Works contract turnover tax excludes sub-contractor payments where the taxable transfer is executed by the sub-contractor.

For levy of turnover tax under Section 6-B of the Karnataka Sales Tax Act, amounts paid to sub-contractors for work they independently executed under a works contract were not includible in the main contractor's total turnover. Section 5-B and Rule 6(1)(c) limit turnover, in this context, to the consideration for transfer of property in goods involved in execution of the works contract by the taxable contractor. Including the same amount in the main contractor's turnover would treat the transfer as multiple deemed sales, contrary to Article 366(29A)(b). The SC followed the earlier Andhra Pradesh decision on identical facts and held in favour of the assessee.

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Issues: Whether payments made to sub-contractors in execution of works contracts are includible in the assessee's total turnover for levy of turnover tax under Section 6-B of the Karnataka Sales Tax Act, 1957, and whether such inclusion can be sustained where the sub-contractors have separately executed the work and paid tax.

Analysis: Section 5-B taxes the transfer of property in goods involved in execution of works contracts, while Section 6-B levies turnover tax on total turnover. Rule 6(1)(c) of the Karnataka Sales Tax Rules, 1957 confines total turnover, in the context of works contracts, to the total amount paid or payable as consideration for transfer of property in goods involved in execution of the works contract. The Court held that the amount paid to sub-contractors is not consideration for a transfer of property in goods at the hands of the main contractor when the work has been assigned to them and the taxable transfer is effected by the sub-contractor through incorporation of goods in the works. The reasoning in the earlier Andhra Pradesh decision on identical facts was followed, and inclusion of the same amount in the main contractor's turnover would create multiple deemed sales contrary to Article 366(29A)(b) of the Constitution of India.

Conclusion: The payments made to sub-contractors are not includible in the assessee's total turnover for the purpose of Section 6-B, and the issue is answered in favour of the assessee.

Final Conclusion: The assessee succeeded on the substantive turnover issue, resulting in allowance of its appeals and rejection of the Revenue's appeal.

Ratio Decidendi: For levy of turnover tax on works contracts, only the amount representing transfer of property in goods involved in the execution of the works contract can be included in total turnover; payments made to sub-contractors for work they independently execute are not part of the main contractor's turnover.

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