Facts of the Case

A large batch of writ petitions was filed before the Jharkhand High Court by contractors and infrastructure entities executing works for different departments of the State Government and other State instrumentalities. The petitions raised a common issue concerning the implementation of the GST regime in relation to works contracts that were subsisting when GST came into force on 1 July 2017.

The petitioners’ case was that their contracts had been awarded during the pre-GST / VAT regime. Under those contracts, tax had been computed according to the then-existing VAT structure and contractual provisions. With the introduction of GST from 01.07.2017, the tax framework changed and, according to the petitioners, resulted in a higher or differential tax burden in respect of works executed or payments received during the GST period.

The petitioners contended that GST was not only imposed at a changed rate but was also leviable on the taxable value of the works contract as a whole under the new regime. Consequently, they claimed that they were compelled to bear the differential GST burden without an appropriate and uniform reimbursement mechanism.

The dispute had remained pending for a considerable period. The petitioners pointed out that other State Governments and public authorities, including Telangana, Andhra Pradesh, Railways and certain public sector undertakings, had framed guidelines dealing with comparable transitional issues.

The High Court had earlier addressed the subject in M/s Bhardwaj Construction Company (P) Ltd. vs State of Jharkhand, W.P.(T) No. 5045 of 2018, directing the State to take a decision. A subsequent decision of the Water Resources Department dated 22 April 2019 bearing Order No. 2086 was alleged by the petitioners to have failed to properly resolve the issue.

During the proceedings, the High Court considered that a uniform mechanism was necessary for implementing the GST reimbursement framework. The Court referred to the MoRTH mechanism dated 19.12.2018 and the consequential letter dated 14.07.2021 bearing Letter No. 1421, issued by the Secretary, Commercial Taxes Department, Government of Jharkhand.

The Court thereafter requested the Chief Secretary, Jharkhand, to examine the matter and ensure that appropriate guidelines were framed for resolving claims in a time-bound and coordinated manner across different departments.

Following meetings with heads of concerned departments and workshops for technical officers, the State Government framed a Standard Operating Procedure dated 26.08.2022. The SOP was brought on record through a supplementary counter affidavit filed by the Special Secretary, Commercial Taxes Department on 02.09.2022.

Issues Involved

The principal issues before the High Court were:

  1. Whether contractors executing subsisting works contracts awarded during the pre-GST regime were entitled to seek reimbursement of the differential GST burden arising after implementation of GST from 01.07.2017.
  2. Whether the State of Jharkhand was required to provide a uniform mechanism for dealing with differential GST reimbursement claims concerning pre-GST works orders executed partly or wholly during the post-GST period.
  3. Whether individual claims should be adjudicated by the concerned Government departments or State instrumentalities under the newly framed SOP dated 26.08.2022.
  4. Whether the High Court should examine the validity, deficiencies or individual clauses of the SOP when the SOP itself had not been challenged in the pending batch of writ petitions.
  5. Whether earlier rejection or adverse consideration of individual claims would prevent fresh determination under the subsequently issued SOP.
  6. What time frame should govern the disposal of long-pending differential GST reimbursement claims.

Petitioners’ Arguments

The petitioners contended that the works contracts in question had been awarded under the pre-GST / VAT regime and contained provisions for computation of tax according to the earlier tax structure.

According to them, the introduction of GST from 1 July 2017 created a higher and materially different tax burden. They argued that they were required to bear differential tax liability without an effective reimbursement mechanism.

The petitioners submitted that no uniform guidelines had initially been framed by the State of Jharkhand, resulting in inconsistent treatment across different Works Departments and State instrumentalities.

They relied upon mechanisms and guidelines stated to have been adopted by other State Governments, including Telangana and Andhra Pradesh, as well as Railways and other public sector undertakings.

The petitioners also referred to judicial orders passed by different High Courts, including the Madras High Court and Orissa High Court, in relation to comparable transitional GST issues.

After the SOP dated 26.08.2022 was framed, counsel for the petitioners attempted to point out certain alleged lacunae in its clauses. However, they ultimately sought disposal of the writ petitions with a direction requiring the competent authorities to decide their individual claims within a strict time frame, since the issue had remained unresolved for a considerable period.

Respondents’ Arguments

The respondents submitted that the State Government had already framed the SOP dated 26.08.2022, which established a mechanism for dealing with post-GST payments of pending bills related to works orders issued during the pre-GST period.

