Facts of the Case

The petitioner, M/s Shibbu Singh, a works contractor, approached the Patna High Court challenging the appellate order dated 06.01.2022, bearing Memo No. 3084, and APL-04 No. ZD1001220029355 dated 08.01.2022, passed in relation to FY 2018-19. The appellate authority had affirmed the order dated 09.03.2020 and rejected the petitioner’s appeal.

The petitioner also challenged the summary assessment/demand order issued in FORM GST DRC-07, Order No. ZA100320014484E dated 09.03.2020, for the period October 2018 to March 2019. According to the petition, the proceedings under Section 74 of the Bihar GST Act, 2017 proceeded on the allegation that turnover had been suppressed while nil turnover was reported for the relevant period.

The petitioner’s case was that, being a works contractor executing construction and repair works for the Rural Works Department, Government of Bihar, tax amounts had already been paid/deducted in connection with departmental contracts. The petitioner contended that such amounts ought to have been appropriately transferred or dealt with by the concerned authorities rather than fastening substantial tax, interest, and penalty liability upon the contractor.

A central grievance arose from the transition from the Bihar Value Added Tax regime to GST. The petitioner asserted that the contracts had been entered into when tax deduction operated under the Bihar VAT framework, whereas after introduction of GST the applicable tax burden increased, as pleaded, from 4% to 12%. The petitioner contended that recovery of this differential burden from the contractor, instead of its reimbursement or appropriate adjustment by the Rural Works Department, was without jurisdiction and unjustified.

The petitioner sought reimbursement of Rs. 47,18,770.56, described in the writ petition as the GST amount connected with projects allotted by the concerned respondents. The pleadings also referred to interest of Rs. 1,57,700 and penalty of Rs. 9,34,130 arising from the demand order dated 09.03.2020. Further, the petitioner sought refund of Rs. 93,413, stated to have been deposited as 10% of the disputed tax amount for filing the statutory appeal under Section 107(6)(b).

Issues Involved

The principal issues arising from the writ petition were:

  1. Whether the DRC-07 demand/assessment under Section 74 of the Bihar GST Act, 2017, based on alleged suppression of turnover and nil returns for October 2018 to March 2019, was legally sustainable.
  2. Whether the petitioner, as a works contractor executing government projects, was entitled to reimbursement or adjustment of the additional/differential GST burden arising after transition from the Bihar VAT regime to GST.
  3. Whether tax amounts allegedly paid or deducted in relation to the Rural Works Department contracts ought to have been transferred or appropriately accounted for by the concerned department instead of imposing tax, interest, and penalty liability upon the petitioner.
  4. Whether the petitioner’s claim was covered by the Patna High Court’s earlier judgment dated 05.07.2019 in C.W.J.C. No. 1452 of 2019, M/s Jai Bhawani Construction vs The Union of India & Ors., and analogous cases.
  5. Whether the petitioner’s claim was required to be considered in light of Letter No. 5405 dated 30.07.2019, issued by the Engineer-in-Chief pursuant to the earlier judgment.
  6. Whether the appellate order affirming the demand required interference.
  7. Whether the petitioner was entitled to refund of the statutory pre-deposit made under Section 107(6)(b), along with other consequential reliefs.

Petitioner’s Arguments

The petitioner contended that the assessment proceedings and consequential demand were misconceived, arbitrary, illegal, and without jurisdiction. It was argued that the petitioner was a works contractor and had paid tax in advance to, or suffered tax-related deductions through, the Rural Works Department; therefore, the corresponding amount ought to have been appropriately transferred or dealt with by the concerned authorities.

The petitioner further argued that the construction and repair agreements had been entered into in the context of the Bihar VAT regime, under which deductions were made, but the subsequent introduction of GST increased the pleaded tax incidence from 4% to 12%. According to the petitioner, recovery of the enhanced tax burden from the contractor instead of the Rural Works Department was without jurisdiction.

The petitioner sought directions for release/reimbursement of the GST differential amount incurred toward projects for which tenders and work orders had been issued. It also sought transfer of tax amounts allegedly paid to the Rural Works Department, reimbursement of GST liability, interest for delayed reimbursement, protection against coercive recovery, and refund of the appellate pre-deposit.

Most importantly, learned counsel for the petitioner submitted that the case was squarely covered by the judgment and order dated 05.07.2019 in M/s Jai Bhawani Construction vs The Union of India & Ors., C.W.J.C. No. 1452 of 2019, together with analogous cases, as well as Letter No. 5405 dated 30.07.2019 issued by the Engineer-in-Chief pursuant to that judgment.

Respondents’ Arguments

Learned counsel appearing for the State submitted that the State had no objection to the matter being remanded to the appropriate authority for consideration of the petitioner’s case on its own merits and in accordance with law.

Thus, the State did not oppose reconsideration by the competent authority in light of the earlier judgment and the departmental letter relied upon by the petitioner.

Court Order / Findings

The Patna High Court disposed of the writ petition by directing Respondent No. 7, the Engineer-in-Chief, Rural Works Department, Government of Bihar, Patna, to consider and decide the petitioner’s case in terms of:

  • the judgment and order dated 05.07.2019 referred to by the petitioner, namely M/s Jai Bhawani Construction vs The Union of India & Ors., C.W.J.C. No. 1452 of 2019 and analogous cases; and
  • Letter No. 5405 dated 30.07.2019.

The Court further expressed the hope and expectation that the Engineer-in-Chief would consider and decide the petitioner’s case expeditiously and preferably within four months from the date of receipt/production of a copy of the High Court’s order.

The writ petition was accordingly disposed of, and any pending interlocutory applications were also disposed of.

Important Clarification

A crucial clarification by the Patna High Court was that all issues of fact and law were left open.

This means that the Court did not finally adjudicate the substantive validity of the Section 74 demand, the alleged suppression of turnover, the petitioner’s claimed entitlement to GST reimbursement, the exact amount payable, the legality of interest or penalty, or the refund of pre-deposit. Instead, the competent authority was directed to consider and decide the petitioner’s case in light of the earlier judgment and the departmental letter.

Accordingly, the judgment should not be understood as an unconditional grant of GST reimbursement or automatic quashing of every disputed tax liability. The operative relief was reconsideration by the Engineer-in-Chief, with all factual and legal issues expressly preserved.

Sections / Legal Provisions Involved

Section 74 of the Bihar Goods and Services Tax Act, 2017 – Invoked in relation to the disputed assessment/demand based on alleged suppression of turnover for the relevant period.

Section 107(6)(b) of the CGST/BGST framework – Relevant to the statutory pre-deposit of 10% of the disputed tax amount for maintaining an appeal; the petitioner claimed refund of Rs. 93,413 deposited for FY 2018-19.

FORM GST DRC-07 – Summary of the disputed demand order dated 09.03.2020.

FORM GST APL-04 – Connected with the appellate order challenged by the petitioner.

Bihar Value Added Tax Act / GST transition framework – Relevant to the petitioner’s contention concerning the increase in tax burden from the earlier VAT-linked rate to the GST rate and the claim for reimbursement of differential tax burden.

 Link to download the order -https://www.mytaxexpert.co.in/uploads/1783311891_984compressed.pdf

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