Facts of the Case

The Petitioner filed the writ petition challenging the action of the Opposite Parties in not reimbursing the differential tax amount arising from the change in the indirect 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 a works contract where the introduction of GST created a tax burden that, according to the Petitioner, had not been envisaged when the agreement was originally entered into. The Court recorded that a batch of writ petitions had been filed concerning the difficulties faced by contractors due to the change in the tax regime applicable to works contracts under GST.

The Government of Odisha had subsequently issued revised guidelines relating to works contracts under GST through Finance Department Office Memorandum No. FIN-CT1-TAX-0045-2017/38535/F dated 10.12.2018, superseding the earlier guidelines dated 07.12.2017. These revised guidelines addressed additional GST implications for works tendered before 01.07.2017 but executed wholly or partly thereafter.

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 on works contracts, which had not been envisaged at the time of entering into the original agreement, should be dealt with under the revised guidelines issued by the Finance Department, Government of Odisha, dated 10.12.2018.
  3. Whether the revised GST-inclusive value of balance work executed after 30.06.2017 was required to be calculated under the prescribed mechanism based on the Revised Schedule of Rates, 2014.
  4. Whether the Petitioner’s grievance was identical to the matter dealt with in W.P.(C) No. 5933 of 2020 and could therefore be disposed of in terms of the order dated 18.02.2020 passed in that case.

Petitioner’s Arguments

The Petitioner submitted that the present 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 writ petition.

The Petitioner’s substantive grievance was that, following the introduction of GST, tax became payable in a manner that had not been envisaged when the works contract agreement was entered into. The Petitioner challenged the failure of the Opposite Parties to reimburse the differential tax amount resulting from the transition from VAT to GST.

Accordingly, the Petitioner sought consideration of the additional tax burden under the revised guidelines governing works contracts under GST.

Respondent’s Arguments

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

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

These guidelines provided a mechanism for determining the GST-inclusive work value of balance work in cases where tenders had been invited before 01.07.2017 on the basis of SoR-2014 but payments for balance work or full work were made after implementation of GST.

Court Order / Findings

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 make a comprehensive representation before the appropriate authority within two weeks from the date of the order, setting out the grievance concerning differential tax reimbursement.

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

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

Accordingly, the writ petition was disposed of.

Important Clarification

The judgment does not record a direct unconditional award of differential GST reimbursement to the Petitioner. Instead, it requires the Petitioner’s claim to be examined by the appropriate authority under the revised Government of Odisha guidelines dated 10.12.2018.

The revised guidelines contemplate the following mechanism for works tendered before 01.07.2017 but executed wholly or partly thereafter:

  • The item-wise quantity and value of balance work performed after 30.06.2017 must first be ascertained under the original agreement based on the pre-revised SoR-2014.
  • The revised estimated value of the balance work must then be determined under the Revised SoR-2014.
  • Where relevant goods or services are not covered by the Revised SoR-2014, their tax-exclusive basic value is to be determined by removing embedded incidences of VAT, Entry Tax, Excise Duty, Service Tax and similar taxes.
  • The revised estimated balance-work value must be enhanced or reduced in the same proportion as the applicable tender premium or discount.
  • GST at the applicable rate of 5%, 12% or 18%, as the case may be, must then be added to arrive at the GST-inclusive work value.
  • If the revised GST-inclusive work value exceeds the original agreement value for the balance work, the contractor is to be reimbursed for the excess amount.
  • If the revised GST-inclusive value is lower, the contractor’s payment is to be reduced accordingly, and excess payment already made may be recovered.
  • The procedure applies to all works contracts, including EPC, Turn-key and Lumpsum contracts.
  • In F2 contracts, the competent authority is to determine the taxable value under GST for each item of balance work by applying the premium or discount offered by the contractor to the respective item.

Sections / Legal Provisions and Government Guidelines Involved

Goods and Services Tax framework applicable from 01.07.2017 – The dispute concerns the transition from the earlier indirect tax regime to GST and its financial impact on works contracts.

Works Contract under GST – The revised guidelines record that works contracts are treated as composite supplies of services under GST and may attract GST at the applicable rate of 18%, 12% or 5%, depending upon the nature of the works contract.

CGST and SGST Components – In the GST regime, the works contractor is required to raise a tax invoice separately reflecting taxable work value and GST comprising CGST and SGST.

Government of Odisha, Finance Department Office Memorandum No. FIN-CT1-TAX-0045-2017/38535/F dated 10.12.2018 – Revised guidelines relating to works contracts under GST, issued in supersession of the earlier Finance Department guidelines dated 07.12.2017.

Revised Schedule of Rates, 2014 (Revised SoR-2014) – Relevant for determining the revised estimated tax-exclusive value of balance work after 01.07.2017.

Link to download the order -https://www.mytaxexpert.co.in/uploads/1783313819_1001compressed.pdf

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