Facts of the Case

The petitioner was awarded a works contract before the implementation of GST, when the Value Added Tax (VAT) regime was applicable. However, a substantial portion of the contractual work was executed after 01.07.2017, when GST came into force.

Due to the change in the tax regime, the petitioner became liable to pay GST, although such additional tax liability was not contemplated while entering into the original contract. The petitioner challenged the action of the authorities in refusing to reimburse the differential tax amount arising solely because of the transition from VAT to GST.

The petitioner submitted that the controversy was identical to earlier writ petitions decided by the High Court and sought similar relief.

Issues Involved

  1. Whether a contractor executing a pre-GST works contract is entitled to reimbursement of the additional GST liability incurred on work executed after 01.07.2017.
  2. Whether the Government authorities are required to determine and reimburse the differential GST amount in accordance with the revised Government guidelines dated 10.12.2018.
  3. Whether the contractor's claim should be examined by the competent authority under the revised GST reimbursement mechanism.

Petitioner's Arguments

  • The petitioner argued that the works contract had been awarded before GST was introduced and the agreed rates were based upon the VAT regime.
  • After implementation of GST, the petitioner became liable to discharge tax which was never contemplated while entering into the contract.
  • The refusal of the authorities to reimburse the additional tax burden was arbitrary.
  • The petitioner further submitted that the present case was identical to earlier cases already decided by the High Court and deserved identical relief.

Respondents' Arguments

  • The State did not dispute that the controversy was covered by earlier decisions of the High Court.
  • It was brought to the notice of the Court that the Government of Odisha had already issued revised guidelines through Office Memorandum dated 10.12.2018 governing reimbursement of GST in works contracts awarded before 01.07.2017.
  • According to the revised policy, the competent authority is required to determine the revised GST-inclusive value of the balance work and reimburse the contractor wherever the revised value exceeds the original agreement value.

Court Order / Findings

The Orissa High Court observed that the Government had already framed comprehensive revised guidelines for dealing with works contracts affected by the transition from VAT to GST.

The Court directed the petitioner to submit a comprehensive representation before the competent authority within two weeks.

The authority was directed to consider and dispose of the representation strictly in accordance with the revised Government guidelines dated 10.12.2018 and pass an appropriate order expeditiously.

The Court further clarified that if the petitioner remained dissatisfied with the decision of the authority, it would be open to challenge the same before the appropriate forum.

Accordingly, the writ petition was disposed of with the above directions.

Important Clarification

  • Contractors executing works contracts awarded before 01.07.2017 are not automatically denied reimbursement merely because GST became applicable subsequently.
  • The Government's revised guidelines dated 10.12.2018 provide a specific mechanism for calculating the revised GST-inclusive contract value.
  • If the revised GST-inclusive value exceeds the original agreement value, the excess amount is required to be reimbursed to the contractor.
  • If the revised value is lower than the original agreement value, the excess payment is recoverable from the contractor.
  • Contractors must first approach the competent authority by filing a proper representation before invoking further judicial remedies.

Related Case Law

  • Shiba Prasad Panda vs The Executive Engineer, Rural Water Supply & Sanitation Division, Keonjhar & Others – W.P.(C) No. 11486 of 2021 (Orissa High Court)
  • W.P.(C) No. 5933 of 2020 – Referred to and followed by the Court while disposing of the present writ petition.

Sections / Provisions Involved

  • Goods and Services Tax (GST) Law
  • Works Contract under GST
  • Transition from VAT Regime to GST (w.e.f. 01.07.2017)
  • Government of Odisha Finance Department Office Memorandum dated 10.12.2018
  • Article 226 of the Constitution of India (Writ Jurisdiction)

Link to Download the Order https://www.mytaxexpert.co.in/uploads/1784527994_1005compressed.pdf

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