LARSEN & TOUBRO LIMITED  versus ADDITIONAL DEPUTY COMMISSIONER OF COMMERCIAL TAXES & ANR.
[2016] 4 S.C.R. 739, Supreme Court of India, 2016
Outcome: Disposed off
Segment: Ratio
[2016] 4 S.C.R. 739 
LARSEN & TOUBRO LIMITED 
v. 
ADDITIONAL DEPUTY COMMISSIONER OF COMMERCIAL 
TAXES &ANR. 
(Civil Appeal No. 2956 of2007) 
SEPTEMBER 05, 2016 
[A.K. SIKRI AND ROHINTON FALi NARIMAN, JJ.) 
Karnataka Sales Tax Act, 1957 - s.6B - Total Turnover -
Computation of - Assessee has been into business of engineers and 
contractors and in this process executing projects under works 
contracts and is assigning a part of job to sub-contractors to execute 
the works contracts - Claim of assessee that the value of work 
entrusted to the sub-contractor not to be taken into account while 
computing total turnover for the purpose of taxation - Held: The 
value of the work entrusted to the sub-contractor or payments made 
to them shall not be taken into consideration while computing total 
turnover for the purposes of s.6B - Karnataka Sales Tax Rules, 
1957 - r.6(1)(c) - Andhra Pradesh Value Added Tax Act, 2005 -
s.4(7) - Andhra Pradesh Value Added Tax Rules, 2005 - r.17(1)(a) 
- Constitution of India - Art.366(29A)(b). 
Words and Phrases: 
Sale, taxable turnover, total turnover and turnover - Definitions 
discussed in terms of Karnataka Sales Tax Act, 1957. 
Allowing the appeals by assessee and dismissing the appeal 
by revenue, the Court 
HELD: In view of clause (c) of Sub-rule (1) of Rule 6 of 
Karnataka Sales Tax Rules, 1957, total amount paid or payable 
to the dealer as a consideration for 'transfer of property in goods', 
which is involved in execution of the works
contract, is to be 
treated as 'total turnover'. This Rule, thus, specifically restricts 
the total turnover in respect of those goods, alone, where the 
property has been transferred. Thus, transfer of property in 
goods, becomes necessary event and unless there is a transfer 
of nronf'rtv. thf' 11mount naid is not to be included in the total 
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SUPREME COURT REPORTS 
[2016] 4 S.C.R. 
of property in goods. Therefore, the value of the work entrusted 
to the sub-contractors or payments made to them shall not be 
taken into consideration while computing total turnover for the 
purposes of Section 6-B of the Karnataka Act. As a consequence, 
the two appeals which were filed by the assessee were allowed 
and the appeal preferred by the Revenue was dismissed. [ Paras 
17, 18 and 20) (747-F-H; 748-B; 750-B] 
State of Andhra Pradesh & Ors v. Larsen & Toubro 
Limited & Ors. (2008) 9 SCC 191: 2008 (12) SCR 
843 - relied on. 
c 
The State of Madras v. Gannon Dunkerley & Co. 
(Madra5~ Limited AIR 1958 SC 560 : 1959 SCR 379; 
Builders' Association of India & Ors. v. Union of India 
& Ors. (1989) 2 sec 645 : 1989 (2) SCR 320 -
D 
referred to. 
Case Law Reference 
2008 (12) SCR 843 
1959 SCR 379 
1989 (2) SCR 320 
relied on 
Para 6 
referred to 
Para 14 
referred to 
Para 14 
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CIVIL APPELLATE JURISDICTION: Civil Appeal No. 2956 of 
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2007. 
From the Judgment and Order dated 03 .02.2006 of the High Court 
of Karnataka in STRP No. 44 of 2004 
C. A. No. 2318 of2013 
C. A. No. 7241 of2016. 
WITH 
N. Venkatraman, K. N. Bhat, Sr. Advs., D. P. Mohanty, Ms. Sanjana 
Ramachandran, Abhinay, Mis. Parekh & Co., Sanand Ramakrishnan, 
V. N. Raghupathy, Parikshit P. Angadi, Advs. for the appearing parties. 
The Judgment of the Court was delivered by 
A.K. SIKRI, J. I. Same parties are entangled in these three 
appeals which
arise out of the provisions of the Karnataka Sales Tax 
Act, 1957 (hereinafter referred to as the 'KarnatakaAct'). Two appeals
LARSEN & TOUBRO LIMITED v. ADDITIONAL DEPUTY 
COMMISSIONER OF COMMERCIAL TAXES [A.K. SIKRI, J.] 
are, preferred by the assessee, viz. Larsen & Toubro Ltd., and one appeal 
is filed by the Revenue, i.e. the Sales Tax Department of Karnataka. 
