Facts of the Case

A batch of writ petitions was filed before the Jharkhand High Court by contractors and infrastructure entities whose works contracts had been awarded during the pre-GST regime and remained subsisting or continued to be executed after the implementation of GST with effect from 1 July 2017.

The petitioners included M/s Sri Sai Krishna Constructions and several other contractors and infrastructure companies engaged with different departments of the State Government and State instrumentalities. Although the individual contracts and departments differed, the central grievance was common: the alleged additional or differential tax burden arising from the transition from the VAT regime to the GST regime.

According to the petitioners, their respective works contracts contained clauses for computation of tax under the earlier VAT regime over the taxable value of the contracts. After GST came into force, the tax structure changed. The petitioners asserted that the GST regime introduced a higher tax burden and that GST became leviable on the taxable value of the works contract as a whole. They claimed that they were compelled to bear the differential tax burden without a proper reimbursement mechanism.

The petitioners further contended that the State of Jharkhand had not initially framed uniform guidelines for dealing with the GST burden on ongoing works contracts. They referred to guidelines adopted by other State Governments, including Telangana and Andhra Pradesh, as well as mechanisms followed by Railways and other public sector undertakings.

The High Court noted that an earlier direction had been issued in M/s Bhardwaj Construction Company (P) Ltd. vs State of Jharkhand, W.P.(T) No. 5045 of 2018, requiring the State to take a decision on the issue. The Water Resources Department thereafter issued a decision dated 22.04.2019 bearing Order No. 2086, but the petitioners contended that it failed to adequately address the problem.

During the subsequent proceedings, the High Court found that a uniform implementation mechanism was necessary. The Court referred to the SOP / mechanism framed by MoRTH through letter dated 19.12.2018 and the consequential communication 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 in a time-bound manner. Following meetings with heads of concerned departments and workshops intended to sensitise technical officers, the State Government framed an SOP 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. However, individual reimbursement claims continued to remain pending before the concerned Works Departments or State instrumentalities. In W.P.(T) Nos. 989 of 2022 and 990 of 2022, the claims had already been rejected.

Issues Involved

The principal issue was whether contractors whose works contracts were awarded during the pre-GST regime but continued or were executed after 01.07.2017 could seek reimbursement of the differential GST burden.

The Court was also required to consider whether individual claims should now be examined under the SOP dated 26.08.2022, which had been framed to address post-GST payments of pending bills relating to work orders issued during the pre-GST period.

Another issue was whether the High Court should comment upon alleged lacunae in the SOP when the SOP itself had not been challenged in the batch of writ petitions.

The Court further considered whether previous departmental objections or earlier adverse stands regarding individual claims should prevent fresh consideration under the newly framed SOP.

A consequential issue concerned the appropriate time frame within which the competent authorities should decide the long-pending individual claims.

Petitioners’ Arguments

The petitioners argued that their works contracts were awarded under the pre-GST / VAT regime and contained contractual provisions for computation of tax according to the then-existing tax structure.

They submitted that after GST was implemented from 01.07.2017, the applicable tax structure changed materially and imposed a higher or differential burden upon them.

According to the petitioners, GST was not only imposed at an increased rate but was also leviable on the taxable value of the works contract as a whole. Consequently, contractors were allegedly compelled to absorb the differential tax burden without proper reimbursement.

The petitioners contended that the absence of uniform State-level guidelines resulted in uncertainty and inconsistent treatment by different Government departments and State instrumentalities.

They referred to implementation guidelines adopted by other State Governments, including Telangana and Andhra Pradesh, as well as Railways and public sector undertakings. They also referred to orders passed by other High Courts, including the Madras High Court and Orissa High Court.

After the SOP dated 26.08.2022 was framed, counsel for the petitioners attempted to indicate certain alleged lacunae in its clauses. However, the petitioners ultimately requested that their writ petitions be disposed of with directions requiring the competent authorities to decide their individual reimbursement claims within a strict time frame because the controversy 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 to provide a mechanism for addressing claims relating to post-GST payments of pending bills under works orders issued during the pre-GST period.

