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ST - Works Contract - Back to back agreement with sub-contractor - No works contract service provided by main contractor as deemed transfer of property in goods is between sub-contractor and contractee: CESTAT

By TIOL News Service

HYDERABAD, FEB 16, 2015: THE appellant-petitioner was the principal contractor and had entered into agreement with the Irrigation and Command Area Development (I & CAD) Department of Government of Andhra Pradesh for rendition of the works contract. The appellant entered into “Back to Back basis” agreements with M/s BSCPL-SCL JV for execution of two projects namely, SomasilaSwarnamukhi Link Canal and TarakaramaTeerthaSagaram and a separate ‘Back to Back' agreement for the third project as well. The total works were executed under the ‘back to back basis' agreements entered into between the respective sub-contractors and the appellant-petitioner.

The adjudicating authority confirmed the demand of service tax on the ground that the works amounted to a ‘works contract', a fact which is not in dispute. What the appellant asserts is that the agreement between the appellant and Government of Andhra Pradesh and the activities of the appellant thereunder do not fall within the definition of ‘works contract service' as specified in Section 65 ( 105) (zzzza) of the Finance Act, 1994. Reliance for this contention is placed on the decision of the Supreme Court in State of Andhra Pradesh &Ors Vs. Larsen &Tourbo Ltd. &Ors, reported in 2008-TIOL-158-SC-VAT .

The Supreme Court clarified that in a construction works contract, the property used in the construction of a building/project passes from the builder to the owner of the land on which the building is constructed when the goods or materials used are incorporated in the building and that is so, even if there is no privity of contract between the contractee and the sub-contractor, since the deemed transfer of property in goods is based on the principle of accretion of property in goods.

On the basis of the law declared by Supreme Court supra, it prima facie appears that no ‘works contract service' was provided by the appellant to the Government of Andhra Pradesh since it was the sub-contractors who transferred the property in goods to the State Government by the process accretion of such goods into the property of State Government, during execution of works contract by the sub-contractors.

Tribunal found a strong prima facie case in favour of the appellant-petitioner.

Therefore, pre-deposit is waived in full and stay is granted of all further proceedings pursuant to the impugned order, pending disposal of the appeal.

(See 2015-TIOL-342-CESTAT-HYD)


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