2. The assessee is doing the business of engineers and contractors 
and in this process it, inter alia, executes projects under contracts with 
public sector undertakings, local bodies as well as the Union and the 
State Governments, besides private sector. The assessee is registered 
under the Karnataka Act and files its returns for payment of sales tax 
thereunder. The contracts which are secured by the assessee are the 
works contracts and a part thereof is generally assigned to sub-
contractors. For example, in Civil Appeal No. 2956 of2007, the assessee 
had secured a contract to construct an indoor stadium styled 'Sree 
Kanteerava Indoor Stadium' in Bengaluru and the assessee assigned 
the work of finding their own materials and laying foam concrete to Ml 
s. Lloyd Insulation (India Limited). This sub-contractor was registered 
with the Deputy Commissioner of Commercial Taxes, Assessment-IX 
City Division, Bengaluru, and accordingly it had submitted returns and 
paid taxes for the execution of the works contract and was duly assessed 
under Sections 5-B and 6-B of the Karnataka Act. A certificate dated 
April I 0, 1998 to that effect had been marked before the authorities. 
Likewise, returns are filed by the assessee as well on
regular basis. 
In the course of the assessment, the assessee submitted that the sub-
contractors were !he parties who executed the works contract and since 
the transfer of property involved in such execution had already been 
taxed, the appellant cannot be taxed again under Section 6-B of the 
Karnataka Act there being only one taxable event for the purpose of 
Article 366(29A)(b) of the Constitution oflndia. In nutshell, it was the 
submission of the assessee that value of the work entrusted to the sub-
contractor could not be taken into account while computing total turnover 
of the assessee for the purpose of taxation under the Kamataka Act. 
This submission of the assessee was, however, negatived by the Assessing 
Officer as well as the Karnataka Appellate Tribunal. In the revision 
filed under Section 23 of the Karnataka Act, the appellant raised the 
following questions: 
(i) Is the assessee liable to turnover tax under Section 6-B of the 
Karnataka Sales Tax Act, I 957 on the payment made to the sub-
contractor in spite of the fact that the sub-contractor had declared the 
turnover and paid taxes? 
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(ii) Since the payment made to the sub-contractor does not amount 
to turnover within Section 2(i)(v) of the Karnataka Sales Tax Act, 1957, 
can such payment be part of total turnover as per Section 2( I)( u-2) of 
the Karnataka Sales Tax Act, 1957? 
The High Court decided the aforesaid questions against the assessee 
and thereby affirmed the view taken by the Appellate Tribunal which 
resulted in dismissing the revision petition of the assessee videjudgment 
dated February 03, 2006. This judgment is the subject matter of challenge 
in Civil Appeal No. 2956 of 2007, which pertains to the Assessment 
Year 1997-1998. 
3. Likewise, for the Assessment Year 2002-2003 (Civil Appeal 
No. 2318 of2013), the assessee has been meted out the same treatment 
whereby the work awarded to the sub-contractors, who are the registered 
dealers and have paid sales tax in respect of the works undertaken by 
them, has been added in the total turnover of the assessee for the purposes 
of levying tax. However, here the matter is remanded to the Assessing 
Officer for ascertaining the liability of the assessee under Section 5-B 
as well as Section 6-B of the Karnataka Act in respect of total turnover 
of the assessee. 
4. On the other hand, outcome of the proceedings in respect of 
the Assessment Year 1999-2000 (Civil Appeal No. 7241 of 2016) has 
taken a U-turn. For this Asse~sment Year, though the Assessing Officer 
as well as
the Appellate Tribunal had included the cost of work awarded 
to the sub-contractors, the High Court has held that value of the work 
awarded to the sub-contractors cannot be included for computing the 
total turnover of the assessee and has, thus, allowed the revision petition 
preferred by the assessee. Against that order, the Revenue is in appeal. 
