Tulasee Construction vs. State Of Orissa
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The petitioner, a works contractor, filed a writ petition challenging the State's action of not reimbursing the differential tax amount arising from the transition from Value Added Tax (VAT) to Goods and Services Tax (GST) effective July 1, 2017. The petitioner argued that the GST liability was not anticipated when agreements were entered into. The State submitted revised guidelines issued by the Finance Department on December 10, 2018, superseding earlier guidelines from December 7, 2017. These revised guidelines address how to handle works contracts tendered before July 1, 2017, but executed partly or wholly after that date, particularly concerning the calculation of GST on the balance work. The Court directed the petitioner to make a representation based on these revised guidelines.
Held
The Court did not directly rule on the validity of Clause 6 of the earlier memorandum. Instead, it acknowledged the revised guidelines issued by the Finance Department on 10.12.2018, which provided a comprehensive framework for addressing the issue of GST on works contracts executed post-GST, for tenders issued pre-GST. The Court directed the petitioner to make a representation to the appropriate authority within four weeks, ventilating their grievances in light of these revised guidelines. The authority was directed to consider and dispose of the representation expeditiously, preferably by April 30, 2019. The Court also stated that if the petitioner remained aggrieved by the authority's decision, they would be at liberty to challenge it. No coercive action was to be taken against the petitioner until April 30, 2019. The Court expressly left undecided the ultimate outcome of the petitioner's claim pending the authority's decision.
Key Issues
1. Whether Clause 6 of the Finance Department Memorandum dated 22.07.2017 is arbitrary, unfair, and unreasonable in the context of works contracts executed after the implementation of GST. Petitioner's Contention: The petitioner argued that the introduction of GST created a tax liability that was not envisaged at the time of entering into the agreements, leading to financial hardship. They sought reimbursement of the differential tax amount. Revenue's Contention: The Revenue submitted revised guidelines dated 10.12.2018, which provided a detailed procedure for calculating GST on the balance work for contracts tendered before July 1, 2017, but executed thereafter. These guidelines aimed to address the grievances of contractors by providing a mechanism for determining the revised GST-inclusive work value and making appropriate adjustments, including reimbursement if the revised value exceeded the original agreement value.
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12.02.2019
By way of this writ petition, petitioner has challenged the action of the opposite parties in not reimbursing the differential tax amount arising out of change in tax regime from Value Added Tax (VAT) to Goods and Service Tax (GST) with effect from 01.07.2017 and has also prayed to declare Clause 6 of the Finance Department Memorandum dated 22.07.2017 as arbitrary, unfair and unreasonable.
Batch of writ petitions are being filed on this issue. The main issue involved in such matters is that the difficulty faced by the contractors due to change in the regime regarding works contract under GST. The grievance of the petitioner is that in view of the introduction of the GST, petitioner is required to pay tax which was not envisaged while entering into the agreement.
Learned Addl. Government Advocate submits that the Government has now come out with a revised guidelines in this respect in supersession of the guidelines issued vide Finance Department letter dated 07.12.2017. He files an Additional Counter Affidavit of O.P. No.2 annexing the revised guidelines relating to works contract under GST issued by the Government of Odisha, Finance Department vide Office memorandum No. FIN-CTI-TAX- 0045-2017/38535/F Dated 10.12.2018, which reads as under:
“Sub: Revised guidelines relating to works contract under GST.
