2024 (6) TMI 609 - HC - VAT and Sales Tax

Contractor wins deduction for work assigned to registered sub-contractor under Section 3-B(2) Tamil Nadu Sales Tax Act

The Madras HC allowed a contractor's petition for deduction when work was assigned to a registered sub-contractor under Section 3-B(2) of the Tamil Nadu ... Deduction allowed to a contractor who assigned work to a sub-contractor - proviso to Section 3-B(2) of the Tamil Nadu General Sales Tax Act, 1959 - HELD THAT:- The sub-contractor has to be a registered dealer. In the present case, the authority has concluded that the subcontractor is a registered dealer. In view of that, when the work is already assigned to its sub-contractor, which is registered, the sub-contractor is liable to pay the tax under the Act and it is the responsibility of the sub-contractor to include the same in his return. The Apex Court, in the case of LARSEN & TOUBRO LIMITED VERSUS ADDITIONAL DEPUTY COMMISSIONER OF COMMERCIAL TAXES & ANOTHER [2016 (9) TMI 519 - SUPREME COURT], has considered the pari materia provision under the Karnataka Sales Tax Act, 1957 and concluded that payments made to the sub-contractor are not to be included while calculating the total turnover of the contractor. In view of the authoritative pronouncement of the Apex Court in the case of Larson & Toubro Limited, proviso to Section 3-B(2) to the extent “and that the turnover of such amounts is included in the return filed by such subcontractor” is read down as “not to apply to the contractor who has assigned the work to a sub-contractor who is a registered dealer”. It will be open for the Revenue to collect the tax from the sub-contractor, if the same has not been paid by the subcontractor in respect of the works assigned by the petitioner. Petition allowed. Issues involved: Challenge to part of proviso to Section 3-B(2) of the Tamil Nadu General Sales Tax Act, 1959 regarding deduction allowed to a contractor who assigned work to a sub-contractor.Summary:The petitioner, a contractor, challenged the proviso to Section 3-B(2) of the Act, which required proof that the sub-contractor is a registered dealer and that the turnover is included in the sub-contractor's return. The main contention was whether the turnover of amounts paid to the sub-contractor should be included in the contractor's total turnover for tax liability.The petitioner argued that as the sub-contractor is a registered dealer liable to pay tax, the contractor should not be held liable if the turnover amount is not included in the sub-contractor's return. However, the Additional Advocate-General contended that unless the sub-contractor includes the amount in their turnover, the contractor remains liable to pay tax.The Court considered the definitions of taxable turnover and total turnover under the Act, emphasizing that once the work is assigned to a sub-contractor, the property in goods passes to the sub-contractor, making them liable for tax payment. Referring to the Apex Court's judgment in Larson & Toubro Ltd., the Court held that payments made to sub-contractors should not be included in the contractor's total turnover.Ultimately, the Court read down the proviso to Section 3-B(2), stating that the turnover of amounts paid to the sub-contractor need not be included in the contractor's return if the sub-contractor is a registered dealer. The Revenue was given the authority to collect tax from the sub-contractor if not paid in relation to the works assigned by the petitioner.In conclusion, the writ petition was allowed, and the impugned provision was interpreted in favor of the contractor who assigns work to a registered sub-contractor, with no costs awarded.