M/S M Venkata Rao Infra Projects PVT LTD. vs. The Executive Engineer
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Cause title — parties, addresses and appearances
ORDER WAS PRONOUNCED THEREIN, AS UNDER:
CORAM: HON’BLE MR. JUSTICE SACHIN SHANKAR MAGADUM
C.A.V. ORDER
The captioned writ petition is filed assailing the endorsement issued by respondent No.1 vide annexure-A demanding a specific certificate from the GST authorities to determine the tax difference on the contract value.
Facts leading to the case are as under:
The captioned petition raises an issue touching upon the transitional tax implications due to the shift from pre-GST
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regime to the post-GST indirect tax framework. The dispute in the present case on hand concerns the liability for differential tax arising from the implementation of Goods and Service Tax Act, 2017 (hereinafter referred to as "GST Act") wherein the respondent No.2/Corporation had issued a work order one day prior to implementation of the GST Act.
Respondent No.2/Corporation while not disputing the execution of work has withheld the differential tax amount demanding a specific certificate from the juri ictional GST authority, asserting that only upon such certification, the remaining tax component would be released to the petitioner.
Heard the learned counsel for the petitioner and learned counsel appearing for the BBMP.
The petitioner, a registered contractor, was awarded a contract for the construction of a grade separator at Shivananda Circle, Bengaluru, pursuant to a work order dated 30.06.2017. The cost estimate for the said contract was prepared under the then prevailing Value Added Tax (VAT)
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and Service Tax regime. However, the execution of the contract commenced immediately after the introduction of the Goods and Services Tax (GST) regime on 01.07.2017. 6. Upon execution of the work, the petitioner raised running account bills for the work done post-GST implementation, applying the applicable GST rates.
However, the respondents have withheld payment of the differential tax component on the ground that the petitioner must obtain a specific certificate from the juri ictional GST authorities certifying payment of GST.
In light of the above facts, the following points arise for consideration: (i) Whether the BBMP's insistence on production of a tax certificate from GST authorities as a precondition for reimbursement of differential GST is legally sustainable? (ii) Whether the petitioner is entitled to claim reimbursement of the differential tax component, when the contract was executed post-GST despite being awarded under the pre-GST regime?
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(iii) Whether compliance through filing of GSTR returns, production of CA certificates, and audit reports is sufficient to establish discharge of GST liability?
Before this Court delves into the points on hand, this Court deems it fit to take cognizance of the directions issued by the Co-Ordinate Bench in the reported judgment rendered in the case of Chandrashekariah .vs. State of Karnataka1. The directions have a significant bearing on the stand taken by the BBMP in the captioned petition. For easy reference, the same is culled out, which reads as under:
"(i) Petitions are hereby disposed of.
(ii) The Respondents-State and other Govt agencies/Respondents who have entered into works contract with the Petitioners are issued the following directions/guidelines:-
(a) Calculate the works executed pre-GST (prior to 1- 7-2017) under KVAT regime and payments received by the Petitioners.
1 [2024] 158 taxmann.com 443(Karnataka)
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(b) The payments received by the Petitioners pre-GST for such of the works executed before 1-7-2017 are to be assessed under KVAT tax regime - either under COT or VAT scheme as applicable.
(c) Calculate the balance works to be completed or completed after 1-7-2017, in the original contract.
(d) Derive the rate of materials, KVAT items required or used to complete the balance works.
(e) Deduct the "KVAT" amount from those materials and the service tax, if applicable.
(f) Add the applicable "GST" on those items.
(g) Input Credit on the materials is to be arrived at and be set off as against the output GST, for those assessed under regular VAT.
(h) Further, the "tax difference" should be calculated on such balance works executed or to be executed after 1-7-2017 separately.
(i) Based on the result obtained on calculation of the tax difference on the contract value, concerned department/authority has to decide whether agreement needs to be changed or not.
(j) A supplementary agreement may be signed with the Petitioners for the revised GST-inclusive work value for the Balance Work completed or to be completed as determined above and in case the
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revised GST-inclusive work value for the Balance Work, completed or to be completed after 1-7-2017, is more than the original agreement work value, the Petitioners are to be paid/reimbursed, as the case may be, the differential tax amount by the concerned employer, so also, in case payments for works completed pre-GST are made post-GST, the concerned employer has to pay or reimburse, as the case may be, the differential tax amount, to the Petitioners.
(iii) Petitioners are directed to submit comprehensive representations to the respective employers/Respondents within a period of 4 weeks from the date of receipt of a copy of this order, irrespective of whether they have completed the works pre-GST or post-GST or payments were received or yet to be received post-GST.
(iv) If such representations are submitted, the respective employers/Respondents are directed to consider and dispose of the same in the light of the aforesaid directions/guidelines as expeditiously as possible and at any rate within a period of 8 weeks from the date of submission of the representations.
