Mohd. Yunush vs. State Of U.P. And 3 Others

Held

The Court held that while the Nagar Nigam had a statutory obligation under Rule 143 of the U.P. Goods and Services Tax Rules, 2017, to deduct GST, it failed to do so. Simultaneously, the petitioner, as the contractor, was liable for paying GST under the terms of the agreement. The Court noted that both parties had defaulted. The recovery certificate was initially issued for the entire amount, including consideration and GST. However, based on the Nagar Nigam's concession and the petitioner's undertaking, the recovery was modified. The Court found that the recovery could proceed against the petitioner for the GST amount of Rs. 3,24,000/-. The ratio decidendi is that where a contract stipulates GST liability on the contractor and the tax authority has provisions for recovery as arrears of land revenue, such recovery is permissible, especially when the contractor undertakes to pay the due GST. The Court directed that the recovery certificate would be enforced only to the extent of Rs. 3,24,000/-, subject to the petitioner depositing this amount within one month. If the petitioner defaults, the Taxing Department can recover from either the petitioner or the Nagar Nigam.

Facts

The petitioner, Mohd. Yunush, entered into a contract through an auction to collect ground rent from a fair commencing August 31, 2017. He challenged a recovery certificate issued by the Tehsildar, Saharanpur, for Goods and Service Tax (GST) amounting to Rs. 10,74,000/- plus charges, to be recovered as arrears of land revenue. The petitioner argued that the liability to pay GST rests with the Nagar Nigam, Saharanpur, which benefited from the contract, not him. The Nagar Nigam contended that the contract explicitly stated the contractor (petitioner) would be liable for GST. It was also submitted that the petitioner's security deposit was adjusted towards the contract consideration, leaving only GST outstanding. The Nagar Nigam later clarified that the recoverable GST amount was Rs. 3,24,000/-.

Key Issues

1. Whether the recovery certificate for GST, issued against the petitioner as arrears of land revenue, is legally sustainable, considering the petitioner's contention that the liability lies with the Nagar Nigam, Saharanpur, and the respondent's argument that the contract places the GST liability on the petitioner. 2. Whether the Nagar Nigam, Saharanpur, failed to comply with its obligation under Rule 143 of the U.P. Goods and Services Tax Rules, 2017, to deduct GST from the amounts payable to the petitioner. Petitioner's arguments: The petitioner argued that the Nagar Nigam, having benefited from the contract, should be liable for GST, and it cannot be recovered from him as arrears of land revenue. He relied on the principle that the beneficiary of a service should bear the tax. Respondent's (Nagar Nigam) arguments: The Nagar Nigam argued that Clause 4 of the agreement clearly stipulated the contractor's liability for GST under the Act, 2017. They also referred to Section 79 of the Act, 2017, which permits recovery as arrears of land revenue, and Rule 143 of the Rules, 2017, regarding deductions. They acknowledged that the Nagar Nigam did not make the required deductions.