Works contract tax on sub-contractor turnover arises at incorporation; the same turnover cannot be added again to the main contractor.

A works contract executed through a registered sub-contractor is taxed on the value of goods at the point of incorporation in the sub-contract, and that turnover cannot be added again to the main contractor's turnover merely because there is no privity of contract with the contractee. Read with Article 366(29A)(b) of the Constitution, the AP VAT scheme treats the transfer of property in goods as a deemed sale on incorporation, so the same goods do not undergo a further deemed transfer back to the main contractor. The analysis rejects a theory of multiple deemed sales and avoids double taxation.

---

---

Issues: Whether the turnover of registered sub-contractors executing part of a works contract is liable to be added to the turnover of the main contractor, and whether the transaction results in multiple deemed sales or a single deemed sale.

Analysis: Section 4(7)(a) of the Andhra Pradesh Value Added Tax Act, 2005 fixes tax on the value of goods at the time of incorporation in the works. Rule 17(1)(c) of the Andhra Pradesh Value Added Tax Rules, 2005 requires a registered sub-contractor to issue a tax invoice to the contractor for the value of goods incorporated in the sub-contract. Read with Article 366(29A)(b) of the Constitution of India, the scheme treats the transfer of property in goods in a works contract as a deemed sale at the point of incorporation. Once the main contractor assigns work to a registered sub-contractor, the property in goods passes on incorporation into the works executed by the sub-contractor, and there is no basis for treating the same goods as having undergone a further transfer back to the main contractor merely because there is no privity of contract between the sub-contractor and the contractee. The statutory scheme does not support plurality of deemed sales or addition of the sub-contractor's turnover to that of the contractor, and such an approach would also risk double taxation.

Conclusion: The turnover of the sub-contractors was not liable to be added to the turnover of the main contractor, and the Department's theory of two deemed sales was rejected.

Ratio Decidendi: In a works contract executed through a registered sub-contractor, tax is attracted on the value of goods at the time of incorporation in the sub-contract, and the same turnover cannot be added again to the main contractor's turnover merely because there is no privity of contract with the contractee.

---