Facts of the Case

The petitioner, M/s. Bhanjadeo Constructions, filed the writ petition challenging the action of the State of Odisha and other opposite parties in not reimbursing the differential tax amount arising from the change in the tax regime from Value Added Tax (VAT) to Goods and Services Tax (GST) with effect from 01.07.2017.

The petitioner’s grievance arose in the context of works contracts affected by the transition to GST. According to the case presented before the Court, the introduction of GST resulted in the petitioner being required to bear a tax burden that had not been envisaged at the time of entering into the agreement.

The Court recorded that a batch of writ petitions had been filed concerning similar difficulties faced by contractors because of the change in the taxation regime applicable to works contracts under GST.

At the Bar, it was submitted that the present writ petition was identical to W.P.(C) No. 38490 of 2021 and could therefore be disposed of in terms of the order dated 14.12.2021 passed in that matter.

The order further recorded that the Government of Odisha had issued revised guidelines relating to works contracts under GST through Finance Department Office Memorandum No. FIN-CTI-TAX-0045-2017/38535/F dated 10.12.2018, superseding the earlier guidelines dated 07.12.2017.

Issues Involved

The principal issues arising from the order were:

  1. Whether a works contractor could seek consideration of the differential tax burden arising from the transition from VAT to GST with effect from 01.07.2017.
  2. Whether the petitioner’s grievance regarding additional GST liability, allegedly not envisaged when the contract was entered into, was required to be examined under the Odisha Government’s revised guidelines dated 10.12.2018.
  3. How the payable amount for balance work was to be determined where the tender had been invited before 01.07.2017 on the basis of SoR-2014 but payment for the balance work or entire work was made after implementation of GST.
  4. Whether revised GST-inclusive work value could justify reimbursement where it exceeded the original agreement work value for the balance work.
  5. Whether payment could correspondingly be reduced, or excess payment recovered, where the revised GST-inclusive work value was lower than the original agreement work value.
  6. Whether the petitioner should first submit a comprehensive representation to the competent authority for determination under the revised guidelines.
  7. Whether coercive action should remain suspended until the competent authority decided the petitioner’s representation.

Petitioner’s Arguments

The petitioner challenged the failure of the opposite parties to reimburse the differential tax amount resulting from the change in the taxation system from VAT to GST with effect from 01.07.2017.

The petitioner’s essential grievance was that, because of the introduction of GST, it was required to pay tax that had not been envisaged while entering into the contractual agreement.

The petitioner’s case formed part of the broader category of disputes concerning contractors who had undertaken works under the earlier tax and rate structure but faced changed tax consequences after GST came into force.

The petitioner accordingly sought relief in relation to the differential tax impact generated by the transition to the GST regime.

Respondent’s Arguments / Stand of the Opposite Parties

The order records the existence of revised guidelines issued by the Government of Odisha through the Finance Department on 10.12.2018.

The revised guidelines had been issued in supersession of the earlier guidelines dated 07.12.2017 after consideration of representations from contractors claiming additional amounts towards GST in respect of works put to tender before 01.07.2017 but executed partly or wholly after that date.

The Government framework recognised that GST had come into force from 01.07.2017 by subsuming various indirect taxes, including Excise Duty, VAT, CST, Entry Tax and Service Tax.

The revised guidelines further recognised that works contracts are treated as composite supplies of services under GST and may be taxable at 18%, 12% or 5%, depending upon the nature of the works contract.

Court’s Findings and Order

The High Court took note of the revised guidelines dated 10.12.2018 issued by the Finance Department, Government of Odisha.

The Court directed the petitioner to submit a comprehensive representation before the appropriate authority within four weeks from the date of the order, setting out its grievance.

If such representation was filed, the competent authority was directed to consider and dispose of it in light of the revised guidelines dated 10.12.2018.

The Court further directed that the representation should be decided as expeditiously as possible, preferably within three months from the date of receipt of the certified copy of the order.

The High Court also clarified that if the petitioner was aggrieved by the decision ultimately taken by the authority, it would remain open to the petitioner to challenge such decision.

Significantly, the Court directed that no coercive action shall be taken against the petitioner until a decision is taken by the authority.

The writ petition was accordingly disposed of.

Detailed Findings on the Revised GST Works Contract Guidelines

The Court reproduced the revised guidelines dated 10.12.2018 in substantial detail. Their material features are as follows:

1. GST Treatment of Works Contracts

GST came into force with effect from 01.07.2017, subsuming indirect taxes such as:

  • Excise Duty
  • VAT
  • CST
  • Entry Tax
  • Service Tax

Works contracts are treated as composite supplies of services under GST and are taxable at the applicable rate of 18%, 12% or 5%, depending upon the nature of the works contract.