They argued that individual petitioners should approach the competent authorities of the respective respondent departments or State instrumentalities for consideration of their claims regarding reimbursement of GST paid at differential rates.

The respondents further submitted that since the SOP itself had not been challenged in the batch of writ petitions, any judicial observations regarding its clauses would be unwarranted at that stage.

It was also submitted that if any petitioner was subsequently aggrieved by rejection of a claim, such rejection could create a fresh cause of action, including a challenge to any term of the SOP that adversely affected the petitioner.

Court Order / Findings

The Jharkhand High Court observed that the common controversy concerned reimbursement of the differential amount of GST 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 establish a mechanism through a Standard Operating Procedure for dealing with individual claims of aggrieved contractors.

The Court noted that the SOP had been framed and published in the Extraordinary Gazette dated 26.08.2022 and that the grievances of individual petitioners remained pending before different departments or State instrumentalities.

Since the SOP was not under challenge in the batch proceedings, the High Court held that it was not required to comment upon its terms and clauses at that stage.

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

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

The Court further clarified that where respondents had earlier taken a stand regarding the correctness of an individual petitioner’s claim, such earlier stand would not come in the way of a fresh decision after applying the guidelines and terms of the SOP dated 26.08.2022.

The Court held that if any individual petitioner or person remained aggrieved by the fresh decision, it could give rise to a fresh cause of action to be pursued in appropriate proceedings.

The Court also preserved the right of petitioners to challenge any clause of the SOP if they were aggrieved by it.

W.P.(T) Nos. 989 of 2022 and 990 of 2022 were directed to 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 clarified that it had made no comment on the merits of individual petitioners’ cases.

Important Clarification

The judgment does not grant automatic reimbursement of differential GST to every contractor merely because a contract was awarded before 01.07.2017 and continued into the GST period.

The Court’s direction is that each claim must be individually considered by the competent department or State instrumentality in accordance with law and the SOP dated 26.08.2022.

The High Court did not adjudicate the legality or validity of individual clauses of the SOP because the SOP itself was not under challenge in the batch of writ petitions.

A particularly important clarification is that any previous departmental stand against a contractor’s claim would not prevent the authority from taking a fresh decision after applying the new SOP.

Further, an adverse fresh decision can create a new cause of action for appropriate legal proceedings. Likewise, any petitioner adversely affected by a particular clause of the SOP remains free to independently challenge that clause.

Therefore, the ruling provides a structured and time-bound mechanism for reconsideration of differential GST claims but does not prejudge or guarantee the substantive entitlement of any individual contractor.

Sections / Legal Provisions and Framework Involved

  • Article 226 of the Constitution of India — Writ jurisdiction of the High Court invoked for redressal of grievances against State authorities and instrumentalities.
  • GST regime effective from 01.07.2017 — The central statutory transition giving rise to the dispute.
  • Pre-GST VAT regime — The tax framework existing when the relevant works contracts were awarded.
  • SOP / Directive dated 26.08.2022 — State mechanism for post-GST payments of pending bills relating to work orders issued during the pre-GST period.
  • S.O. No. 33 dated 26.08.2022 — Commercial Taxes Department notification governing the SOP framework.
  • MoRTH Letter dated 19.12.2018 — Referred to as a mechanism / guideline relevant to treatment of differential tax issues.
  • Commercial Taxes Department Letter No. 1421 dated 14.07.2021 — Consequential State communication relevant to implementation.
  • Works Contract Services under the GST regime — Central subject concerning contracts awarded pre-GST but executed partly or wholly post-GST.
  • Differential GST reimbursement framework — Administrative mechanism for individual examination of additional tax burden claims.

Link to download the order -

https://mytaxexpert.co.in/uploads/1783679416_1542compressed.pdf

Disclaimer
This content is shared strictly for general information and knowledge purposes only. Readers should independently verify the information from reliable sources. It is not intended to provide legal, professional, or advisory guidance. The author and the organisation disclaim all liability arising from the use of this content. The material has been prepared with the assistance of AI tools.