the State to levy and collect tax both from the sub-contractor and the contractor, in our view, would be violative of Article 14 also for the reason that wherever a contractor executes a works contract himself without employing the sub-contractor the deemed sale of goods involved in such execution of works contract would attract the tax only once and whenever the contractor employs a sub-contractor, the transfer of property in the same goods involved in the execution of such works contract attracts the tax twice over, which in our view is plainly irrational and violative of Article 14 of the Constitution of India”

The High Court also declared that it is open to the State to frame appropriate rules to collect the tax either from the sub-contractor or the main contractor, but not from both.

Date of decision : 12 Oct 2006