Case Of: M/s Shubham Treats
Issued By: Supreme Court
Order No: Civil Appeal No. 8318 of 2011
Date: 1st Nov 2025
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Skyline Construction & Housing Pvt. Ltd., a registered dealer under KVAT, undertook works contracts, a part of which was executed through registered sub-contractors who paid VAT on their share of the work.
The core issue was whether Skyline, while paying composition tax under Section 15 of the KVAT Act (applicable until 31 March 2006), should include payments made to such sub-contractors in its taxable turnover.
The AAR held that, prior to 1 March 2006, there was no express legal provision permitting exclusion of sub-contractor payments, hence, the entire contract value, including sub-contracted portion, was taxable in the hands of Skyline.
The Karnataka High Court, however, overturned this view, ruling that where the sub-contractor is registered and has already paid VAT, taxing the same turnover again from the main contractor constitutes double taxation – contrary to settled tax principles.
The Supreme Court upheld the High Court’s interpretation, confirming that taxing both the principal and sub-contractor on the same value is legally untenable and amounts to impermissible double taxation.
The Court reiterated that in a works contract, ownership in goods used by the sub-contractor is transferred directly to the contractee – not routed through the main contractor – thus, the value addition occurs only once.
Relying on the “accretion principle,” the Court emphasized that taxation must align with actual flow of goods and services; value once taxed in the hands of a
sub-contractor cannot be taxed again under a composition scheme.
This ruling provides finality under KVAT but also carries interpretative weight under GST, reinforcing the principle that tax should follow value addition and must not be duplicated across contractual tiers.