TMI Blog2023 (6) TMI 93X X X X Extracts X X X X X X X X Extracts X X X X ..... tered into works contract with various State Govt agencies and that the agreements were entered into at a point of time when the KVAT Act and Finance Act 1994 were in force. It is also not in dispute that the Petitioners are either covered under Composition scheme or regular VAT assessment and that on 01.07.2017 when the GST Act was implemented pan India, the said works contract was treated as deemed service and the Petitioners became liable to pay GST. It is this differential tax amount arising out of change in tax regime from VAT to GST which cast an additional tax burden on the Petitioners, which is the subject matter of the present petitions. There are considerable force in the submission made by the learned Senior counsel for the petitioners that the tax component is an independent component which the petitioners do not retain as a profit and is a statutory payment to be made; that looking into the nature of such payment of GST, the respondents/employers are required to honour the same after determining the differential tax burden, especially for the Petitioners who are before this court where works contract were entered prior to 01.07.2017 during KVAT regime and work ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r, Advocate For R-62; R9, R12 To R14, R16, R17, R20, R21, R24, R25, R27, R28, R30, R32, R34, R36, R37, R38, R39, R40, R41, R42, R43, R44, R45, R46, R48, R50, R51, R53 To R55 Are Served; Vide Order Dated 19.11.2019, Notice To R15, R31, R33, R35, R49, R60 Are Dispensed With) Sri. H.Shanthi Bhushan, DSG 1 For R2; Sri. Jeevan J Neeralgi, Advocate For R3, R4, R7 R8; Vide Order Dated 28.03.2019, Service Of Notice To R9 To R-64 Is Dispensed With) ORDER Since common questions of law and fact arise for consideration in all these petitions, they are taken up for consideration together and disposed of by this common order. Further, since identical relief s are sought for in the petitions, for the purpose of convenience, the relief s sought for in W.P. 9721/2019 is reproduced as under;- (a) Declare that the provisions of GST Act is inapplicable in respect of works contract where provisions of service are made prior to 01.07.2017 in so far as petitioners are concerned and consequently that the respondent Nos 4 to 8 have no jurisdiction to either issue notice or to take any coercive steps against the Petitioners under the provisions of the GST Act dated 01.07.2017 produced as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are covered under the composition scheme, the tax under KVAT Act was at 4% on the transaction value of the contract and for those who are covered under the regular VAT assessment, it was either 5% or 12% as the case may be. Under the Finance Act 1994, service tax had been exempted in respect of the Works Contract rendered to Government and statutory agencies and therefore, there was no Service Tax which was liable to be paid by the Petitioners on the works contract executed by them. The Petitioners who opted for the composition scheme under Section 15 were not entitled the claim input credit or CENVAT input in case of there being any inter- State purchase in the course of execution of works contract. Petitioners were filing their returns in Form 100 by paying 4% composition tax on receipts and the employers would deduct 4% tax and certificate was being issued in Form 156 of the KVAT Act and the amount which was deducted is credited to the VAT account of the Petitioners. 4. Petitioners contend that 01.07.2017 when the Goods and Services Tax (GST) Act came into effect/force, the works contract was treated as deemed service and the Petitioners were liable to pay GST at 18% from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd that the Petitioners have to treated the same way as per principles of parity. It is contended that the Petitioners had given representations to the 1st Respondent Government to come out with guidelines to absorb the differential tax burden relating to works contract under GST. Under these circumstances, petitioners are before this Court by way of the present petition. 6. The respondent State and other respondents have filed their statement of objections inter alia contending that for works contract executed prior to 01.07.2017, GST Act is inapplicable. It is contended that for works contract entered prior to 01.07.2017 where portion of the work has been executed prior to 01.07.2017 it will be taxed under erstwhile KVAT Act and for those works executed after 01.07.2017, it will be taxed under the provisions of GST Act. It is also contended that for works entered into and executed after the introduction of GST only the provisions of GST Act will be applicable. It is contended that the provisions of GST Act will be inapplicable to the portion of the work executed prior to 01.07.2017 and mere issuance of invoices after 01.07.2017, would not render work taxable under the GST Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erial on record. 11. It is an undisputed fact that the Petitioners herein are class-I contractors who have entered into works contract with various State Govt agencies and that the agreements were entered into at a point of time when the KVAT Act and Finance Act 1994 were in force. It is also not in dispute that the Petitioners are either covered under Composition scheme or regular VAT assessment and that on 01.07.2017 when the GST Act was implemented pan India, the said works contract was treated as deemed service and the Petitioners became liable to pay GST. It is this differential tax amount arising out of change in tax regime from VAT to GST which cast an additional tax burden on the Petitioners, which is the subject matter of the present petitions. 12. Before adverting to the rival contentions, it is necessary to refer to the State Government Circular dated 03.01.2020, which reads as under:- With reference to the above, your request for clarification on Tax calculation for the pre-GST period and post-GST period in the running bills of works has been examined by the GM (PF), KUIDFC and has suggested the following procedure for calculating Taxes for pre-GST period ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g the methodology of calculation of the impart of change of tax regime along with an illustration is placed in the file. (Annexure A 13) Further, the tax difference should be calculated on each works separately. Based on the result obtained on calculation of the tax difference on the contract value, concerned department / Authority has to decide whether contract agreement needs to be changed or not. Hence, the applicant may be informed to submit a proposal to the concerned department from whom the contract was awarded. (Approved by Additional Chief Secretary to Govt. Finance Department), Sd/- (KGayathri) Under Secretary to Govt. Finance Department (PW Finance Cell) Sd/- Chief Account Officer KUWS D Board Bangalore 14. Both the aforesaid Circulars came up for consideration before the co-ordinate Bench of this Court under identical circumstances in MAS Constructions s case supra, wherein it was held as under:- The petitioner has sought for issuance of an appropriate writ to the respondent to reimburse GST amount of Rs. 42,01,582/- to the petitioner and has sought for directions for payment of interest on tax du ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... GST period and post-GST period as follows: 1. Calculate the balance works to be completed in the original contract. 