2. Revision of Schedule of Rates-2014

The State Government revised the Schedule of Rates-2014 through Works Department Office Memorandum No. 13827/WD dated 16.09.2017 with effect from 01.07.2017.

The pre-revised SoR-2014 rates were inclusive of taxes such as Excise Duty, VAT, Entry Tax and Service Tax. Those tax components were excluded from the Revised SoR-2014.

Accordingly, for estimates prepared after 01.07.2017, the GST-exclusive work value was to be determined under the Revised SoR-2014, after which GST was to be added at the appropriate rate.

3. Tax Invoice Requirement

Under the GST regime, a works contractor is required to raise a tax invoice separately showing:

  • Taxable work value; and
  • GST comprising CGST and SGST.

4. Procedure for Pre-01.07.2017 Tenders with Post-GST Execution or Payment

Where a tender was invited before 01.07.2017 on the basis of SoR-2014 but payments were made for balance work or full work after implementation of GST, the revised guidelines prescribed the following procedure:

First: Determine the item-wise quantity of work completed after 30.06.2017, namely the “Balance Work,” and ascertain its value under the original agreement based on the pre-revised SoR-2014.

Second: Determine the revised estimated work value of the Balance Work under the Revised SoR-2014.

Where rates of goods or services used in execution of the balance work were not covered by the Revised SoR-2014, their tax-exclusive basic value was to be determined by removing embedded tax incidences such as VAT, Entry Tax, Excise Duty and Service Tax from the estimated or quoted price.

Third: Enhance or reduce the revised estimated work value for the Balance Work in the same proportion as the tender premium or discount.

Fourth: Add the applicable GST rate of 5%, 12% or 18%, as the case may be, to the revised estimated work value to determine the GST-inclusive work value for the Balance Work.

Fifth: The competent authority responsible for payment must determine the GST-inclusive work value for the Balance Work where the agreement was executed on the basis of SoR-2014.

Sixth: A supplementary agreement must be signed with the works contractor for the revised GST-inclusive work value of the Balance Work.

5. Reimbursement Where Revised GST-Inclusive Value Is Higher

Where the revised GST-inclusive work value for the Balance Work exceeds the original agreement work value for such Balance Work, the revised guidelines provide that the works contractor is to be reimbursed for the excess amount.

6. Reduction or Recovery Where Revised Value Is Lower

Where the revised GST-inclusive work value is lower than the original agreement work value for the Balance Work, payment to the contractor is to be reduced accordingly.

If excess payment has already been made under the original agreement, the excess amount is required to be recovered from the works contractor.

7. Application to EPC, Turnkey and Lumpsum Contracts

The prescribed procedure applies to all works contracts, including contracts executed under:

  • EPC mode
  • Turnkey mode
  • Lumpsum mode

8. F2 Contracts

For F2 contracts, the taxable value under GST for each item of the balance work is to be determined by the competent authority by applying the premium or discount offered by the works contractor to the respective item.

Important Clarification

The High Court did not directly adjudicate or quantify the exact differential GST amount allegedly payable to M/s. Bhanjadeo Constructions.

The Court also did not issue an unconditional direction for immediate reimbursement of a fixed amount.

Instead, the Court adopted a procedural approach by directing the petitioner to file a comprehensive representation and requiring the competent authority to decide that representation under the revised Odisha Finance Department guidelines dated 10.12.2018.

Therefore, the case should not be interpreted as granting automatic reimbursement in every pre-GST works contract. The entitlement must be examined under the prescribed methodology, including determination of the balance work, revised estimated work value, tender premium or discount, applicable GST rate and comparison with the original agreement value.

At the same time, the Court granted meaningful interim protection by directing that no coercive action be taken until the authority decides the matter.

Section / Legal Provisions and Government Guidelines Involved

The uploaded order does not identify a specific numbered section of the CGST Act, OGST Act or any other GST enactment as the principal statutory provision under adjudication. Therefore, no specific statutory section should be artificially attributed to the judgment.

The principal legal and administrative framework involved was:

  • Transition from VAT regime to GST with effect from 01.07.2017
  • GST treatment of works contracts as composite supply of services
  • Odisha Finance Department Revised Guidelines dated 10.12.2018
  • Office Memorandum No. FIN-CTI-TAX-0045-2017/38535/F dated 10.12.2018
  • Earlier Finance Department Guidelines dated 07.12.2017, which were superseded
  • Revised Schedule of Rates-2014
  • Works Department O.M. No. 13827/WD dated 16.09.2017
  • Applicable GST rates of 5%, 12% or 18%, depending upon the nature of the works contract

Link to download the order -

https://mytaxexpert.co.in/uploads/1783319314_1106compressed.pdf 

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