Facts of the Case

A large number of contractors executing Government works contracts in the State of Jharkhand approached the High Court through several writ petitions raising a common grievance relating to the implementation of the GST regime on ongoing works contracts.

The petitioners had entered into works contracts during the pre-GST regime when taxation was governed by VAT and other indirect tax laws. After the implementation of GST with effect from 01.07.2017, the applicable tax structure changed substantially, resulting in a higher tax burden on the contractors.

According to the petitioners, although they were compelled to pay GST at the revised rates, the concerned Government departments failed to reimburse the additional tax burden. They also contended that no uniform mechanism or policy had initially been framed by the State Government for reimbursement of such differential GST liability.

During the pendency of these writ petitions, the High Court repeatedly directed the State Government to formulate appropriate guidelines. Pursuant to those directions, the Government of Jharkhand issued a Standard Operating Procedure (SOP) dated 26.08.2022 prescribing the procedure for dealing with claims relating to reimbursement of differential GST in respect of pre-GST works contracts.

 Issues Involved

1.      Whether contractors executing pre-GST works contracts are entitled to reimbursement of the differential GST burden arising after implementation of GST from 01.07.2017.

2.      Whether the State Government had framed an adequate mechanism for deciding reimbursement claims.

3.      Whether the High Court should examine the validity of the newly issued SOP dated 26.08.2022 in these writ petitions.

4.      Whether the concerned departments should be directed to decide the reimbursement claims within a fixed time frame.

 Petitioners' Arguments

The petitioners submitted that:

·         Their contracts were awarded under the VAT regime.

·         GST introduced a substantially different taxation mechanism and increased tax burden.

·         The contracts did not contemplate such enhanced GST liability.

·         Contractors had already discharged GST liability but were not reimbursed by the concerned departments.

·         Other State Governments, Railways and Public Sector Undertakings had already framed proper mechanisms for reimbursement.

·         The State of Jharkhand had failed to provide a uniform policy for implementation of GST on ongoing works contracts.

·         The reimbursement claims had remained pending for several years causing severe financial hardship.

 Respondents' Arguments

The State Government submitted that:

·         Pursuant to directions of the High Court, the Chief Secretary coordinated with various departments.

·         Workshops were conducted for implementation of GST reimbursement guidelines.

·         A comprehensive Standard Operating Procedure (SOP) dated 26.08.2022 had already been issued.

·         The SOP provided a mechanism for considering individual reimbursement claims.

·         Since an appropriate procedure had now been framed, contractors should pursue their claims before the competent departmental authorities.

 

Court Order / Findings

The Jharkhand High Court observed that the principal objective of these writ petitions had been achieved because the State Government had framed and notified the Standard Operating Procedure dated 26.08.2022 for dealing with reimbursement of differential GST liability arising in pre-GST works contracts.

The Court noted that:

·         The SOP itself was not under challenge in these writ petitions.

·         Therefore, the Court considered it inappropriate to examine or comment upon the clauses of the SOP at this stage.

·         Individual contractors should submit or pursue their claims before the competent authorities under the concerned departments.

·         The authorities are required to examine each claim independently in accordance with the SOP and applicable law.

·         If any petitioner remains aggrieved after such decision, a fresh cause of action would arise and appropriate legal proceedings may be initiated, including a challenge to any clause of the SOP if necessary.

Considering that the issue had remained pending since implementation of GST on 01.07.2017, the Court directed that the reimbursement claims should be decided expeditiously, preferably within eight weeks from the date of receipt of the Court's order.

The Court further clarified that any earlier stand taken by the departments regarding the correctness of the claims should not prevent them from taking a fresh decision after applying the SOP dated 26.08.2022.

 Important Clarification

·         The High Court did not decide whether any particular contractor was entitled to reimbursement.

·         The Court did not examine the legality or validity of the SOP.

·         Individual reimbursement claims must first be decided by the competent departmental authorities.

·         Contractors retain the right to challenge any adverse order or any clause of the SOP in appropriate proceedings.

·         Authorities should dispose of reimbursement claims preferably within eight weeks.

 

Sections / Provisions Involved

·         Article 226 of the Constitution of India

·         Goods and Services Tax (GST) Regime effective from 01.07.2017

·         Works Contract provisions under GST

·         Jharkhand Commercial Taxes Department Notification (S.O. No. 33 dated 26.08.2022)

·         Standard Operating Procedure (SOP) for reimbursement of GST differential tax

·         Government guidelines relating to transition from VAT to GST

Link to download the order -

https://mytaxexpert.co.in/uploads/1784611206_1543compressed.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.