Works contract deemed sales remain subject to tax deduction, but owner-supplied materials and labour component are excluded.

The exemption notification for the Devasthanams was limited to sales and purchases of goods and did not extend to deemed sales arising from transfer of materials in execution of a works contract. Those deemed sales remained subject to tax deduction at source under section 5-H after the statutory recognition of works contract transfers as sales, and an executive circular could not widen the exemption. However, no deduction could be made from owner-supplied materials such as cement and steel, because there was no taxable sale by the contractor in respect of those items, and the labour component was also outside deduction as separately identifiable under rule 6.

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Issues: Whether the exemption notification issued in favour of Tirumala Tirupathi Devasthanams exempted deemed sales involved in works contracts from tax deduction at source under section 5-H of the Andhra Pradesh General Sales Tax Act, 1957, and whether tax could be deducted from all components of the works contract bills.

Analysis: The exemption under the Government Order was confined to sales and purchases of goods by the Devasthanams and did not, on its plain terms, extend to deemed sales arising from transfer or use of materials in execution of a works contract. The Court held that such deemed sales, after the statutory amendment recognising works contract transfers as sales, remained liable to tax deduction at source under section 5-H, and an executive circular could not enlarge the scope of the exemption. At the same time, the Court clarified that materials such as cement and steel supplied by the Devasthanams for execution of the work would not attract deduction, since there was no taxable sale by the contractor in that situation, and the labour component could not be subjected to tax, being separable under rule 6 of the Andhra Pradesh General Sales Tax Rules, 1957.

Conclusion: The challenge to tax deduction at source failed in substance, but the petitioner obtained relief to the extent that deduction could not be made from owner-supplied materials or from the labour component of the works contract.

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