Facts of the Case

The petitioner, M/s. Bhanjadeo Constructions, filed a writ petition before the Odisha High Court challenging the action of the State Government in refusing to reimburse the differential tax liability arising due to the transition from the Value Added Tax (VAT) regime to the Goods and Services Tax (GST) regime with effect from 1 July 2017.

The petitioner contended that the works contract had been awarded before the implementation of GST, whereas a substantial portion of the work was executed after GST came into force. Consequently, the petitioner was required to bear an additional tax burden that had not been contemplated at the time of entering into the contract.

 Issues Involved


  1. Whether a contractor executing a pre-GST works contract is entitled to reimbursement of the additional GST liability arising after implementation of GST.
  2. Whether the State Government is required to determine the differential tax liability in accordance with the revised GST guidelines issued by the Finance Department.
  3. Whether the authorities should consider the contractor's grievance through a reasoned decision before taking coercive action.

 Petitioner's Arguments


  • The works contract was awarded before the introduction of GST.
  • GST resulted in an additional tax burden which was never contemplated while submitting the tender.
  • The Government failed to reimburse the excess GST payable despite the issuance of revised guidelines dealing with pre-GST works contracts.
  • The petitioner sought reimbursement of the differential GST amount incurred because of the statutory change in the indirect tax regime.

 Respondent's Arguments


The State relied upon the Revised Guidelines relating to Works Contract under GST issued by the Finance Department, Government of Odisha through Office Memorandum dated 10 December 2018.

The revised guidelines prescribed the methodology for determining the GST-inclusive value of works executed after 1 July 2017 where tenders had been invited prior to GST. The guidelines also provided for reimbursement of the excess amount wherever the revised GST-inclusive value exceeded the original contract value and reduction/recovery wherever the revised value was lower.

Court Order / Findings


The Odisha High Court observed that identical issues had already been considered in an earlier writ petition.

The Court directed the petitioner to submit a comprehensive representation before the competent authority within four weeks. The authority was directed to examine and dispose of the representation strictly in accordance with the Finance Department's Revised Guidelines dated 10 December 2018, preferably within three months.

The Court further held that:

  • The petitioner would remain free to challenge the decision if aggrieved.
  • No coercive action should be taken against the petitioner until the competent authority decides the representation.

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

 Important Clarification


  • Contractors executing works contracts awarded before 1 July 2017 but performed wholly or partly after GST implementation may seek determination of the revised GST-inclusive contract value under the Government's revised guidelines.
  • The competent authority must examine such claims by following the prescribed calculation methodology.
  • Reimbursement is permissible where the revised GST-inclusive value exceeds the original agreement value.
  • If the revised value is lower, the excess amount already paid may be recovered.
  • The Court emphasized that authorities should first decide the contractor's representation before initiating coercive action.

 Key Takeaway


The Odisha High Court reaffirmed that disputes relating to additional GST liability on pre-GST government works contracts should be resolved in accordance with the Government's revised GST guidelines. Instead of granting direct reimbursement through a writ, the Court directed the competent authority to determine the contractor's entitlement by applying the statutory methodology prescribed under the revised guidelines.

Sections / Subject Involved

  • Goods and Services Tax (GST)
  • Works Contract
  • Transition from VAT to GST
  • Reimbursement of Differential GST
  • Government Contracts
  • Article 226 of the Constitution of India (Writ Jurisdiction)

Link to Download the Order https://www.mytaxexpert.co.in/uploads/1784530633_1012compressed.pdf

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