Payments made to sub-contractor not to be included while calculating the turnover under Section 6-B, Karnataka Sales Tax Act, 1957

Supreme Court

Supreme Court: The important question before the Court was that for calculating the turnover for the purpose of payment of turnover tax under Section 6-B of the Karnataka Sales Tax Act, 1957, whether payments made to sub-contractor are to be included while calculating the total turnover. Answering the question in negative, the Court held that the sales tax is payable on the transfer of property and the ‘turnover’ also means aggregate amount for which goods are bought or sold, etc. Therefore, transfer of property in goods is the necessary concomitant in ascertaining the sale and, thus, in the process calculating the turnover/total turnover.

It was further explained that the 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.

The bench of Dr. A.K. Sikri and R.F. Nariman, gave an elaborate explanation to the term ‘turnover’ and said that 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 Karnataka 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, ‘taxable turnover’ id determined on which a dealer is liable to pay tax.

It was held 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 a year is not less than the turnover specified in sub-sections (1) 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. [Larsen & Toubro Limited v. Additional Deputy Commissioner Of Commercial Taxes, 2016 SCC OnLine SC 900, decided on 05.09.2016]

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