M/S Pmj Constructions PVT LTD. vs. Bruhat Bangalore Mahanagara Palike
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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 seeking a mandamus to direct respondents to reimburse the differential Goods and Service Tax(GST) at 8% to the petitioner and further, the petitioner has also sought for a direction to respondents to pay interest on the tax (GST) dues at the rate of 18% per annum being the statutory interest rate chargeable under Section 50 of CGST Act, 2017. 3
The facts leading to the case are as under:
Petitioner a registered contractor was awarded a contract for construction of 20m corridor from BTM Layout to Hosur Road along Madiwala Tank Bund Road and also for the construction of 4 lanes divided bidirectional underpass at the junction of Magadi Road and Basaveshwar Nagar Road along Magadi Road. Petitioner was issued with work orders on 20.03.2013 and 29.10.2015 respectively. Petitioner is seeking reimbursement of differential tax imposed by the authorities on account of introduction of GST regime. According to petitioner, the cost estimate for the said contract was prepared under the prevailing Value Added Tax and Service Tax Regime. Petitioner therefore, contends that the contract was executed partly before and after the introduction of the Goods and Service Tax Regime on 1.7.2017. 3. Petitioner's primary grievance is that Respondent/Corporation while not disputing the execution of work has withheld the differential tax amount.
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Heard the learned counsel for the petitioner and learned counsel appearing for BBMP.
This Court by taking note of the directions issued by the Co-Ordinate Bench has allowed the writ petitions in an identical cases. Therefore, this Court deems it fit to extract paragraphs 9 to 14 , which reads as under:
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Before this Court delves into the issues 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.
(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.
1 [2024] 158 taxmann.com 443(Karnataka)
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(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 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
6 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.
(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. "
Before this Court proceeds to adjudicate the issues framed, it is imperative to take note of the binding directions issued by a Co-ordinate Bench in the case of Chandrashekariah v. State of Karnataka. The judgment 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 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
7 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 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, Section 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 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.
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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."
In the light of the findings recorded supra in an identical cases, this Court is of the view that the inaction of respondent No.1 is found to be clearly in contravention of the directions issued by this Court, which are culled out supra. Respondent No.1 has not even considered the numerous representations made by the petitioner. In the above cited case, neither BBMP officials, being service recipients, had paid the differential tax nor the contractor. However, in the present case on hand, the records reveal that petitioner has paid the differential tax determined by the authorities. It is borne out from the records that petitioner has complied with the statutory requirements by filing the returns under the GST law and remitting the tax to the concerned authorities. Therefore, the order under challenge is not sustainable.
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For the foregoing reasons, this Court proceeds to pass the following: ORDER (i) The writ petition is allowed.
(ii) Respondent No.1 is hereby directed to reimburse a sum of Rs.2,23,23,979.92/- paid by the petitioner towards differential tax component.
(iv) This exercise shall be accomplished by the respondents within a period of two months from the date of receipt of 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.