5. The aforesaid briefresume of the three appeals makes it clear 
that the question of law involved in all these three cases is the same, 
though the two sets of judgments of the High Court are contrary to each 
other. 
6. It may be pointed out at this juncture itself that in the case of 
this very assessee same question oflaw had arisen, albeit in the context 
of Andhra Pradesh Value Added Tax Act, 2005 (hereinafter referred to 
as the 'Andhra Pradesh Act'). This Court has decided the issue in its 
judgment known as State of A11dlm1 Pradesh & Ors. v. Larse11 & 
Toubro Limited. & Ors. 1 (hereinafter referred to as 'Andhra Pradesh 
1 (2008J 9 sec 191
LARSEN & TOUBRO LIMITED v. ADDITIONAL DEPUTY 
COMMISSIONER OF COMMERCIAL TAXES [A.K. SIKRI, J.] 
judgment'). The question oflaw is answered in favour of the assessee. 
Taking aid of the said judgment, the assessee has argued that the instant 
appeals should be decided in its favour. On the other hand, plea of the 
Revenue is that that view taken by the High Court, which is in favour of 
the Revenue, is the correct view and should be maintained having regard 
to the provisions of the Karnataka Act. The endeavour of the Revenue 
is to demonstrate that the provisions of the Andhra Pradesh Act are 
materially different than that of the Karnataka Act and, therefore, the 
judgment in the Andhra Pradesh case need not be followed. 
Before adverting to the aforesaid judgment of this Court, it would 
be advisable to take note of the various provisions of the Karnataka 
Act. 
7. For our purposes, definitions of 'sale', 'taxable turnover', 
'total turnover' and 'turnover' are material, which are reproduced 
below: 
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"2(i)(t) "Sale" with all its grammatical variation and cognate 
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expressions means every transfer of the property in goods (other 
than by way of a mortgage, hypothecation, charge or plede) by 
one person to another in the course of trade or business for cash 
or for deferred payment or other valuable consideration, and 
includes,-
(i) a transfer otherwise than in pursuance of a contract of 
property in any goods for cash, deferred payment or other 
valuable
consideration; 
(ii) a transfer of property in goods (whether as goods or in 
some other form) involved in the execution of a works 
contract; 
2(i)(u-l) "Taxable turnover" means the turnover on which a 
dealer shall be liable to pay tax as determined after making such 
deductions from his total turnover and in such manner as may be 
prescribed, but shall not include the turnover of purchase or sale 
in the course of inter-State trade or commerce or in the course of 
export of the goods out of the territory oflndia or in the course of 
import of the gods into the territory oflndia; 
( u-2) "Total turnover" means the aggregate turnover in all goods 
of a dealer at all places of business in the State, whether or not 
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the whole or any portion of such turnover is liable to tax, including 
the turnover of purchase or sale in the course of inter-State trade 
or commerce or in the course of export of the goods out of the 
territory of India or in the course of import of the goods into the 
territory oflndia; 
(v) "Turnover" means the aggregate amount for which goods are 
bought or sold, or supplied or distributed or delivered or otherwise 
disposed of in any of the ways referred to in clause (t) by a dealer, 
either directly or through another, on his own account or on account 
of others, whether for cash or for deferred payment or other 
valuable consideration." 
8. Since we are dealing with the sales tax under the Karnataka 
Act, obviously the said tax is on 'sale'. 'Sale' is defined as transfer of 
the property in goods by one person to another in the course of trade or 
business for consideration and it, inter alia, includes a transferof property 
in goods (whether as goods or in some other form) involved in the 
execution of a works contract. Thus, even in respect of works contract 
whenever there is a transfer of property in goods, that is deemed as 
'sale'. 
9. An essential element to constitute a transaction as 'sale' is the 
transfer of property in goods. Aggregate amount for which the goods 
are bought or sold, or supplied or distributed or delivered or otherwise 
disposed of, in any of the ways referred to under
Section 2(t), by a 
dealer is treated as 'turnover' within the meaning of Section 2(v) of the 
Kamataka Act. 
