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2024 (2) TMI 1556 - HC - GSTRefund of differential GST amount paid by the Petitioners for the works executed by each of the Petitioners respectively - HELD THAT - Co-ordinate Bench of this Court in SHRI M.G. ARUNKUMAR VERSUS THE STATE OF KARNATAKA THE DEPUTY COMMISSIONER THE UNION OF INDIA 2023 (8) TMI 1531 - KARNATAKA HIGH COURT held that If petitioner who is a registered Civil Contractor has completed the tender work respondent/Department being a service recipient is under bounden duty to reimburse GST amount of Rs.2, 16, 51, 903/- in terms of Section 13 of The Central Goods and Services Tax Act 2017. It is also not in dispute that petitioner who is a class-I contractor having rendered service is under mandatory duty to pay GST amount to the department. Equally respondent/Department is under bounden duty to reimburse the GST amount. It is borne out from the records that since necessary payment at the petitioner s end the applicable GST being statutory requirement the respondent/Department ought to have reimbursed 12% GST amount on the total work done by petitioner. Since there is total inaction on the part of respondent/Department this is a fit case where mandamus needs to be issued. The respondents are hereby directed to reimburse GST amount as indicated in the representations dated 02.08.2022 16.06.2023 17.06.2023 20.09.2023 and 30.09.2023 - petition allowed.
The core legal questions considered by the Court in this matter are:
1. Whether the respondents are obligated to refund the differential GST amount paid by the petitioners for works executed under contracts entered into before and after the implementation of GST. 2. Whether the State Government is required to issue a circular or policy clarifying the payment of GST on works contracts executed under the earlier VAT regime or old Schedule of Rates, where GST was paid by the contractors but not reimbursed by the employers. 3. The procedural and substantive framework for calculating the differential GST amount payable or refundable in cases where contracts span the pre-GST and post-GST periods. 4. The extent of the petitioners' rights to seek reimbursement of GST amounts paid and the obligations of the respondents to comply with such claims. Issue-wise Detailed Analysis Issue 1: Obligation to Refund Differential GST Amount Relevant Legal Framework and Precedents: The Court relied heavily on the precedent set by a Coordinate Bench in W.P.No.9721/2019 and connected cases decided on 11.04.2023. The legal framework includes the Central Goods and Services Tax Act, 2017, particularly Section 13, which governs the liability and reimbursement of GST in works contracts. The VAT regime and the transition to GST on 01.07.2017 form the factual and legal backdrop. Court's Interpretation and Reasoning: The Court interpreted the prior ruling as establishing a comprehensive methodology for assessing the tax liability and reimbursement rights of parties to works contracts spanning the pre-GST and post-GST periods. The Court emphasized that payments received for works executed before GST implementation should be assessed under the VAT regime, while works executed thereafter should be assessed under GST. Key Evidence and Findings: The petitioners submitted representations supported by detailed calculations of GST paid and not reimbursed. The respondents had not reimbursed the GST amounts despite statutory obligations. The Court noted the absence of any dispute on the petitioners' registration as contractors and their statutory duty to pay GST. Application of Law to Facts: Applying the framework from the precedent, the Court directed that the differential tax amount be calculated by deducting VAT paid on materials and service tax if applicable, adding GST on those items, and considering input tax credit. The respondents were required to reimburse the differential GST amount for works executed post-GST implementation. Treatment of Competing Arguments: The respondents did not dispute the legal framework but had not acted on the petitioners' claims. The Court found that inaction on the part of the respondents warranted issuance of a mandamus directing reimbursement. Conclusions: The Court concluded that the respondents are under a bounden duty to reimburse the differential GST amount paid by the petitioners and directed payment within six weeks. Issue 2: Requirement for State Government to Issue Circular/Policy on GST Payment Relevant Legal Framework and Precedents: The Court considered the need for administrative clarity and uniformity in handling GST payments on works contracts executed partly under VAT and partly under GST regimes. The earlier Coordinate Bench ruling implicitly recognized the necessity for clear guidelines. Court's Interpretation and Reasoning: While the petitioners sought a specific direction for the State Government to issue a circular or policy, the Court's order primarily focused on ensuring compliance with existing legal principles and the prior directions. The Court did not explicitly mandate issuance of a policy but underscored the importance of following the prescribed calculation and reimbursement procedures. Key