STATE OF ANDHRA PRADESH ORS. versus LARSEN AND TOURBO LTD. AND ORS.

Citation: [2008] 12 S.C.R. 843 · Decided: 26-08-2008 · Supreme Court of India · Bench: S.H. KAPADIA · Disposal: Dismissed
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Judgment (excerpt)

844 
SUPREME COURT REPORTS 
[2008) 12 S.C. R. 
A 
Dismissing the appeal, the Court 
~ELD: 1.1. Section 4(7) of the Andhra Pradesh Value 
Added Tax Act, 2005 is a Code by itself. It begins with a 
non-obstante clause. It sta!es that every dealer executing 
works contract shall pay tax on the value of go.ods at the 
8 time of incorporation of such goods in the works execi1ted 
at the rates applicable to the goods under the Act. Section 
\-
4(7)(a) of the 2005 Act indicates that. the taxable event is 
the transfer of property in goods involved in the execution 
of a works contract and the said transfer of property in 
C such goods takes place when the goods are incorporated 
in the works. [Para 16] 
1-
The State of Madras v. Mis. Gannon.Dunkerley and Co. 
(Madras) Ltd.(1958) 9 STC 353; Mis. Gannon Dunkerley and 
0 
Co. and Ors. v. State of Rajasthan. and Ors. (1993) 88 STC 
204 - referred to. 
1.2. The sub-contractors. of 'L& T were registered 
dealers. None of them were u~registered. Under s.4(7)(a) . 
read with Rule 17(1)(g) of APYA1 Rules, 2005, where VAT 
E dealer awards any part of the contract to a sub-contractor, 
such sub-contractor shall issue a tax invoice ·to the 
contractor for the value of. the goods at the time of 
incorporation in such sub-contract. The tax charged ih 
the tax invoice issued by the sub-contractor shall be 
F accounted by him in his returns. Therefore, the scheme 
indicates that there is a "deemed sale" by the dealer 
executing the work, i.e., the sub-contractor. It is only the . 
sub-contractor who effects transfer of property in goo.ds 
as no goods vests in the respondent company 
G (contractor) so as to be the subject-matter of a retransfer. 
By virtue of Article 366 (29A)(b) of the Constitution, once. 
the work is assigned by the contractor (L& T), the only 
transfer of -property' in goods is by the sub-contractor 
who is a registered dealer and who c!a!ms to hai1e paid 
taxes under the Act on the goods involved in the execution 
H 
STATE OF ANDHRA PRADESH ORS. v. LARSEN & 845 
TOURBO LTD. & ORS. 
-...( 
of the works. Once the work is assigned by L& T to its A 
sub-contractor(s), L& T ceases to execute the works 
contract in the sense contemplated by Article 366(29A)(b) 
because property passes by accretion and there is no 
property in goods with the contractor which is capable of 
a retransfer, whether as goods or in some other form. B 
[Para 16] [857 C-H] 
~· 
Builders Association of India and Ors. v. Union of India 
and Ors. (1989) 73 STC 370 - relied on. 
1.3. Even if there is no privity of contract between c 
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 D 
I 
to the contract to the contrary. Thus, 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 s.4(7) which refers to value 
of goods at the time of incorporation in the works 
E 
executed. 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. Moreover, it may result in double taxation 
which may make the said 2005 Act vulnerable to challenge 
F 
as violative of Articles 14, 19 (1 )(g) and 265 of the 
--+· 
Constitution of India. [Para 19] [858 E-H, 859 A] 
2. After the impugned judgment, the Department has 
amended Rule 17 of the APVAT Rules, 2005 by 
Government Order dated 20.8.2007. It is now clarified that G 
_,., 
where a VAT dealer awards any part of the contract to a 
~ J 
registered sub-contractor, no tax shall be payable on the 
consideration paid for the sub-contract. Therefore, the 
principle to be adopted in all such cases is that the 
property in the goods would pass to the owner/contractee H 
A 
B 
c 
D 
E 
846 
SUPREME COURT REPORTS 
(2008] 12 S.C.R. 
on its incorporation in the works executed. This principle 
finds place in sub-section 7(a) of s. 4 of the said 2005 Act. 
[Para 20] [859 8-D] 
Case Law Reference 
(1958) 9 STC 353 
referred to 
Para 13 
(1989) 73 STC 370 
relied on 
Para 14 
(1993) 88 src 204 
· referred to 
Para 15 
CIVILAPPELLATE JURISDICTION: Civil Appeal No. 5239 
of 2008 
From the final Judgment and Order dated 12.10.2006 of 
the High Co
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