Facts of the Case

The petitioner, a registered civil contractor with the PWD (Roads), Assam, was awarded a road construction contract under the Pradhan Mantri Gram Sadak Yojana (PMGSY) pursuant to a 2019 e-tender, with rates quoted 'exclusive of GST'. While preparing running bills for completed work, the department did not add the GST payable at 12% to the billed amount; instead, it deducted CGST and SGST at 2% each (totalling Rs.16,68,200/- up to the fourth running bill). The petitioner contended this was contrary to both the tender terms and the Central and Assam GST Acts, and relied on a 06.06.2018 circular of the National Rural Infrastructure Development Agency (NRRDA) prescribing category-wise procedures for implementing GST in PMGSY works contracts sanctioned before or after 01.07.2017.

Issues Involved

  1. Whether GST on the works contract was payable by the PWD department as the 'last recipient' under a reverse charge mechanism, obliging the department to release the GST component to the contractor for deposit with the exchequer.
  2. Alternatively, whether the department was bound to follow the NRRDA circular dated 06.06.2018 to separately compute and pay the GST component on the contract, rather than deducting CGST/SGST from the running bills.

Petitioner's Arguments

  • Under the reverse charge mechanism, the PWD, as the last recipient of the works-contract service, was obliged to pay/release the GST component to the petitioner for deposit with the Government exchequer.
  • The tender rates having been quoted exclusive of GST per the contract conditions and the NRRDA circular, the department was bound to add the GST component to the bills, and its deduction of 2% CGST/SGST from the running bills was contrary to law and to the contract.

Respondent's Arguments

  • The GST component being variable, it was not included in the bill of quantities, and it was for the contractor to indicate the applicable rate; under Clauses 39.1 and 41.1 of the General Conditions of Contract, quoted rates were deemed inclusive of sales tax and other levies, so the deductions were contractually justified and the claim was an attempt to secure an undue benefit.

Court Order / Findings

  • The Court rejected the petitioner's reverse charge mechanism argument, holding that under RCM the recipient itself deposits the tax directly with the Government rather than releasing an amount to the supplier for onward deposit — so the claim for release of the GST component to the petitioner ran contrary to the accepted RCM principle.
  • Examining the NRRDA circular's four-category scheme, the Court found the petitioner's contract fell under Category B (works sanctioned after 01.07.2017 where GST was not accounted for in the original proposal and tenders had been completed), for which the Category-A procedure of separately identifying and paying the GST component applied.
  • Finding that the department had not followed this prescribed procedure, the Court allowed the petition, directing the respondents to implement the NRRDA circular's procedure within three months and to refund the 2% amount wrongly deducted from the petitioner's bills.

Important Clarification

  • GST is not payable by a government department under the reverse charge mechanism merely because it is the recipient of a works-contract service in the ordinary course — RCM applies only where a specific notification so directs, and does not entitle a contractor to demand that the department release the tax component to it for deposit.
  • For PMGSY-type government works contracts sanctioned after 01.07.2017 where GST was not factored into the original tender/proposal, the NRRDA circular dated 06.06.2018 requires the employer department to separately compute the GST component (following the Category-A methodology) and pay it to the contractor along with the contract value, rather than making ad hoc CGST/SGST deductions from running bills.

Sections Involved

  • Central Goods and Services Tax Act, 2017 and Assam Goods and Services Tax Act, 2017 — general charging and reverse charge scheme (Section 9, referenced in principle).
  • Section 140, CGST Act, 2017 — transitional input tax credit provisions, referenced in the NRRDA circular's methodology for computing the subsumed-tax/GST component.
  • NRRDA/Ministry of Rural Development Circular dated 06.06.2018 — prescribes category-wise GST implementation procedure for PMGSY works contracts.

Decision – In Favour of

In favour of the Assessee (contractor). The reverse-charge argument was rejected, but the department was directed to follow the prescribed circular procedure and refund the wrongly deducted amount.

Case Details

Gauhati High Court (Principal Seat); W.P(C) No.5247/2022; Coram: Hon'ble Mr. Justice Soumitra Saikia; Date of Hearing: 22.04.2025; Date of Judgment: 06.08.2025.

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