Works contract valuation includes transport charges until incorporation; exemption for gravel-related work did not extend to civil construction.

In a works contract, the taxable turnover under section 5F is determined by the value of goods at the time of incorporation, and that value includes transportation and other costs incurred until incorporation. Applying Gannon Dunkerley and the Full Bench ruling in Seven Hills Constructions, the court noted that even if the gravel had no acquisition cost, transport charges paid to bring it to the work site formed part of its taxable value. The exemption in G.O. Ms. No. 1091 was confined to earth work and gravel quarrying contracts and did not extend to civil construction contracts where earth filling was only an incidental component. Rule 6(2)(g) did not cover transportation charges, so they were not deductible.

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Issues: Whether the transportation charges and earth filling charges relating to gravel used in the execution of the works contract were deductible or exempt from tax while computing taxable turnover under section 5F of the Andhra Pradesh General Sales Tax Act, 1957, in the light of G.O. Ms. No. 1091 Revenue dated 10.06.1957 and rule 6(2) of the Andhra Pradesh General Sales Tax Rules.

Analysis: The turnover under section 5F is measured by the value of the goods involved in the execution of the works contract at the time of incorporation. Following the principle in Gannon Dunkerley and the Full Bench ruling in Seven Hills Constructions, the value includes not only the acquisition cost of the goods but also transportation charges and other amounts incurred till incorporation. On the facts, the petitioner failed to establish that the gravel was supplied free of cost, and even assuming zero acquisition cost, the transportation charges paid for bringing the gravel to the work site formed part of its value. The exemption under G.O. Ms. No. 1091 applied to earth work and gravel quarrying contracts, not to civil construction contracts in which earth filling was only a component. Rule 6(2)(g) did not cover transportation charges, as they were not expenses relatable to labour or services of the kind specified there.

Conclusion: The transportation charges formed part of the taxable value of the gravel and were not deductible or exempt. The claim of exemption failed.

Ratio Decidendi: In a works contract, the taxable value of goods includes the value at incorporation together with transportation and other charges incurred till such incorporation, and a deduction can be allowed only if it is specifically covered by the governing rule or exemption.

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