Supreme Court — Authority for Clarification & Advance Rulings, Gandhinagar, Karnataka & Anr. v. M/s Skyline Construction & Housing Pvt. Ltd.
Date: November 7, 2025 | Author: Ashwarya Sharma
Synopsis:
The Supreme Court held that amounts paid to sub-contractors must be excluded from the principal contractor’s taxable turnover under the KVAT Act — because the portion of work executed by sub-contractors results in a deemed sale by the sub-contractor to the contractee (doctrine of accretion). The Court distinguished earlier authority relied upon by Revenue and affirmed that taxing the same value in the hands of both main contractor and sub-contractor would result in double taxation. TIOL – Tax News, GST, Income Ta…
Factual matrix
The main contractor executed works partly through sub-contractors and sought deduction of payments to those sub-contractors from its taxable turnover; AAR denied, High Court allowed, Revenue appealed to SC.
Issue
Whether, absent an express KVAT provision, the main contractor can exclude payments made to sub-contractors from its taxable turnover.
Court’s holding
Yes — payments to sub-contractors are deductible because the deemed sale on accretion occurs between the sub-contractor and the contractee; taxing the same value twice is impermissible.
Key takeaways
- Doctrine of accretion reaffirmed: Property in goods embedded in land passes progressively as work is executed — the foundation for treating sub-contractor supplies as independent deemed sales.
- Avoidance of double taxation: The same value cannot be taxed both in the hands of the main contractor and the sub-contractor.
- Sub-contractor treated as direct (deemed) seller: Even without contractual privity, the sub-contractor’s execution results in a separate taxable event.
- Valuation clarity for works contracts: Deduction of sub-contractor payments is necessary to compute the correct taxable turnover (important for VAT and instructive for GST valuation under Sections 9 and 15 analogy).
- Builders’ Association precedent distinguished: That decision concerned composition schemes and is not authority for denying deduction where interpretation of turnover is at issue.
Practical note (GST angle)
Although decided under the KVAT regime, the reasoning carries strong persuasive force under GST — the principles of value-addition, privity, and transfer on accretion support treating sub-contractor supplies as independently taxable rather than part of the main contractor’s turnover.
To explore the complete analysis, read the full article here: https://taxindiaonline.com/news/guest_column/details?id=52671
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(The author is a practicing advocate, Co-Founder and Legal Head of RB LawCorp.
He specializes in GST law. Suggestions or queries can be directed to
ashsharma@rblawcorp.in. The views expressed in this article are strictly
personal.)