Goods And Service Tax India

The Supreme Court has upheld the decision of the Andhra Pradesh High Court in the L&T case.

The Andhra Pradesh Commercial Tax Authorities had demanded VAT from the main contractor on the value sub contracts. The sub contractors were registered dealers and had paid VAT on the value of sub contracts executed by them. The plea of the main contractor that this will result in double taxation was not accepted by the Authorities. The Andhra Pradesh High Court vide its decision dated 12 Oct 2006 upheld the plea of the main contractor. The Andhra Pradesh Government had filed an appeal in the Supreme court against this decision.

The Supreme Court held that ” <!– /* Style Definitions */ p.MsoNormal, li.MsoNormal, div.MsoNormal {mso-style-parent:”"; margin:0cm; margin-bottom:.0001pt; mso-pagination:widow-orphan; font-size:12.0pt; font-family:”Times New Roman”; mso-fareast-font-family:”Times New Roman”;} @page Section1 {size:612.0pt 792.0pt; margin:72.0pt 90.0pt 72.0pt 90.0pt; mso-header-margin:36.0pt; mso-footer-margin:36.0pt; mso-paper-source:0;} div.Section1 {page:Section1;} –> Thus, in our view, in such a case the work, executed by a sub-contractor, results in a single transaction and not as multiple transactions. This reasoning is also borne out by Section 4(7) which refers to value of goods at the time of incorporation in the works executed. In our view, 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 as held by the impugned judgment of the High Court. Moreover, it may result in double taxation which may make the said 2005 Act vulnerable to challenge as violative of Articles 14, 19 (1)(g) and 265 of the Constitution of India as held by the High Court in its impugned judgment.”

Therefore, the states which have not amended the VAT Rules to comply with the decision of the AP High Court [Kerala is one such state] will have to make necessasry amendments to theitr VAT Rules.

I hope the amendments will be notified soon and will have retrospective effect. This will save the affected dealers and the state governments the time and cost involved in unnecessary litigation.

Date of decision - 26th Aug 2008