The respondents argued that, after issuance of the SOP, the individual petitioners should approach the competent authorities of the respective departments or State instrumentalities for consideration of their differential GST reimbursement claims.

It was further submitted that because the SOP itself was not under challenge in the batch of writ petitions, the High Court should not make observations regarding its individual clauses at that stage.

The respondents therefore supported resolution of individual claims through the administrative mechanism created under the SOP.

Court Order / Findings

The High Court observed that the common controversy concerned reimbursement of the differential GST amount paid by contractors under subsisting contracts existing as on 01.07.2017.

The Court recorded that it was during the proceedings and at the instance of the Court that the State Government considered it appropriate to formulate a mechanism through a Standard Operating Procedure for dealing with individual claims of aggrieved contractors and petitioners.

The Court noted that the SOP had been framed and published in the Extraordinary Gazette dated 26.08.2022 and was intended to deal with post-GST payments of pending bills relating to works orders issued during the pre-GST period.

Since the SOP was not under challenge in the batch of writ petitions, the High Court held that it was not necessary or appropriate to make observations on its terms and clauses at that stage.

The Court directed that the petitioners should press their existing claims before the concerned departments or State instrumentalities, or submit fresh claims, so that the competent authorities could take an informed decision in accordance with law and the SOP dated 26.08.2022.

Considering that the claims had remained pending for a long period following implementation of GST from 01.07.2017, the High Court directed that individual representations or claims should be decided expeditiously, preferably within eight weeks from the date of receipt of a copy of the Court’s order.

The Court further clarified that any earlier stand taken by the respondents regarding the correctness of an individual petitioner’s claim would not prevent a fresh decision after application of the guidelines and terms contained in the new SOP dated 26.08.2022.

The High Court also clarified that if any petitioner was aggrieved by the fresh decision, such decision could give rise to a fresh cause of action capable of being challenged in appropriate proceedings.

Further, any petitioner aggrieved by a particular clause of the SOP would remain free to challenge that clause separately.

The Court ordered that W.P.(T) Nos. 989 of 2022 and 990 of 2022 be de-tagged from the batch and listed separately after one week. The remaining writ petitions were disposed of, all pending interlocutory applications were closed, and the Court expressly stated that it had made no comment on the individual merits of the petitioners’ cases.

Important Clarification

The judgment does not declare an automatic or unconditional right to reimbursement of differential GST in favour of every contractor holding a pre-GST works contract.

Instead, the High Court directed that each individual claim must be examined by the competent department or State instrumentality in accordance with law and the SOP dated 26.08.2022.

The Court also did not uphold or invalidate any particular clause of the SOP, because the SOP itself was not under challenge in the batch proceedings.

A significant clarification is that an earlier rejection, adverse stand or previous departmental view concerning an individual claim would not obstruct a fresh decision under the new SOP framework.

The judgment further preserves the right of an aggrieved contractor to institute appropriate fresh proceedings against an adverse decision and, where necessary, to separately challenge any clause of the SOP causing prejudice.

Therefore, the legal effect of the order is procedural and remedial: it establishes a route for time-bound reconsideration and determination of individual differential GST reimbursement claims without prejudging their merits.

Relevant Sections / Legal Framework Involved

  • Goods and Services Tax regime effective from 01.07.2017 — Central to the transitional dispute concerning ongoing and subsisting works contracts.
  • Pre-GST VAT regime — Original tax framework under which the relevant works contracts were awarded.
  • SOP / Directive dated 26.08.2022 — Mechanism for post-GST payments of pending bills relating to works orders issued during the pre-GST period.
  • S.O. No. 33 dated 26 August 2022 — Notification of the Commercial Taxes Department, Government of Jharkhand.
  • MoRTH Guidelines / Letter dated 19.12.2018 — Mechanism considered during formulation and implementation of the reimbursement framework.
  • Commercial Taxes Department Letter No. 1421 dated 14.07.2021 — Relevant State communication concerning implementation.
  • Article 226 of the Constitution of India — Constitutional writ jurisdiction under which the High Court addressed the petitioners’ grievances and issued directions for administrative consideration.
  • GST transitional implementation concerning subsisting works contracts — Core legal and contractual framework governing the controversy.

Link to download the order -https://mytaxexpert.co.in/uploads/1783679033_1541compressed.pdf

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