Facts of the Case

  • Tender Notification and Agreement: Pursuant to a tender notification dated June 14, 2017, for providing BT road, CC road, and side drains in Yanamalakuduru Village, Penamaluru Mandal (estimated at ₹200.00 Lakhs), the petitioner participated and was declared the successful bidder. Consequently, an agreement was executed between the petitioner and the 3rd respondent on January 20, 2018.
  • Work Completion: The execution of the work was fully completed by August 12, 2018. Following an inspection, the Quality Control Agency submitted a favorable report on September 07, 2018.
  • Directive for Supplementary Agreement: Despite the satisfactory completion of the work, the respondent authorities failed to release the final bill amount. Subsequently, through a letter dated September 19, 2020, the 4th respondent directed the petitioner to give consent for entering into a supplementary agreement to revise SOR/SSR rates pursuant to G.O.Ms.No.58, Finance (WR.I) Department, dated May 08, 2018.
  • Reduction of Bill Amount: Pending the writ petition, the petitioner executed a supplementary agreement under protest, explicitly stating that its conditions were subject to the outcome of the writ petition. Post-revision of SSR rates under the supplementary agreement, the bill amount payable to the petitioner was reduced from ₹1,64,55,418/- to ₹1,54,23,312/-, creating a differential shortfall of ₹10,32,106/-.

Issues Involved

  1. Whether the direction issued by the respondent authorities forcing the petitioner to enter into a supplementary agreement to revise SOR/SSR rates post-work completion based on G.O.Ms.No.58 dated May 08, 2018, is illegal, arbitrary, and unconstitutional?
  2. Whether the reduction of the admitted final bill amount from ₹1,64,55,418/- to ₹1,54,23,312/- and non-payment of the differential amount of ₹10,32,106/- along with interest @ 18% p.a. for delayed payment is legally sustainable?

Petitioner’s Arguments

  • Arbitrary Action: The petitioner contended that the insistence on entering into a supplementary agreement long after the satisfactory completion of the assigned work was illegal, arbitrary, and contrary to the terms of the original agreement dated January 20, 2018.
  • Entitlement to Original Agreed Value: It was argued that after executing the main work and additional works entrusted via separate agreements, the petitioner was lawfully entitled to the full gross amount of ₹1,84,30,067/- (for CC-II Bill) and ₹1,72,74,109/- (for CC-III Bill) including GST components.
  • Conditional Consent and Differential Claim: The petitioner asserted that the supplementary agreement was executed under duress and explicitly made subject to the result of the Writ Petition. Due to the unilateral downward revision of SSR rates, the bill amount was arbitrarily reduced, leaving an unpaid balance/differential amount of ₹10,32,106/-, which the state is legally bound to disburse with interest.

Respondent’s Arguments

  • Transition to GST Regime: The 4th Respondent, in the counter affidavit, contended that at the time of preparing estimates, the GST Act had not come into force, and estimations were computed based on Value Added Tax (VAT).
  • Application of G.O.Ms.No.58: Following the rollout of GST on July 01, 2017, the Government issued G.O.Ms.No.58 dated May 08, 2018, requiring all public works contractors to enter into supplemental agreements to revise unit rates (excluding tax elements) for works executed post-July 01, 2017, and add applicable GST separately.
  • No Outstanding Liability: The respondents maintained that the difference in calculations stemmed solely from tax adjustments under the GST regime. Thus, the claimed amounts were appropriately adjusted toward GST, leaving no further monetary liability on the state.

Court Order / Findings

  • Order of the Court: The Hon’ble High Court of Andhra Pradesh, presided over by Hon'ble Sri Justice Venkateswarlu Nimmagadda, disposed of the Writ Petition without delving into complex factual mathematical calculations.
  • Directions Issued:
    1. The Petitioner was directed to submit a detailed, comprehensive statement of account, including GST payable as per the GST Act, to the authorities within two (2) weeks from the date of receipt of the order.
    2. Upon receipt of such statement of account, the 2nd Respondent was directed to consider the same, provide an opportunity of hearing to the petitioner, and determine the exact balance amount payable within three (3) months thereafter.
    3. Pending miscellaneous petitions were closed without any order as to costs.

Important Clarification

  • Legal Impact of G.O.Ms.No.58: The judgment underscores that government circulars revising tax structures (such as transitioning from VAT to GST via G.O.Ms.No.58) cannot be applied mechanically to reduce the total contractual remuneration of contractors without giving them an opportunity to present a reconciled statement of account.
  • Conditional Execution: Entering into a supplementary agreement under protest or subject to the outcome of pending judicial proceedings preserves the contractor's right to claim differential losses arising from post-facto rate revisions.

Sections Involved

  • Constitution of India: Article 226 (Writ Jurisdiction for enforcement of legal rights and challenging arbitrary state actions).
  • Central Goods and Services Tax Act, 2017 / Andhra Pradesh Goods and Services Tax Act, 2017: Provisions applicable to works contracts executed during the transitional period post-01.07.2017.
  • Government Order: G.O.Ms.No.58, Finance (WR.I) Department, dated 08.05.2018 (Pertaining to revision of SoR/SSR rates and GST implementation in works contracts).

Link to download the order - https://mytaxexpert.co.in/uploads/1784626384_1863compressed.pdf

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