LexM/S. LARSEN & TOUBRO LIMITED & ANR. versus STATE OF KARNATAKA & ANR.
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[2013) 17 S.C.R. 678 A M/S. LARSEN & TOUBRO LIMITED & ANR. B v. STATE OF KARNATAKA & ANR. (Civn Appeal No.8672 of 2013) SEP,TEMBER 26, 2013 [R.M. LODHA, J. CHELAMESWAR AND MADAN B. LOKUR, JJ.] Worl<s contract - Concept and meaning of - Held: The C term "works contract" in Art.366 (29-A)(b) takes within its fold all genre of worl<s contract and is not restricted to one specie of contract to provide for labour and services alone - Nothing in Art.366(29-A)(b) limits the term "worl<s contract" - Where a contract comprises of both a worl<s contract and a transfer of D immovable property, such contract does not denude it of its character as worl<s contract - Constitution of India, 1950 - Art. 366(29-A)(b). Worl<s contract - Levy of tax on goods deemed to have E been sold in execution of a works contract - Three conditions to be fulfilled - Held: The conditions are: a) there must be a works contract, b) the goods should have been involved in the execution of a works contract and c) the property in those goods must be transferred to a third party either as goods or in some other form - In a building contract or any contract to F do construction, the above three things are fully met. Works contract - Building contract - Held: Building contracts are species of the works contract - In the performance of a contract for construction of building, the G goods (chattels) like cement, concrete, steel, bricks etc. are intended to be incorporated in the structure and even though they lost their identity as goods but this factor does not prevent them from being goods - The value of the goods which can constitute the measure for the levy of the tax has to be the H 678 M/S. LARSEN & TOUBRO LIMITED v. STATE OF 679 KARNATAKA value of the goods at the time of incorporation of the goods A- in works even though property passes as between the developer and the flat purchaser after incorporation of goods - If the developer has undertaken to build for the prospective purchaser for cash or deferred payment or a valuable consideration pursuant to a. contract then to that extent, the B contract is works contract and there is deemed S<J/e ofmaterial (goods) used in the construction of building and merely because the builder has a right of lien in the event due monies are not paid does not alter the character of contract being works contract -However, activity of construction c- undertaken by the developer would be works contract only from the stage the developer 'enters into a contract with the flat purchaser - The value addition made to the goods transferred after the agreement is entered into with the flat purchaser can only be made chargeable to tax by the State 9 Government- Constitution of India, 1950 - Art. 366(29-A)(b). Works contract - Composite contract - Held: A contract may involve both a contract of work and labour and a contract for sale - In such composite contract, the distinction between contract for sale of goods and contract for work (or service) is E virtually diminished - The dominant nature test has ncJ application) - Even if the dominant intention of the contract is not to transfer the property in goods and rather it is ' rendering of service or the ultimate transaction is transfer of · immovable property, then also it is open to the States to levy F sales tax on the materials used in such contract if such contract otherwise has elements of works contract - The enforceability test is a/so not determinative. Constitution of India, 1950- Art.366(29-A)(b) rlw Entry 54 G List II of Seventh Schedule - Taxing the sale of goods. element in a works contract - When permissible - Held: It is permissible even after incorporation of goods provided tax is directed to the value of goods and does not purport to tax the transfer of immovable property - Works contract. H 680 SUPREME COURT REPORTS (2013] 17 S.C.R. A Constitution of India, 1950 - Art. 366(29-A)(b) rlw Entry 54 List II of Seventh Schedule - Expression "tax on the sale or purchase of goods" - Meaning of - Held: It includes a tax on the transfer of property in goods whether as goods or in the form other than goods involved in the execution of works B contract - Works contract. Constitution of India, 1950 - Art. 366(29~A)(b) - Object of - Held: Is. to bring transactions where essential ingredients of 'sale' defined in the Sale '6f Goods Act, 1930 are absent C within the ambit of sale or purcha
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