Case Study On Sub-Contract

Facts: Larsen & Tourbo Ltd [L&T] is engaged in execution of civil works contract.  Registered dealer under the APVAT Act.   It entered an agreement with contractee for execution of work.  The same work has been sub-contracted to another registered dealer.

Held: There is only one transfer of property in goods, taking place from sub-contractor to contractee.  There is no transfer of property in goods from main contractor [L&T] to contractee.

Principles: By virtue of Article 366(29A)(b) of the Constitution once the work is assigned by the contractor [L&T], the only transfer of property in goods is by the sub-contractor(s) who is a registered dealer in this case and who claims to have paid taxes under the Act on the goods involved in the execution of works.  Once the work is assigned by L&T to its sub-contractor(s).  L&T ceases to execute the works contract in the sense contemplated by Article 366(29A(b)because property passes by accretion and there is no property in goods with the contractor which is capable of a retransfer, whether as goods or in some other form.  Even if there is no privity of contract between contractee and the sub-contractor, that would not do away the principles of transfer of property by sub-contractor by employing the same on the property belonging to the contractee.  This reasoning is based on the principle of accretion of property in goods.