Evidence and Findings: The absence of a clear policy or circular had resulted in delays and disputes regarding GST reimbursement. The Court recognized the practical difficulties faced by contractors and employers alike. Application of Law to Facts: The Court's directions effectively function as interim guidelines pending any formal policy issuance by the State Government. Treatment of Competing Arguments: The respondents did not oppose the issuance of a policy but contended that existing laws and orders suffice. Conclusions: The Court left the issuance of a circular or policy to the discretion of the State Government but mandated adherence to the procedural guidelines laid down in the earlier ruling. Issue 3: Calculation and Reimbursement Procedure for Differential GST Relevant Legal Framework and Precedents: The detailed procedural guidelines from the Coordinate Bench's order dated 11.04.2023 were central. These included stepwise calculation of works executed pre- and post-GST, assessment under VAT and GST regimes respectively, deduction of VAT and service tax, addition of GST, and consideration of input tax credit. Court's Interpretation and Reasoning: The Court reiterated the necessity of a meticulous and formulaic approach to ensure fairness and compliance with tax laws. The Court emphasized that supplementary agreements reflecting GST-inclusive work values may be necessary. Key Evidence and Findings: The petitioners had submitted representations with calculations following this framework. The respondents had not responded substantively. Application of Law to Facts: The Court directed the respondents to consider and dispose of the petitioners' representations within eight weeks, applying the prescribed methodology. Treatment of Competing Arguments: The respondents' failure to act was noted. The Court granted liberty to petitioners to challenge any adverse decisions subsequently. Conclusions: The Court mandated adherence to the calculation and reimbursement procedure, ensuring petitioners' claims are addressed expeditiously. Issue 4: Petitioners' Rights and Respondents' Obligations Regarding GST Reimbursement Relevant Legal Framework and Precedents: Section 13 of the Central Goods and Services Tax Act, 2017, and the principles established in the Coordinate Bench rulings. Court's Interpretation and Reasoning: The Court recognized the petitioners' status as registered contractors with a mandatory GST payment obligation and the respondents' reciprocal duty to reimburse the GST amount as part of contract payments. Key Evidence and Findings: The record showed undisputed payment of GST by petitioners and non-reimbursement by respondents. Application of Law to Facts: The Court ordered issuance of writ mandating reimbursement and permitted petitioners to file or amend GST returns without penalty for the relevant period. Treatment of Competing Arguments: The respondents' inaction was not supported by any substantive legal argument. Conclusions: The Court held that failure to reimburse GST amounts violates statutory obligations and warranted judicial intervention. Significant Holdings "The respondents-State and other Govt agencies / Respondents who have entered into works contract with the Petitioners are issued the following directions / guidelines: ... 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. 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 01.07.2017, 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." "It is not in dispute that the entire tender process and allocation of work by respondent/Department is post coming into force of Goods and Services Tax. If petitioner, who is a registered Civil Contractor has completed the tender work, respondent/Department being a service recipient is under bounden duty to reimburse GST amount... Since, there is total inaction on the part of respondent/Department, this is a fit case where mandamus needs to be issued." "The respondents are hereby directed to reimburse GST amount as indicated in the representations dated 02.08.2022, 16.06.2023, 17.06.2023, 20.09.2023 and 30.09.2023. The respondents/Department shall reimburse the said amount within a period of six weeks from the date of receipt of a copy of this order." Core principles established include: - Contractors who have paid GST on works contracts executed post-01.07.2017 are entitled to reimbursement of the GST amount from the employer/department under whose contract the works were executed. - A detailed and methodical approach must be adopted to segregate works executed pre- and post-GST implementation, assess applicable taxes under respective regimes, and calculate the differential amount payable. - The State and its agencies have a statutory and contractual obligation to reimburse GST amounts paid by contractors, failing which writ relief in the nature of mandamus is appropriate. - Petitioners are permitted to file or amend GST returns without penalty or interest for the relevant period to comply with tax laws and facilitate reimbursement. - Administrative clarity and policy guidance, while desirable, do not preclude enforcement of existing legal rights and obligations.
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