FACTS OF THE CASE

  • The batch of writ petitions was filed by several contractors, led by M/s Sri Sai Krishna Constructions, Harvin Construction Pvt. Ltd., Royal Infraconstru Limited, Classic Engicon Pvt. Ltd., Larsen & Toubro Limited, and others, against the State of Jharkhand and various government departments/instrumentalities.
  • The petitioners were awarded works contracts by various State Government departments (e.g., Water Resources Department, Road Construction Department, Drinking Water & Sanitation Department) and State Instrumentalities (e.g., Jharkhand Bijli Vitran Nigam Limited, JUIDCO) prior to 1st July 2017 (the pre-GST regime).
  • Execution of these works and the subsequent payments/pending bills spanned into the post-GST regime (on or after 01.07.2017).
  • Under the pre-GST regime, the contracts were structured around Value Added Tax (VAT), Service Tax, Central Excise, and Entry Tax calculations. Following the implementation of the GST regime on 01.07.2017, these indirect taxes were subsumed, resulting in higher overall tax liabilities on the total taxable value of the works contracts as a whole.
  • The contractors were compelled to bear the differential tax burden out of pocket without receiving appropriate or uniform reimbursement from the state authorities.
  • An earlier direction in M/s Bhardwaj Construction Company (P) Ltd. Vs. State of Jharkhand (W.P.(T) No. 5045 of 2018) prompted an order dated 22nd April 2019 (Order No. 2086) by the Water Resources Department; however, the petitioners contended that it failed to resolve the systemic issue properly, leading to the instant batch of writ petitions.

ISSUES INVOLVED

  1. Reimbursement Mechanism: Whether contractors executing pre-GST works contracts, which continued post-01.07.2017, are entitled to reimbursement of the differential GST liability caused by the transition from the VAT/Service Tax regime to the GST regime.
  2. Lack of Uniform Guidelines: Whether the State of Jharkhand was obligated to establish a uniform Standard Operating Procedure (SOP) to ensure consistent processing of pending post-GST bills across all government departments and state instrumentalities.
  3. Expeditious Disposal: How the individual differential tax reimbursement claims should be adjudicated following the formulation and gazette publication of the official State SOP.

PETITIONER’S ARGUMENTS

  • Shift in Tax Liability: The introduction of the GST regime subsumed VAT, Central Excise, Service Tax, CST, and Entry Tax, resulting in a significantly higher rate of tax leviable on the entire taxable value of ongoing works contracts.
  • Financial Hardship: The petitioners were forced to pay the increased differential tax amount upfront without corresponding mechanisms or timely reimbursement from the respondent departments.
  • Lack of Uniform State Guidelines: While other State Governments (such as Telangana and Andhra Pradesh), Indian Railways, and various Public Sector Undertakings (PSUs) had framed guidelines to adjust and reimburse differential tax liabilities, Jharkhand had failed to provide a uniform mechanism.
  • Ineffective Initial Orders: Previous orders issued by individual departments (such as Order No. 2086 dated 22.04.2019 by the Water Resources Department) were inadequate and failed to address the systemic issue across all departments.
  • Need for Time-Bound Resolution: Given that the claims had been lingering since July 2017, the petitioners requested direct instructions to the competent authorities to decide individual claims within a strict, designated timeframe.

RESPONDENT’S ARGUMENTS

  • SOP Formulation: Pursuant to judicial directions dated 16.03.2021 and 04.05.2022, the Chief Secretary of Jharkhand conducted inter-departmental deliberations and technical workshops, culminating in the notification of a formal Standard Operating Procedure (SOP).
  • Notification S.O. No. 33: The Commercial Taxes Department officially notified the SOP via Extraordinary Gazette Notification S.O. No. 33 dated 26th August 2022 to regulate post-GST payments of pending bills for pre-GST work orders.
  • Appropriate Forum for Individual Claims: Since a comprehensive SOP was officially in place and was not directly challenged in the writ petitions, the individual petitioners ought to submit their claims directly to the competent authorities of their respective Works Departments/Instrumentalities for verification and settlement under the new guidelines.

COURT ORDER / FINDINGS

  • Role of the Judiciary and SOP Establishment: The Division Bench of Hon'ble Mr. Justice Aparesh Kumar Singh and Hon'ble Mr. Justice Deepak Roshan observed that the framing of the SOP dated 26.08.2022 successfully created an official framework to address post-GST pending bills for pre-GST works contracts.
  • No Comments on SOP Clauses: As the validity of the SOP was not under challenge in this batch of petitions, the High Court refrained from expressing any opinion on its terms and clauses.
  • Direction for Expeditious Decision: The Court directed all individual petitioners to press their claims before the respective departments or state instrumentalities. The competent authorities were directed to take an informed, fresh decision on the individual representations strictly in accordance with law and the SOP dated 26.08.2022.
  • Timeframe Fixed: The Court ordered that all representations and claims must be decided expeditiously, preferably within a period of 8 weeks from the date of receipt of a copy of the court order.
  • Fresh Cause of Action & Liberty to Challenge: The Court clarified that if any contractor is aggrieved by a future decision or rejection made under the SOP, or by any specific clause of the SOP itself, it will give rise to a fresh cause of action that can be challenged in an appropriate proceeding.
  • Severance of Specific Cases: W.P.(T) Nos. 989/2022 and 990/2022 were ordered to be de-tagged from the batch and listed separately. The remaining writ petitions were disposed of.

IMPORTANT CLARIFICATION

Key Judicial Observation:

The High Court clarified that any prior positions or stand taken by the Respondent Departments regarding the correctness or rejection of individual claims prior to the issuance of the SOP will not prevent or impede the authorities from taking a fresh, independent decision based on the application of the terms set out under the fresh SOP Notification dated 26.08.2022. Furthermore, contractors retain the explicit liberty to challenge the SOP or any adverse order arising from it in fresh legal proceedings.

SECTIONS INVOLVED

  • Section 15 of the Central Goods and Services Tax (CGST) Act, 2017 / Jharkhand Goods and Services Tax (JGST) Act, 2017: Governs the valuation of taxable supply.
  • Section 142 of the Central Goods and Services Tax (CGST) Act, 2017 / JGST Act, 2017: Deals with transitional provisions, including price revisions, supplementary contracts, and tax adjustments for ongoing/subsisting contracts entered into during the pre-GST regime.
  • Article 226 of the Constitution of India: Authorises High Courts to issue writs for the enforcement of fundamental or legal rights.
  • Jharkhand Commercial Taxes Department Notification S.O. No. 33 (Dated 26th August 2022): The official Standard Operating Procedure (SOP) framed for post-GST payments and reimbursement of differential tax on pending bills related to work orders issued during the pre-GST period.

Link to download the order - https://mytaxexpert.co.in/uploads/1784616502_1563compressed.pdf

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