2. Derive the rate of materials, KVAT items required to comp lete the balance works. 3. Deduct the KVAT amount from those materials and the service tax also. 4. Add the applicable GST on those items. 5. Input Credit on the materials is to be arrived at and to be set at against the output GST (Billed to the Smart City) In this regard, a copy of the detailed report submitted by the Consultants M/s. S.R. M.R. Associated, Chartered Accountants to KUIDFC on goods service tax matters is enclosed herewith for your reference and further action in the matter. 6. It is not in dispute that the respondent authority had sought for clarification from KUIDFC, communication has been made out to the respondent authority as per the letter dated 03.01.2020 in terms as noticed above. 7. Various other contentions are raised including that the contracts have a dispute resolution clause and accordingly, any dispute relating to the rates or as regards to the assertion of the petitioner that GST paid by him is required to be made good, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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) an 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 determines 2014 is to be ascertained first. as per the Revised SoR-2014. (In case of rates of any 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, 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Railway Board) New Delhi No. 2017/CE-I/CT/7/GST, dated 27.10.2017 To As per list attached Sub: Impact of GST on Existing Works Contracts 1. Ministry of Railways have received a number of representations from Zonal Railways, railway contractors and contractors associations with a request that the increased tax liability due to implementation of GST should be borne by railways in works contracts awarded before implementation of GST. The issue was under consideration of Board for some time. It is seen that the impact of GST varies, depending upon the type of work, business model adopted by contractor and also on the state in which these works are being carried out. The impact is much more in labour intensive works like P. Way linking. Earthwork etc. 2. Considering the above, it has been decided to make existing works contracts awarded before implementation of GST, as GST neutral after carefully taking into account the input tax credit available to the contractor, on a case to case basis, on production of documentary evidence. This exercise may involve reimbursement to contractors or recovery from contractors depending upon the tax liability ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d (ME, FC, CRB) (Prem Sagar Gupta) Executive Director/Civil Engineering (G)/Railway Board 27. Pursuant to such order, the Western Railways issued a Joint Procedure Order dated 21.1.2018 laying down the procedure for the GST neutralization based upon the policy of the Government of India. The relevant portion of the order reads thus: 4. The review for GST neutrality is to be done on a case to case basis on the production of various detailed out in the following paragraphs of the JPO Xxxxxxxxxxxxxxxxxx 8. Procedure to be followed for GST neutralization: 8.1 In accordance with the Railway Board's letter dated 27.10.2017 all contracts awarded prior to at 01.07:2017 and all such contracts for which tenders were opened prior to 01.07.2017 but finalized after the implementation of GST are to be considered for GST neutralization. However, if any of the tender has been finalized duly considering the impact of GST. then such contract will not be eligible for the proposed GST neutralization 8.2 For dealing with the impact of GST in individual contract, a Supplementary (Subsidiary) agreement is to be entered into by the Executive, with the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o claim Input Tax Credit (ITC)/refund. The contractor shall also give a certificate that no refund claims of GST are pending settlement with the GST authorities. At the Railway end, the component of input materials/services for SOR/USSOR items will be checked with reference to the rate analysis available in the SOR/USSOR for NS items, the executive officer will carry out a detained rate analysis considering the input materials/services required for executing the NS item which will be approved by JAG/Senior Scale ( independent charge) c. The contractor shall, for the On Account/FCC bills, shall submit all the original Tax Invoices for all the input material/services procured for the particular work, enfaced with agreement number, in support of the ITC and the same shall be duly certified by the Statutory/Tax Auditor auditing the books of the contractor. d. The tax liability of the Contractor, before implementation of GST, shall be worked out for On Account/PCC bills taking into account all stipulated taxes in force before the GST implementation i.e., excise duty. VAT, including VAT on Excise duty, entry tax, octroi duty, prevalent service tax etc.. Irrespective of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the OST including the list of items for which the input tax credit is available for the work. It is further provided that the worksheet should contain the details of the quantities of the input materials/services procured for the particular works. Paragraph 8.6 (C) of the JPO further provides that the contractor shall submit the original tax invoices for all the input material/services procured for the particular work in support of the input tax credit. Paragraph 8.6 (f) of the IPO require furnishing the copies of the GST returns. Paragraph 10 of the JPO provides for calculating differential tax for the contract considering the input tax credit for the contract. A draft of the supplementary agreement is annexed along with the JPO 29. From the reading of the terms of the JPO as aforesaid, the following factual position emerges (a) The calculation of the GST neutralization is envisaged separately for each contract. (b) A supplementary agreement is to be entered into by the Railways with the contractor for the purpose of GST neutralization. (c) The details of the input tax credit are to be provided by the contractor in respect of the input materials used for a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd the Circulars dated 03.01.2020 and 14.12.2020, which have been followed by this Court in MAS constructions s case supra, and also the judgments of other High Courts referred to supra rendered under identical / similar circumstances, in order to do substantial justice, I deem it just and appropriate to dispose of the present petitions by issuing appropriate directions in this regard. 20. In the result, I pass the following:- ORDER (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 01.07.2017) 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 01.07.2017 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 01.07.2017, in the original contract. (d) Derive the rate of materials, KVAT items required or used to complete the balance works. ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
