Facts of the Case

The petitioner, M/s Ratna Khanij Udyog, was awarded contracts by the respondents for construction and widening of roads. These contracts were awarded before the introduction of the GST regime, when no service tax was payable on the concerned works.

After implementation of GST with effect from 01.07.2017, the petitioner became liable to pay GST on the execution of the remaining contractual work. Since the contract price had been quoted under the earlier tax regime without considering GST liability, the petitioner contended that the additional GST burden should be reimbursed by the Government.

Accordingly, the petitioner approached the High Court seeking reimbursement of GST paid on services rendered under Categories C1, C2 and C3 of the contract.

Issues Involved

  1. Whether a contractor executing contracts awarded before the implementation of GST is entitled to reimbursement of the additional GST liability incurred after 01.07.2017.
  2. Whether reimbursement can be granted without the contractor furnishing complete documentary evidence showing the additional tax burden.
  3. Whether the Government authorities are required to examine and process such reimbursement claims upon submission of supporting documents.

Petitioner’s Arguments

  • The contracts were awarded under the pre-GST tax regime where the quoted prices did not include GST or service tax.
  • Introduction of GST resulted in an unforeseen additional tax liability during execution of the contracts.
  • Since this additional liability arose solely because of the change in the tax regime, the Government should reimburse the additional GST paid.
  • The petitioner also submitted that relevant supporting documents had already been filed and expressed willingness to submit a fresh claim with additional documents, if required.

Respondent’s Arguments

  • The State did not dispute the legal entitlement of contractors to reimbursement of GST relating to contracts finalized before 01.07.2017 but executed thereafter.
  • The respondents stated that reimbursement could be considered only after the contractor furnished complete details regarding:
    • Taxes paid prior to 01.07.2017;
    • GST paid after 01.07.2017; and
    • The exact difference representing the additional tax burden.
  • The State further submitted that the petitioner had approached the High Court without first submitting a properly documented claim before the competent departmental authorities.
  • Upon receipt of complete documentary evidence, the Government was willing to examine and process the reimbursement claim in accordance with the applicable policy.

Court Order / Findings

The High Court observed that the respondents had categorically accepted the principle that GST reimbursement could be granted in respect of contracts finalized before 01.07.2017, subject to verification of the additional tax liability actually suffered by the contractor.

The Court held that the petitioner should submit a fresh claim before the competent authority along with cogent documentary evidence demonstrating the additional GST liability incurred during execution of the contract.

The Court directed the respondent authorities to:

  • Receive and examine the fresh claim;
  • Verify the supporting documents;
  • Scrutinize the claim in accordance with the applicable Government policy; and
  • Pass an appropriate decision within 90 days from the date of receipt of the fresh claim.

Accordingly, the writ petition was disposed of with the above directions.

Important Clarification

  • Contractors executing pre-GST contracts are not automatically entitled to reimbursement merely because GST became applicable.
  • Reimbursement is available where Government policy permits and where the contractor establishes the actual additional tax burden through proper documentary evidence.
  • The Government itself acknowledged that reimbursement claims relating to contracts finalized before 01.07.2017 may be considered after verification.
  • Proper documentation regarding pre-GST taxes, GST paid, and the differential tax liability is essential for processing such claims.
  • The competent authority must decide such reimbursement claims within the time stipulated by the Court after receipt of a complete application.

Key Takeaway

The Chhattisgarh High Court reaffirmed that contractors executing contracts awarded before the introduction of GST may seek reimbursement of the additional GST burden arising due to the new tax regime. However, such reimbursement is subject to submission of complete documentary proof and verification by the competent Government authorities under the applicable reimbursement policy.

Sections  Involved

  • Goods and Services Tax (GST) Regime (Effective from 01.07.2017)
  • Principles relating to reimbursement of additional tax burden arising due to introduction of GST
  • Government Policy governing reimbursement of GST on contracts awarded under the pre-GST regime
  • Article 226 of the Constitution of India (Writ Jurisdiction)

Link to download the order - https://mytaxexpert.co.in/uploads/1782968233_224compressed.pdf

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