There are two variants of this turnover known as 
'taxable turnover' and 'total turnover', the definitions whereof are 
already reproduced above. 'Total turnover' is defined as aggregate 
turnover in all goods of a dealer at all places of business in the State. 
However, from this aggregate turnover, certain deductions are permissible 
under the provisions of the Karnataka Act and when those deductions 
are allowed from the total turnover, we get 'taxable turnover' on which 
a dealer is liable to pay tax. 
10. Section 5-B of the Karnataka Act is the charging section in 
respect of execution of the works contract and it reads as under: 
"5-B Levy of tax on transfer of property in goods (whether 
as goods or in some other form) involved in the execution 
of works contracts - Notwithstanding anything contained in sub-
LARSEN & TOUBRO LIMITED v. ADDITIONAL DEPUTY 
COMMISSIONER OF COMMERCIAL TAXES [A.K. SIKRI, J.] 
section (I) or sub-section (3) or sub-section (3-C) of Section 5, 
but subject to sub-section (4), (5) or (6) of the said section, every 
dealer shall pay for each year, a tax under this act on his taxable 
turnover of transfer of property in goods (whether as goods or in 
some other fonn) involved in the execution of works contract 
mentioned in column (2) of the Sixth Schedule atthe rates specified 
in the corresponding entries in column (3) of the said Schedule." 
11. There is a levy of turnover tax as well, which is provided 
under Section 6-B of the Karnataka Act. At the relevant time, this 
provision was in the following fonn: 
"6-B Levy of Turnover Tax. - (I) Every registered dealer and 
every dealer who is liable to get himself registered under sub-
section (I) and (2) of Section I 0 whose total turnover in a year is 
not less than the turnovers specified in the said sub-sections, 
whether or not the whole or any portion of such turnover is liable 
to tax under any other provisions of this Act, shall be liable to pay 
tax. -
(i) at the rate of one and half per cent of the total turnover, if 
the total turnover is not more than one thousand lakh rupees in 
a year; or 
(ii) at the rate of three per cent of the total turnover, if the 
total turnover is more than one thousand lakh rupees in a year; 
Prov_ided that the rate of tax payable for any year shall be at one 
and half
per cent on the turnovers up to one thousand lakh rupees 
and at three per cent on the turnovers exceeding one thousand 
lakh rupees, if, the total turnover in the year immediately preceding 
that year was not more than one thousand lakh rupees." 
12. On a plain reading of Sections 5-B and 6-B of the Karnataka 
Act, it can be seen that Section 5-B deals with levy of tax on transfer of 
property in goods involved in the execution of the works contract. It is, 
thus, a special provision made for imposing sales tax on works contract 
and tax is payable on 'taxable turnover of transfer of property in 
goods'. Additionally, in those cases where total turnover of a registered 
dealer in an year is not less than the turnover specified in sub-sections 
(I) and (2) of Section 10, such a dealer is liable to pay tax at the rate 
specified in Section 6-B of the Karnataka Act. 
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13. The question for determination is: for calculating the turnover 
for the purpose of payment of turnover tax under Section 6-8 of the 
Karnataka Act, whether payments made to sub-contractor are to be included 
while calculating the total turnover? 
14. Mr. N. Venkatraman, learned senior counsel appearing for the 
appellant/assessee, made a fervent plea for not including such payments 
made to the sub-contractor, as component of total turnover, because of 
the reason that the sales tax is payable on the transfer of property and the 
'turnover' also meant aggregate amount for which goods are bought or 
sold, etc. Therefore, transfer of property in goods was the necessary 
concomitant in ascertaining the sale and, thus, in the process calculating 
the turnover/total turnover. It was submitted that there was no sale of 
goods involved in the execution of a works contract as in such contracts 
the property does not pass as movables. Tracing the history of works 
contract, the learned senior counsel submitted that in the case of Tile Stute 
of Madras v. Gunn on Dunkerley & Co.(Mudrcts) Limit ell-, while speaking 
of a building contract, this Court held that the property in goods involved 
in the execution of a works contract does not pass as movables but on the 
theory of accretion on the principle quicquid plantatur solo, solo cedit, i.e. 
