Sales tax back to back contracts
d. chandra sekhar
(Querist) 17 January 2013
This query is : Resolved
Sir please clarify the issue
My client got an work order for an amount of Rs. 60 Crores and in turn awarded the contract to registered sub contractors for an amount of Rs. 55 crores. The remaining amount is the profit margin of my client.
The Sales Tax officer raised tax @ 14.5% on the profit margin retained by my client and disallow our contentions ( L & T Limited and Another Vs the State of Andhra Pradesh and others (148STC 616).
Please give any judgments on this issue.
Anirudh
(Expert) 17 January 2013
Do you mean to say that Rs. 5 lakhs received by your client is not part of the works contract value? All that 148 STC 616 said was that there is only one event of sale in the works contract where there is a sub-contractor. This only means that to the extent of works contract executed by the sub-contractor, the said event cannot be treated as two sales - one at the hands of the sub-contractor and the same again at the hands of the principal contractor. In this case, the Sales Tax authorities have not treated the 55 lakhs of works contract executed by the sub-contractor two sales. They are only trying to tax the remaining 5 lakhs in the hands of the main contractor, which did not suffer any sales tax (VAT) in the hands of the sub-contractor.
I do not know what could be your objection to this, especially when the value of the works contract being Rs. 60 lakhs.