(v) In view of the interim orders passed by this Court in the present petitions, such of the petitioners who had not filed their GST returns during the period after 1-7-2017 are permitted to file their returns/amended returns, pursuant to the calculation of the differential tax as per procedure above under GST regime, without insisting on interest or penalty or limitation.
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(v) The GST authorities are also directed not to take precipitative action against the Petitioners for a period of 6 months from the date of receipt of a copy of this order.
(vii) Liberty is reserved in favour of the petitioners to challenge any order/decision passed/taken by the respondents or the authorities, subsequent to this order and also take recourse to such remedies as available in law. "
The directions issued by a Co-ordinate Bench in the case of Chandrashekariah v. State of Karnataka lays down comprehensive guidelines for determining tax liability in works contracts that straddle the pre and post-GST regimes. The directions make it abundantly clear that it is the responsibility of the State and its instrumentalities, such as BBMP, to undertake a bifurcated tax computation for works executed partly under the VAT regime and partly under the GST regime. More importantly, the Court in the said decision has clarified that the tax component arising on the balance work executed post 1.7.2017 is to be subjected to GST, and wherever the revised GST-inclusive value exceeds the original contract
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value, the service recipient/employer is under a legal obligation to reimburse the differential tax to the contractor.
This legal position is reinforced by Section 142(10) of the Central Goods and Services Tax Act, 2017, which categorically provides that notwithstanding anything contained in the repealed laws, goods or services supplied after the appointed day (i.e., 01.07.2017) shall be liable to tax under the GST regime. Thus, even if the contract was entered into under the erstwhile VAT regime, any supply of services or execution of works post-01.07.2017 automatically attracts GST. The petitioner has placed on record the relevant statutory filings, including GST returns, audited financial statements, and a certificate issued by a qualified Chartered Accountant, all of which collectively establish that the tax liability under GST has been duly discharged.
In this background, the insistence by the respondent-BBMP for production of a certificate from the juri ictional GST officer as a pre-condition for reimbursement
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is wholly misplaced and has no foundation either under the CGST Act or under the terms of the contract. There exists no provision under the CGST, SGST, or any subordinate legislation, such as rules, notifications, or circulars which mandates the production of such a departmental certificate. On the contrary, Sections 31 and 39 of the CGST Act read with Rule 56 and Rule 66 prescribe the filing of returns (GSTR-1 and GSTR-3B) as conclusive evidence of tax liability and payment. Therefore, once the petitioner has filed such returns and furnished corroborative documentation including a Chartered Accountant’s certification, the demand for any additional certificate not envisaged in law, amounts to an imposition of a non-existent and arbitrary procedural burden.
The respondent-BBMP’s conduct in this regard also offends the doctrine of promissory estoppel. The petitioner, having undertaken and completed the contract works during the GST regime, did so with a legitimate expectation that the applicable taxes which had undergone a statutory shift from
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the earlier VAT/Service Tax regime to the GST regime would be reimbursed by the employer. Having reaped the benefits of the work executed by the contractor, the respondent-BBMP cannot now deny reimbursement on untenable technical grounds that lack statutory support. The refusal to release the differential tax amount, on the specious ground of absence of a departmental certificate, is not only contrary to statutory provisions but also amounts to arbitrary and unfair conduct on the part of a public authority.
In view of the foregoing, this Court finds that the entire burden of the differential tax arising on account of transition to the GST regime falls on the service recipient, i.e., the BBMP. The petitioner, as the service provider, has complied with the statutory obligations under the CGST Act and cannot be penalised for the procedural deficiencies invented by the respondent. The insistence on a certificate from the GST Department is without legal basis, arbitrary, and liable to be struck down.
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Accordingly, Point No.(i) is answered in the negative. The respondent-BBMP’s insistence on production of a GST certificate is unsustainable in law. Points (ii) and (iii) are answered in the affirmative. The petitioner is entitled to reimbursement of the differential tax, and the compliance demonstrated through GST returns, CA certificates, and audit reports is sufficient to establish discharge of GST liability.
For the foregoing reasons, this Court proceeds to pass the following: ORDER (i) The writ petition is hereby allowed. (ii) The impugned endorsement dated 03.01.2025 issued by respondent No.1 (Annexure-A) is quashed. (iii) It is declared that the petitioner is entitled for differential tax component arising under the Goods and Services Tax (GST) regime, in respect of the contract executed post 01.07.2017. 13
(iv) Respondent No.1/Bruhat Bengaluru Mahanagara Palike (BBMP) is directed to release the admissible differential tax amount to the petitioner, in accordance with law and the observations made hereinabove, within a period of two months from the date of receipt of a certified copy of this order. (SACHIN SHANKAR MAGADUM) JUDGE
ALB
Reproduced from the public record of the Karnataka High Court. Verify against the court's own copy before relying on it. Income tax judgments are on bharattax.net.