whatever is attached to the soil, becomes part of it. The Constitution
(Forth-Sixth Amendment) Act, 1982 inserted Article 366(29-A)(b) to 
neutralise the judgment in Gumwn Dunkerley & Co. only to the extent 
that an indivisble contract was deemed to be divisible and did not undo the 
principle. He argued that this Court, interpreting Article 366(29-A)(b) in 
Builders'Association of India & Ors. v. Union oflmliu & Ors. 3, reiterated 
that in a works contract property in goods passes out as movable but on 
the theory of accretion. It was further submitted that the property passes 
by accession just once which, by a fiction, is taxed as a sale. The Article 
also identifies the transferor and transferee effecting the deemed sale and 
deemed purchase. The taxable person is the contractor executing the works 
contract so that the main contractor, who assigns the work to another 
person to execute the work, cannot be a transferor, nor any property in 
goods vest in the main contractor, when the contract is executed by a sub-
contractor. 
15. Proceeding further, by taking the aforesaid line of argument, 
the learned senior counsel submitted that if the point of view of the 
Revenue is accepted, it would amount to double taxation inasmuch as 
2 AIR 1958 SC 560 
H 
'{1989) 2 sec 645
LARSEN & TOUBRO LIMITED v. ADDITIONAL DEPUTY 
COMMISSIONER OF COMMERCIAL TAXES [A.K. SIKRI, J.] 
sub-contractors were also registered dealers who had paid sales tax 
under the KarnatakaAct and by including the payments made to them in 
the total turnover of the assessee, tax was sought to be levied on the 
same amount all over again. On the aforesaid premise, the learned 
senior counsel for the assessee submitted that precisely this argument in 
law has been accepted by this Court in the Andhra Pradesh judgment. 
He referred to the discussion contained in the said judgment in extenso. 
16. Mr. K.N. Bhat, learned senior counsel appearing for the~ 
Revenue, per contra, heavily relied upon the reasoning given by the High 
Court in the judgment which has taken the view in favour of the Revenue. 
He submitted that one had to keep in mind the distinction between Section 
5-B and Section 6-B of the Karnataka Act by pointing out that when it 
comes to levy of turnover tax, it speaks of 'total turnover', whereas tax 
payable under Section 5-B is on the 'taxable turnover'. He submitted 
that since we are concerned with the levy of tax under Section 6-B of 
the Karnataka Act, total turnover becomes relevant and, therefore, the 
value of the work entrusted to the sub-contractors is includible at the 
hands of the assessee. He further submitted that the High Court was 
right in pointing out that sales tax is leviable at a single point, whereas 
turnover tax is leviable at a multi-point,
both at the hands of the main 
contractor and sub-contractor and, therefore, the question of double 
taxation does not arise. 
17. After bestowing our due consideration to the respective 
submissions, we find that the position taken by the assessee has to prevail, 
which appears to be meritorious. This result follows even from the 
bare perusal of the Karnataka Act and Rules. 
For this purpose, it 
becomes important to refer to clause (c) of sub-Rule (I) of Rule 6 of the 
Karnataka Sales Tax Rules, 1957. Rule 6 deals with determination of 
total and taxable turnover and clause (c) reads as under: 
"6. Determination of total and taxable turnover. - ( 1) The 
total turnover of a dealer, for the purposes of the Act, shall be the 
aggregate of. -
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( c) the total amount paid or payable to the dealer as the 
consideration for transfer of property in goods (whether as'"goods 
or in some other form) involved in the execution of works contract; 
and includes any amount paid as advance to the dealer as a part 
of such consideration. 
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SUPREME COURT REPORTS 
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18. What is significant is that total amount paid or payable to the 
dealer as a consideration for 'transfer of property in goods', which is 
involved in execution of the works contract, is to be treated as 'total 
turnover'. This Rule, thus, specifically restricts the total turnover in 
respect of those goods, alone, where the property has been transferred. 
Thus, transfer of property in goods, becomes necessary event and unless 
there is a transfer of property, the amount paid is not to be included in 
the total turnover. The amount paid to the sub-contractor is not for 
transfer of property in goods. When matter is examined from this angle, 
the ratio laid down by this Court in the Andhra Pradesh judgment clearly 
applies inasmuch as in that case also the Court noticed that Section 4(7) 
of the Andhra Pradesh Act indicated that the taxable event is the transfer 
of property in goods involved in the execution of a works contract and 
the said transfer of property in such goods takes place when the goods 
are incorporated in the works. The Court held that the value of the 
goods which constitute the measure for the levy of tax is the value of 
goods at the time of the incorporation of the goods in the works. The 
Court further found that same was the position contained in Rule 17( I )(a) 
of the Andhra Pradesh Value Added Tax Rules, 2005. 
