Petitioner is a contractor who had sub-contracted part of the works contract to another person. Department sought tax from Petitioner on the entire contract on the basis that there are two deemed sales: one from the sub-contractor to the Petitioner and another from thePetitioner to the employer.
Whether there are two or only one “deemed sale” and whether main contractor is liable to pay tax on the portion of the workscontract which is sub-contracted?
Under Article 366(29A)(b), tax is levied on transfer of property in goods involved in the execution of works contract. There can be only one transfer of property in goods, in a works contract, when the goods are incorporated in the works. The goods are purchased by the sub-contractor and therefore he is owner of those goods. When the goods are subsequently used in the execution of the works contract, the transfer of property in goods takes place by way of accretion and hence the employer becomes the owner. Petitioner has no role to play and there is no transfer of property to or from the Petitioner in respect of these goods which fall within the sub-contractor’s scope of work.
Petitioner is not liable to pay tax on the goods which are used by the sub- contractor in the execution of works contract. (CA No. 5239 of 2008 (Arising out of SLP (C) No. 12482 of 2007 dt. 26-8-2008)
Editorial: This decision furnishes some first principles for application to new GST regime, though this must be done cautiously since the statutory framework has now changed. Under GST the term “Works Contract” have been defined under
- 2(119) and relates to only immovable property and is treated as the supply of services.
“It is any day better to stand erect with a broken and bandaged head then to crawl on one’s belly, in order to be able to save one’s head.”
– Mahatma Gandhi