Facts of the Case

The petitioner, Immanuel & Company, was a partnership firm engaged in land development, site grading, road formation and connected works for National Highways, State/local authorities and private concerns in Tamil Nadu. It executed works both as a main contractor and as a subcontractor. The petitioner had earlier been registered under the Tamil Nadu VAT regime and held Service Tax registration up to 30.06.2017, thereafter migrating to GST.

At the time of introduction of GST with effect from 01.07.2017, the petitioner had ongoing works contracts, including contracts entered into and commenced before the GST regime but continuing after 01.07.2017. These included road improvement, strengthening and maintenance works, upgradation and maintenance of roads, raising existing UGD manholes, jungle clearance and desilting works undertaken for various Government and local authorities in Thoothukudi District.

The petitioner contended that under the earlier tax regime it was paying VAT at 2% under Section 6 of the Tamil Nadu Value Added Tax Act, 2006, while Service Tax was not paid because the relevant services were claimed to be exempt under Serial Nos.12 and 13(a) of Notification No.25/2012-ST dated 20.06.2012. Upon introduction of GST, VAT and Service Tax were subsumed and the applicable GST rate underwent changes, initially being 18%, subsequently reduced to 12%, and later enhanced to 18%.

The petitioner relied substantially upon G.O.(Ms) No.264, Finance (Salaries) Department, dated 15.09.2017, and G.O.(Ms) No.296, Finance (Salaries) Department, dated 09.10.2017. According to the petitioner, these Government Orders recognised the introduction of GST as a major change in taxation law and contemplated that the risk arising from the change in tax law in Government works contracts would be borne by the procuring entity, subject to the prescribed methodology for determining the net change in tax liability and subsumed taxes.

Meanwhile, Show Cause Notice No.60 of 2022-GST dated 29.06.2022 was issued by the Additional Director, Directorate General of GST Intelligence, Coimbatore, proposing a GST demand of Rs.5,11,38,438/- under Section 74(1) of the CGST Act, 2017. The petitioner stated that the show cause notice itself referred to G.O.(Ms) No.296 dated 09.10.2017. Personal hearings were granted and the final hearing was fixed for 17.11.2022.

The petitioner had submitted a representation dated 12.08.2022 requesting the concerned State authorities to work out the applicable GST on the contracts and release the GST component without delay. Since that representation remained pending, the petitioner approached the High Court under Article 226 seeking a direction to Respondents 1 to 4 to consider the representation and grant the GST component along with interest for payment to the GST authority.

Issues Involved

  1. Whether the petitioner’s representation dated 12.08.2022 seeking determination and release of the applicable GST component in respect of Government works contracts was required to be considered by the procuring authorities.
  2. Whether the GST burden arising from the transition of pre-GST Government works contracts into the GST regime could be addressed in light of G.O.(Ms) No.264 dated 15.09.2017 and G.O.(Ms) No.296 dated 09.10.2017.
  3. Whether the pendency of the petitioner’s representation before the State/procuring authorities could be taken into account by the GST adjudicating authority while considering a request for further time in the pending proceedings.
  4. Whether the High Court should itself decide the petitioner’s substantive entitlement to reimbursement or release of the GST component, or merely direct the competent authorities to decide the pending representation in accordance with law.

Petitioner’s Arguments

The petitioner submitted that the relevant works contracts were ongoing contracts spanning the transition from the pre-GST regime to the GST regime. The contracts had been entered into and, in material cases, commenced before 01.07.2017 but continued thereafter.

It was argued that the petitioner had priced and executed the contracts in the context of the earlier tax framework, under which VAT was paid at 2% under Section 6 of the Tamil Nadu VAT Act, 2006, while the relevant services were stated to enjoy exemption from Service Tax under Notification No.25/2012-ST.

The introduction of GST materially altered the tax incidence on the contracts. The petitioner relied on G.O.(Ms) No.264 and G.O.(Ms) No.296 to contend that the State Government had recognised the difficulties arising from GST transition in existing Government works contracts and had adopted a mechanism for dealing with the change in tax burden and estimating subsumed taxes.

The petitioner further contended that a substantial GST demand of Rs.5,11,38,438/- had been proposed under Section 74(1) of the CGST Act, while its request to the State/procuring authorities for working out and releasing the applicable GST component remained undecided. Accordingly, it sought consideration of its representation and requested that GST proceedings not be pressed ahead without regard to the pending claim before the procuring authorities.

Respondents’ Position / Arguments

The judgment records appearances on behalf of Respondents 1, 2 and 4 through the learned Additional Government Pleader, Respondent 3 through Standing Counsel, and Respondent 5 through Senior Standing Counsel assisted by Junior Standing Counsel. However, the order does not set out any detailed independent counter-arguments or substantive rebuttal advanced by the respondents on the merits of the petitioner’s entitlement.

Accordingly, it would be inaccurate to attribute to the respondents any specific argument beyond what is expressly recorded in the order. The Court ultimately confined itself to directing consideration of the pending representation in accordance with law.

Court Order / Findings

The Madras High Court directed Respondents 1 to 4 to consider the petitioner’s representation dated 12.08.2022 on its own merits and pass appropriate orders in accordance with law within four weeks from the date of the order.

The Court further held that it would be open to the petitioner to approach the GST authorities seeking further time in view of the pendency of its representation before Respondents 1 to 4. If such a request were made, the adjudicating authority was directed to dispose of that request after taking into account the pendency of the representation before the concerned respondents.

The writ petition was accordingly disposed of with no order as to costs, and the connected miscellaneous petition was closed.

Important Clarification

The High Court did not hold that the petitioner was automatically entitled to reimbursement, release or payment of the entire GST component, nor did it determine that the procuring entities were conclusively liable to bear the GST demand of Rs.5,11,38,438/-.

The Court expressly clarified that it had not expressed any view on the merits of the petitioner’s representation. Respondents 1 to 4 remained free to consider and decide the representation on its own merits and in accordance with law. This distinction is crucial: the order is fundamentally a direction for time-bound consideration of a pending representation, and not a final adjudication granting substantive GST reimbursement.

Further, the Court did not quash the GST show cause proceedings under Section 74(1) of the CGST Act. It only permitted the petitioner to seek further time from the GST adjudicating authority, with a direction that such request be considered taking into account the pending representation.

Sections / Legal Provisions Involved

Article 226 of the Constitution of India – Writ jurisdiction of the High Court and issuance of a writ of mandamus.

Section 74(1) of the Central Goods and Services Tax Act, 2017 – Provision invoked in connection with the proposed GST demand of Rs.5,11,38,438/-.

Section 6 of the Tamil Nadu Value Added Tax Act, 2006 – Referred to in relation to the petitioner’s claim of payment of VAT at 2% under the earlier regime.

Notification No.25/2012-ST dated 20.06.2012, Serial Nos.12 and 13(a) – Relied upon by the petitioner concerning exemption from Service Tax for the stated services.

G.O.(Ms) No.264, Finance (Salaries) Department, dated 15.09.2017 – Policy framework referred to regarding the impact of change in taxation law following introduction of GST in Government works contracts.

G.O.(Ms) No.296, Finance (Salaries) Department, dated 09.10.2017 – Methodology referred to for estimating subsumed taxes and dealing with pre-GST works contracts transitioning into GST.

Link to download the order -https://www.mytaxexpert.co.in/uploads/1783311863_983compressed.pdf

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