2026-VIL-1010-TEL
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VAT High Court Cases

Andhra Pradesh Value Added Tax Act, 2005 - Tax Deduction at Source on works contract payments when underlying tax liability fully discharged by service provider, Mechanics of TDS versus principal liability – Petitioner-Company constructing a Hotel engaged a VAT-registered works contractor for the construction work - Petitioner failed to deduct TDS as required under Section 22 of the APVAT Act 2005 at the prescribed rate. Upon audit the Department issued Show Cause Notice proposing demand for TDS - Petitioner contended that the contractor had already fully discharged its tax liability for the entire period in question by filing returns and paying tax and furnished proof including Assessment Order - Petitioner argued that demanding TDS when the underlying liability stood discharged would result in double taxation requiring subsequent refund - Whether TDS can be collected from the contractee when the contractor the person on whom the principal tax liability rests has already fully discharged the tax liability for the very same transaction and period - HELD - TDS is not a separate or independent tax liability but a mechanism to ensure timely collection in advance of tax that would otherwise be payable by the service provider. The deduction at source is credited against the actual tax liability of the provider and does not create an additional liability distinct from the provider's own liability. When the contractor the person on whom principal tax liability rests has already discharged that entire liability for the relevant period as evidenced by assessment orders showing full payment, the object and purpose of the TDS provision is completely defeated as once the principal liability itself stands discharged, there remains no further tax due against which a TDS deduction could be credited - Unable to accept the submission by the Dept that the petitioner’s statutory obligation under Section 22(3) of the APVAT Act operates independently of whether the contractor has already discharged the underlying tax liability and that the petitioner’s remedy is confined to seeking a refund after first suffering the deduction. Compelling the contractee to deduct and remit the same amount when already paid by the contractor results in the State receiving tax twice over on one transaction once from the contractor directly and again through the contractee indirectly necessitating a subsequent wasteful refund and rendering the entire exercise circular and purposeless - The tax administration cannot be reduced to a mechanical exercise of raising demands without regard to material that squarely negates the very premise of the demand - The impugned demand for TDS is set aside and the writ petition is allowed
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