Single taxable event in works contracts with sub-contractors; dual levy on the same deemed sale is invalid.

In a works contract executed through a sub-contractor, the transfer of property in goods constitutes only one deemed sale under Article 366(29A)(b), because the sub-contractor acts within the contractor's execution of the same contract and there is no privity between the employer and the sub-contractor. The constitutional fiction does not permit the same transfer to be treated as two separate taxable events merely because the work is split between contractor and sub-contractor. A levy based on dual taxation of the same transaction was held irrational and discriminatory, so the assessment could not stand and was set aside, subject to fresh assessment in accordance with the declared legal position.

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Issues: Whether, in a works contract executed through a sub-contractor, the transfer of property in goods gives rise to one taxable event or two under the Andhra Pradesh Value Added Tax Act, 2005, and whether the impugned levy and assessment could stand on the footing that both the main contractor and the sub-contractor were separately taxable for the same deemed sale.

Analysis: A works contract is founded on an agreement between the employer and the contractor, and where part of that contract is entrusted to a sub-contractor, there is a second agreement between the contractor and the sub-contractor. However, there is no privity of contract between the employer and the sub-contractor, and the sub-contractor functions only as the contractor's agent for execution. The constitutional fiction under Article 366(29A)(b) deems the transfer of property in goods involved in execution of a works contract to be a sale, but that fiction does not justify treating the same transfer as two distinct sales merely because execution is split between contractor and sub-contractor. The property in the goods passes directly to the employer through the execution of the works contract, and not first to the contractor and then again to the employer. On that basis, the State's construction of the charging provisions and rules as creating two taxable events was rejected. The Court also held that a two-fold levy on the same transaction, depending only on whether a sub-contractor is employed, would be irrational and discriminatory.

Conclusion: There is only one taxable event in such a transaction, and the assessment based on the contrary view could not be sustained. The impugned assessment was set aside, while leaving it open to the authorities to make a fresh assessment in accordance with the legal position declared.

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