SC refers L&T's plea on levy of turnover tax to larger bench

The Supreme Court today referred to a larger bench, construction major Larsen & Toubro's petition challenging levy of turnover tax on transfer of property jointly developed by a developer and the owner.     

A bench headed by Justice S B Sinha referred the issue to a three-judge bench after L&T challenged the Karnataka government's authority to levy turnover tax on property developed and sold as apartments under the state law.     

The Karnataka High Court had dismissed the company's petition, which challenged the demand notice issued by the sales tax authorities asking it to pay around Rs 4.5 crore turnover tax on a project between 2000-2005.     

L&T had entered into a development contract with one Dinesh Ranka for construction of a multi-storey apartment complex 'South City' in Hubli. While the owner was to contribute the land, the company was to construct the complex with its own material and men.    

It was also agreed that 25 per cent of the total space was to belong to the owner and 75 per cent to the developers and there was no money consideration for construction.     

According to L&T, the High Court had failed to appreciate that the judgement delivered by the apex court in the matter of K Raheja Development Corporation vs State of Karnataka required reconsideration by a larger bench as it adversely affected the entire construction industry in the country.     

"...The said judgement holds that a developer of the property is liable to tax on the sale deemed to take place in a works contract, whether with the owner of the land or along with such owner, if he carries out construction, after an agreement of sale with a prospective apartment purchaser...," the petition stated.