The guidelines regarding works contract under GST was issued vide Finance Department letter No. FIN- CTI-TAX-0045-2017-36116/F dated 07.12.2017. Subsequently, the National Rural Infrastructure W.P.(C) No. 21318 of 2018
-2- Development Agency (NRIDA), Ministry of Rural Development, Government of India have issued guidelines for works contract on implementation of Goods and Services Tax. Several representations have been received from the contractors claiming additional amount towards GST in respect of the works put to tender prior to 01.07.2017 but executed either partly or wholly after 01.07.2017. On careful consideration of the representation of the contractors vis-à-vis existing guidelines issued in the matter, Government have been pleased to issue following revised guidelines in supersession of the guidelines issued vide Finance Department letter dated 07.12.2017. 1. The Goods and Services Tax (GST) has come into force w.e.f. 1st July, 2017 by subsuming various indirect taxes such as Excise Duty, VAT, CST, Entry Tax, Service Tax etc. Works contract is treated as composite supply of service under GST and are taxable @18%, 12% or 5% depending on the nature of works contract. In order to comply the provisions of GST relating tow works contract the State Government have revised the Schedule of Rates – 2014 (SoR-2014) vide Works Department OM No. 13827/WD dated 16.09.2017 w.e.f. 01.07.2017. While the item rates in the SOR-2014 were inclusive of all taxes i.e. Excise Duty, VAT, Entry Tax, Service Tax etc., the same has been excluded in the Revised SoR-2014. Therefore, while preparing estimates for a work after 01.07.2017, the GST exclusive work value is to be arrived at as per the revised SoR-2014 and then GST will be added at the appropriate rate.
In GST regime, the works contractor is required to raise Tax Invoice clearly showing the taxable work value and GST (CGST+SGST) separately.
In case of work, where the tender was invited before 01.07.2017 on the basis of SoR-2014, but payments made for balance work or full work after implementation of GST, the following procedure shall be followed to determine the amount payable to the works contractor; (i) Item-wise quantity of work done after 30.06.2017 (i.e. the Balance Work) and its work value as per the original agreement basing on the pre-revised SoR-2014 is to be ascertained first. (ii) The revised estimated work value for the Balance Work is to be determined as per the Revised SoR-2014. (In case of rates of any
-3- goods or service used in execution of the balance Work not covered in the Revised SoR- 2014, the tax-exclusive basic value of that goods or service shall be determined by removing the embedded tax incidences of VAT, Entry Tax, Excise Duty, Service Tax, etc. from the estimated Price/Quoted Price.) (iii) The revised estimated work value for the Balance Work shall then be enhanced or reduced in the same proportion as that of the tender premium/discount. (iv) Finally, the applicable GST rate (5%, 12%, or 18% as the case may be ) is to be added on the revised estimated work value for the Balance Work to arrive at the GST-inclusive work value for the Balance Work. (v) A model format for calculation of the GST- inclusive work value for the Balance Work is attached as Annexure.
The competent authority responsible for making payment to the works contractor will determine GST inclusive work value for the Balance Work for which agreement executed on the basis of SoR- 2014. (vi) A supplementary agreement shall be signed with the works contractor for the revised GST- inclusive work value for the Balance Work as determined above. (vii) In case the revised GST-inclusive work value for the Balance Work is more than the original agreement work value for the Balance Work, the works contractor is to be reimbursed for the excess amount. (viii) In case the revised GST-inclusive work value for the Balance Work is less than the original agreement work value for the Balance Work, the payment to the works contractor is to be reduced accordingly. In case excess payment has already been made to the works contractor in pursuance of the original agreement, the excess amount paid must be recovered from the works contractor. (ix) These procedures shall be applicable to all works contract including those executed in EPC/Turn-key/Lumpsum mode.
In case of F2 contracts, the taxable value under GST for each item of the balance work is to be determined by the competent authority applying the
-4- premium/discount offered by the works contractor on respective item.
The Administrative Departments should issue suitable instructions to the Competent Authority responsible for making payments to the works contractors to implement this revised guidelines.”
In that view of the matter, petitioner shall make a comprehensive representation before the appropriate authority within four weeks from today ventilating the grievance. If such a representation is filed, the authority will consider and dispose of the same, in the light of the aforesaid revised guidelines dated 10.12.2018 issued by the Finance Department, Government of Odisha, as expeditiously as possible, preferably by 30.04.2019. If the petitioner(s) will be aggrieved by the decision of the authority, it will be open for the petitioner(s) to challenge the same.
No coercive action shall be taken against the petitioner till 30.04.2019. The writ petition is disposed of accordingly.
In view of the disposal of the writ petition, Misc. Cases/I.As, connected to this petition are also disposed of.
AKK .…….......……………… ( K.S. Jhaveri ) Chief Justice
…………………..……… (K.R. Mohapatra) Judge
Reproduced from the public record of the Orissa High Court. Verify against the court's own copy before relying on it. Income tax judgments are on bharattax.net.