FACTS OF THE CASE

  • Transition and Escalation of Tax Liability: The petitioners were awarded various works contracts by different departments of the Government of Jharkhand and State Instrumentalities (e.g., Water Resources Department, Road Construction Department, JBVNL, JSRRDA, DW&SD) prior to July 01, 2017 (pre-GST / VAT regime).
  • Disruption by GST Implementation: Effective July 01, 2017, the GST regime subsumed indirect taxes, including Value Added Tax (VAT), Central Excise Duty, Service Tax, CST, and Entry Tax.
  • Shift in Tax Burden: Under the contracts executed during the VAT regime, tax calculations were structured based on lower effective rates or specific composition schemes. Post-July 01, 2017, the contractors were subjected to a higher GST tax slab applicable on the whole taxable value of ongoing/subsisting works contracts.
  • Absence of Administrative Mechanism: Despite bearing the additional differential tax out-of-pocket on post-GST billings, the contractors received no corresponding adjustments, enhancements, or reimbursements from the State departments due to a lack of uniform guidelines.
  • Inconsistent Responses: Earlier directions issued by the High Court (e.g., in M/s Bhardwaj Construction Company (P) Ltd. v. State of Jharkhand, W.P.(T) No. 5045 of 2018) prompted departmental orders (such as Water Resources Department Order No. 2086 dated April 22, 2019) that failed to holistically resolve the tax differential issue across all government branches.
  • Court Intervention & SOP Formulation: Recognizing the widespread lack of departmental coordination, the High Court directed the Chief Secretary of Jharkhand to coordinate across all works departments and establish a standardized policy. Consequently, the Commercial Taxes Department issued S.O. No. 33 dated August 26, 2022, introducing a comprehensive Standard Operating Procedure (SOP) for post-GST payments of pending bills related to pre-GST work orders.

ISSUES INVOLVED

  1. Whether contractors executing subsisting/ongoing works contracts awarded during the pre-GST regime are entitled to reimbursement of the differential tax burden resulting from the higher rates levied post-July 01, 2017.
  2. Whether the State Government and its various departments/instrumentalities are required to establish and implement a uniform Standard Operating Procedure (SOP) to process pending tax reimbursement claims.
  3. Whether prior administrative rejections or departmental delays bar contractors from seeking fresh adjudication of their differential tax claims under the newly notified statutory SOP dated August 26, 2022.

PETITIONER’S ARGUMENTS

  • Unforeseen Financial Burden: The petitioners argued that the transition to the GST regime imposed an unexpected and significantly higher tax burden leviable on the total taxable contract value, unlike the lower tax liabilities computed under the pre-GST VAT regime.
  • Violation of Contractual Equilibrium: The sudden tax enhancement severely impaired the financial viability of ongoing contracts, forcing contractors to absorb differential tax amounts without reimbursement mechanisms in place.
  • Inter-State & Departmental Precedents: The petitioners submitted that other State Governments (such as Telangana and Andhra Pradesh), the Indian Railways, public sector undertakings (PSUs), and various High Courts (including the High Court of Madras and the High Court of Orissa) had already established frameworks and issued directions to reimburse differential GST burdens to works contractors.
  • Failure of Initial State Orders: Earlier departmental attempts, such as Order No. 2086 issued by the Water Resources Department, were fragmented, narrow, and failed to comprehensively address the differential tax issues across all departments.

RESPONDENT’S ARGUMENTS

  • Framing of Statutory SOP: The State Counsel submitted that pursuant to the directions of the High Court, the Chief Secretary held inter-departmental consultations and workshops, leading to the framing and notification of a uniform Standard Operating Procedure (SOP) vide S.O. No. 33 dated August 26, 2022.
  • Availability of Administrative Redressal: The State argued that because a structured SOP was now published in the Extraordinary Gazette, the petitioners should present their individual differential tax claims directly to their respective competent departmental authorities for verification and processing.
  • Prematurity of Judicial Review on SOP Clauses: Since the SOP itself was not directly challenged in the writ petitions, the State maintained that the individual claims should be evaluated administratively in accordance with the SOP guidelines.

COURT ORDER / FINDINGS

  • Disposal with Directions: The High Court of Jharkhand (Coram: Hon'ble Mr. Justice Aparesh Kumar Singh & Hon'ble Mr. Justice Deepak Roshan) noted that the SOP notified on August 26, 2022, established a uniform mechanism across all State departments to deal with differential tax claims.
  • Time-Bound Adjudication: The Court directed all individual petitioners to submit or press their claims/representations before the competent authorities of the respective Works Departments or State Instrumentalities.
  • Mandatory 8-Week Timeline: The competent authorities were ordered to make an informed, reasoned decision on all individual claims in strict accordance with the SOP dated August 26, 2022, expeditiously, preferably within a period of 8 weeks from the date of receipt of the order.
  • Overriding Past Rejections: The Court held that any earlier adverse stance or administrative rejection taken by departments would not prevent the authorities from taking a fresh, independent decision based on the terms of the new SOP dated August 26, 2022.
  • Reservation of Rights: The Court clarified that if any contractor remains aggrieved by the outcome after the fresh decision or seeks to challenge specific clauses of the SOP, it will give rise to a fresh cause of action to be raised in appropriate proceedings.
  • De-tagging Specific Matters: W.P.(T) Nos. 989/2022 and 990/2022 were de-tagged to be listed separately as their claims had already been formally rejected prior to the application of the new SOP.

IMPORTANT CLARIFICATION

  • No Opinion on SOP Validity: The High Court explicitly clarified that it did not express any opinion on the merits of individual claims or the legal validity of specific clauses within the SOP dated August 26, 2022, as the SOP was not directly under challenge in these proceedings.
  • Fresh Cause of Action: The decision grants contractors an immediate statutory route to demand full reimbursement under the SOP, while preserving their legal right to challenge any restrictive clauses of the SOP in subsequent litigation if their claims are denied.

SECTIONS INVOLVED

  • Section 142 of the Central Goods and Services Tax (CGST) Act, 2017: Transitional provisions relating to existing contracts, price revisions, and tax adjustments post-implementation.
  • Section 142 of the Jharkhand Goods and Services Tax (JGST) Act, 2017: State transitional mechanisms for ongoing contracts.
  • Article 226 of the Constitution of India: Extraordinary writ jurisdiction of the High Court for enforcing statutory and contractual remedies against State instrumentalities.
  • Notification S.O. No. 33 dated 26th August 2022: Standard Operating Procedure (SOP) issued by the Commercial Taxes Department, Government of Jharkhand.

Link to download the order - https://mytaxexpert.co.in/uploads/1784615253_1553compressed.pdf

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