1. ISSUES PRESENTED and CONSIDERED
- Whether the respondents are obligated to remit the amount of GST on Works Contract Services provided on or after July 1, 2017, as claimed by the petitioner.
- Whether Paragraph 3(iv) of the Notification dated August 16, 2017, applies only to pre-GST contracts and cannot be invoked to deny GST reimbursement for contracts executed after July 1, 2017.
- Whether the denial of GST reimbursement by the respondents amounts to arbitrary, unreasonable, and discriminatory action violating Article 14 of the Constitution of India, thereby infringing the principle of equality before the law and equal protection of laws.
- Whether the respondents have misconstrued the applicability of the Notification, particularly the distinction between Paragraph 3(iv) and Paragraph 4, in relation to post-GST contracts.
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1: Obligation to remit GST amount on Works Contract Services provided on or after July 1, 2017
Relevant legal framework and precedents: The petitioner, a partnership firm registered under the CGST Act and WBGST Act, relies on the Notification dated August 16, 2017 (Notification No. 5050-F(Y)) which governs the applicability of GST on work contracts post July 1, 2017. The petitioner also cites the judgment in Sushil Kumar Thard v. National Jute Manufactures Corporation Limited, affirmed by the Supreme Court, which establishes that the State and its instrumentalities must act fairly, reasonably, and non-arbitrarily even in contractual matters.
Court's interpretation and reasoning: The Court examined the Notification and concluded that Paragraph 4 explicitly governs post-GST contracts or ongoing projects where estimates were approved before July 1, 2017, and mandates that GST rates apply to work contracts executed thereafter. The Court held that the petitioner is entitled to GST reimbursement for contracts executed after July 1, 2017, as per the Notification.
Key evidence and findings: The petitioner had already made payment of GST amounts against gross bills for the period from July 1, 2017, to March 31, 2019, from their own funds. The respondents denied reimbursement citing Paragraph 3(iv) of the Notification, which the Court found to be inapplicable to post-GST contracts.
Application of law to facts: The Court applied the Notification's provisions to the facts, noting that Paragraph 3(iv) pertains only to pre-GST contracts and cannot be invoked to deny GST reimbursement on contracts executed post July 1, 2017. Paragraph 4 governs the latter and requires GST payment and reimbursement accordingly.
Treatment of competing arguments: The respondents failed to provide any substantive contradiction to the petitioner's submissions or the legal position. The Court found the respondents' reliance on Paragraph 3(iv) misplaced and misconstrued.
Conclusion: The respondents are directed to revisit and reconsider the petitioner's claim for GST reimbursement for the period July 1, 2017, to March 31, 2019, in accordance with Paragraph 4 of the Notification.
Issue 2: Applicability and interpretation of Paragraph 3(iv) versus Paragraph 4 of the Notification
Relevant legal framework and precedents: The Notification dated August 16, 2017, specifically Paragraph 3(iv) and Paragraph 4, delineate the treatment of GST in relation to contracts executed before and after July 1, 2017. The Court also referred to constitutional principles under Article 14 regarding equality and non-arbitrariness.
Court's interpretation and reasoning: The Court emphasized that Paragraph 3(iv) is confined to pre-GST contracts and cannot be extended to contracts executed after July 1, 2017. Paragraph 4 clearly envisages that for post-GST contracts or ongoing projects with estimates approved before July 1, 2017, GST rates apply and suppliers must pay WBGST and CGST on taxable goods and services.
Key evidence and findings: The petitioner's contracts fall under the purview of Paragraph 4, and the respondents' denial based on Paragraph 3(iv) was a misapplication of the Notification.
Application of law to facts: The Court applied the Notification's provisions strictly as per their wording, rejecting the respondents' broader interpretation which would deny GST reimbursement unjustifiably.
Treatment of competing arguments: The respondents' failure to distinguish between the paragraphs and their erroneous reliance on Paragraph 3(iv) was rejected as arbitrary and unreasonable.
Conclusion: The Court directed the respondents to consider the petitioner's claim under Paragraph 4, not Paragraph 3(iv), and pass a reasoned order accordingly.
Issue 3: Alleged violation of Article 14 of the Constitution of India
Relevant legal framework and precedents: Article 14 guarantees equality before the law and equal protection of laws. The petitioner argued that denial of GST reimbursement was arbitrary, unreasonable, and discriminatory, violating this constitutional mandate. The Court relied on the precedent affirming fair and reasonable action by the State in contractual matters.
Court's interpretation and reasoning: The Court found that the respondents' denial of GST reimbursement without proper application of the Notification's provisions was arbitrary and discriminatory. The failure to reimburse despite payment of GST by the petitioner from their own funds violated the principle of equality.
Key evidence and findings: The petitioner's payment of GST and the respondents' refusal to reimburse based on an erroneous interpretation of the Notification substantiated the claim of arbitrariness.
Application of law to facts: The Court applied the constitutional principle of non-arbitrariness and equality to ensure the petitioner was not unfairly deprived of reimbursement.
Treatment of competing arguments: The respondents did not effectively counter the constitutional challenge, and the Court found their conduct inconsistent with Article 14.
Conclusion: The respondents' action was held to be violative of Article 14, necessitating reconsideration of the GST reimbursement claim.
3. SIGNIFICANT HOLDINGS
"Paragraph 3(iv) of the Notification is confined in its application to pre-GST contracts and cannot be invoked to deny reimbursement in respect of contracts executed after July 1, 2017 which are expressly governed by Paragraph 4 of the very same Notification."
"With regard to post-GST contracts or ongoing project where estimates have been approved before 1st of July 2017 then in those work order can be given for supply of goods or service or both work contract, GST rates will be applicable. In other words the suppliers of goods/services or both has to pay WBGST and CGST on all taxable goods / services."
"Even on contractual matters