Facts of the Case

The Petitioner challenged the action of the 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 dispute arose in the context of works contracts where contractors faced difficulties because of the transition to GST. The grievance of the Petitioner was that, after introduction of GST, the Petitioner was required to pay tax that had not been envisaged when the agreement was entered into.

The Petitioner submitted that the writ petition was identical to W.P.(C) No. 5933 of 2020 and requested that it be disposed of in terms of the order dated 18.02.2020 passed in that matter. The State did not dispute this position.

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

Issues Involved

The principal issues before the Court were:

  1. Whether the Petitioner was entitled to consideration of reimbursement of the differential tax burden arising from the transition from VAT and other pre-GST indirect taxes to GST with effect from 01.07.2017.
  2. Whether additional GST liability in respect of works tendered or contracted before 01.07.2017, but executed wholly or partly after introduction of GST, was required to be determined in accordance with the Government of Odisha’s revised guidelines dated 10.12.2018.
  3. Whether the competent authority was required to recalculate the GST-inclusive value of balance work under the revised Schedule of Rates and reimburse the contractor where the revised GST-inclusive value exceeded the original agreement value.
  4. Whether the Petitioner’s grievance should be considered through a comprehensive representation before the appropriate authority.

Petitioner’s Arguments

The Petitioner contended that the introduction of GST created an additional tax burden that was not envisaged at the time of entering into the works contract agreement.

It was argued that the Opposite Parties had failed to reimburse the differential tax amount arising because of the transition from VAT to GST with effect from 01.07.2017.

The Petitioner further submitted that the present writ petition was identical to W.P.(C) No. 5933 of 2020 and should therefore be disposed of in terms of the order dated 18.02.2020 passed in that case.

The underlying grievance was that contractors executing pre-GST works contracts after 01.07.2017 should receive appropriate adjustment of the tax impact in accordance with the revised Government guidelines.

Respondent’s Arguments

The learned Additional Standing Counsel appearing for the State-Opposite Parties did not dispute the Petitioner’s submission that the matter was identical to W.P.(C) No. 5933 of 2020.

The State’s position also brought on record the revised guidelines relating to works contracts under GST issued by the Government of Odisha, Finance Department through Office Memorandum dated 10.12.2018.

These revised guidelines prescribed the mechanism for determining the amount payable to works contractors where tenders had been invited before 01.07.2017 on the basis of SoR-2014 but payment for full or balance work was made after implementation of GST.

Court Order / Findings

The Orissa High Court directed the Petitioner to make a comprehensive representation before the appropriate authority within two weeks from the date of the order, setting out the grievance regarding differential tax reimbursement.

The Court further directed that, if such representation was filed, the competent authority should consider and dispose of it in light of the revised guidelines dated 10.12.2018 issued by the Finance Department, Government of Odisha, as expeditiously as possible and preferably by 02.01.2023.

The Court expressly clarified that if the Petitioner remained aggrieved by the decision of the authority, it would be open to the Petitioner to challenge that decision.

Accordingly, the writ petition was disposed of.

Important Clarification

The judgment is significant because it does not record an automatic or unconditional grant of GST differential reimbursement to the Petitioner. Instead, it requires the Petitioner to submit a comprehensive representation and mandates consideration of that representation under the revised Government of Odisha guidelines dated 10.12.2018.

The revised guidelines, reproduced in detail in the order, clarify the treatment of pre-GST works contracts executed wholly or partly after 01.07.2017:

  • GST came into force from 01.07.2017 by subsuming indirect taxes including Excise Duty, VAT, CST, Entry Tax and Service Tax.
  • Works contracts are treated as composite supply of service under GST and may be taxable at 18%, 12% or 5%, depending on the nature of the works contract.
  • For tenders invited before 01.07.2017 on the basis of SoR-2014, but where payments for balance or full work were made after GST implementation, the balance work value must be determined under the prescribed revised methodology.
  • The item-wise quantity of work done after 30.06.2017 must first be ascertained.
  • The revised estimated value of balance work must be determined under Revised SoR-2014.
  • Where goods or services are not covered by Revised SoR-2014, the tax-exclusive basic value must be determined by removing embedded incidences of VAT, Entry Tax, Excise Duty, Service Tax and similar taxes.
  • The revised estimated work value must be adjusted in the same proportion as the tender premium or discount.
  • Applicable GST at 5%, 12% or 18%, as the case may be, must then be added to determine the GST-inclusive value of the balance work.
  • Where the revised GST-inclusive value exceeds the original agreement value for the balance work, the contractor is to be reimbursed for the excess amount.
  • Where the revised GST-inclusive value is lower than the original agreement value, payment must be reduced accordingly, and any excess payment already made must be recovered.
  • The procedure applies to all works contracts, including EPC, Turn-key and Lumpsum contracts.
  • For F2 contracts, the taxable value under GST for each item of balance work is to be determined by the competent authority by applying the premium or discount offered by the contractor to the respective item.

Thus, the Court’s direction ensures administrative examination of the contractor’s claim under the specific revised mechanism rather than granting reimbursement merely on assertion of an increased GST burden.

Sections / Legal Provisions and Government Guidelines Involved

1. Article 226 of the Constitution of India
The writ petition was instituted before the High Court in its writ jurisdiction for redress against the alleged non-reimbursement of differential tax arising from the transition to GST.

2. Goods and Services Tax Regime effective from 01.07.2017
The dispute directly concerns the transition from the earlier indirect tax regime to GST and its impact upon ongoing works contracts.

3. Works Contract under GST
As recorded in the revised guidelines reproduced by the Court, works contract is treated as a composite supply of service under GST, with applicable rates stated as 18%, 12% or 5%, depending upon the nature of the works contract.

4. Government of Odisha, Finance Department Office Memorandum No. FIN-CTITAX-0045-2017/38535/F dated 10.12.2018
This is the principal revised guideline governing recalculation and adjustment of GST impact upon specified works contracts.

5. Finance Department Letter No. FINCTI-TAX-0045-2017-36116/F dated 07.12.2017
The earlier guidelines were superseded by the revised guidelines dated 10.12.2018.

6. Revised Schedule of Rates-2014 (Revised SoR-2014)
The revised methodology requires determination of the balance work value under Revised SoR-2014 and addition of applicable GST thereafter.

7. Works Department O.M. No. 13827/WD dated 16.09.2017, effective from 01.07.2017
The order records that the State Government revised SoR-2014 in connection with GST compliance for works contracts.

 Link to download the order -https://www.mytaxexpert.co.in/uploads/1783313792_999compressed.pdf

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