19. It is not in dispute that the facts and the issue involved were
identical, i.e. the assessee had assigned parts of the construction work 
to sub-contractors who were registered dealers. These sub-contractors 
had purchased goods and chattels like bricks, cement and steel and, 
where necessary, supply and erect equipments such as lifts, hoists, etc. 
The materials were brought to the site and they remain the property of 
the sub-contractor. The site was occupied by the sub-contractor and the 
materials were erected by the sub-contractor. In this backdrop, after 
taking note of some provisions of the Andhra Pradesh Act, the Court 
explained the legal position in the following manner: 
"16. By virtue of Article 366(29-A)(b) of the Constitution, once 
the work is assigned by the contractor (L&T), the only transfer 
of property in goods is by the sub-contractor(s) who is a registered 
dealer in this case and who claims to have paid taxes w1der the 
Act on the goods involved in the execution of the works. Once 
the work is assigned by L&T to its sub-contractor(s ), L&T ceases 
to execute the works contract in the sense contemplated by Article 
366(29-A)(b) because property passes by accretion and there is 
no property in goods with the contractor which is capable of a 
retransfer, whether as goods or in some other form.
LARSEN & TOUBRO LIMITED v. ADDITIONAL DEPUTY 
COMMISSIONER OF COMMERCIAL TAXES [A.K. SIKRI, J.] 
17. The question which is raised before us is whether the turnover 
of the sub-contractors (whose names are also given in the original 
writ petition) is to be added to the turnover of L&T. In other 
words, the question which we are required to answer is whether 
the goods employed by the sub-contractors occur in the form of a 
single deemed sale or multiple deemed sales. In our view, the 
principle oflaw in this regard is clarified by this Court in Builders' 
Assn. of India as under: (SCC p. 673, para 36) 
~'36 ... Ordinarily unless there is a contract to the contrary in 
the case of a works contract, the property in the goods used in the 
construction ofa building passes to the ownerofthe land on which 
the building is constructed, when the goods or materials used are 
incorporated in the building." 
(emphasis supplied by us) 
18. As stated above, according to the Department, there are two 
deemed sales, one from the main contractor to the contractee 
and the other from sub-contractor(s) to the main contractor, in 
the event of the contractee not having any privily of contract 
with the sub-contractor(s). 
19. If one keeps in mind the abovequoted observation of this 
Court in Builders' Assn. of India the position becomes clear, 
namely, that even if there is no privity of contract between the 
contractee and the sub-contractor, that would not do away with 
the principle of
transfer of property by the sub-contractor by 
employing the same on the property belonging to the contractee. 
This reasoning is based on the principle of accretion of property 
in goods. It is subject to the contract to the contrary. Thus, in our 
view, in such a case, the work executed by a sub-contractor, results 
in a single transaction and not as multiple transactions. This 
reasoning is also borne out by Section 4(7) which refers to the 
value of goods at the time of incorporation in the works executed. 
In our view, if the argument of the Department is to be accepted, 
it would result in plurality of deemed sales which would be contrary 
to Article 366(29-A)(b) of the Constitution as held by the impugned 
judgment of the High Court. Moreover, it may result in double 
taxation which may make the said 2005 Act vulnerable to challenge 
as violative of Articles 14, 19(1 )(g) and 265 of the Constitution of 
India as held by the High Court in its impugned judgment." 
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A 
This raison d'etre shall apply, in full force, while answering the 
question even in the context of the Karnataka Act. 
20. We, therefore, hold that the value of the work entrusted to the 
sub-contractors or payments made to them shall not be taken into 
consideration while computing total turnover for the purposes of Section 
B 
6-B of the Karnataka Act. ·As a consequence, the two appeals which 
are filed by the assessee are allowed and the appeal preferred by the 
Revenue is dismissed. In the facts and circumstances of the case, there 
shall be no order as to costs. 
Ankit Gyan 
Appeals disposed of. 
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