N.R. Kulkarni Nrk Construction Company Vs Union of India (Karnataka High Court)
Karnataka High Court provides guidelines for arriving at differential tax amount due to change in tax regime from VAT to GST on works contract executed with various State Government agencies.
Facts- The Petitioners herein are class-I contractors who have entered into ‘works contract’ with various State Govt agencies and that the agreements were entered into at a point of time when the KVAT Act and Finance Act 1994 were in force. It is also not in dispute that the Petitioners are either covered under Composition scheme or regular VAT assessment and that on 01.07.2017 when the GST Act was implemented pan India, the said works contract was treated as “deemed service” and the Petitioners became liable to pay GST. It is this differential tax amount arising out of change in tax regime from VAT to GST which cast an additional tax burden on the Petitioners, which is the subject matter of the present petitions.
Conclusion- Held that calculate the works executed pre-GST (prior to 01.07.2017) under KVAT regime and payments received by the Petitioners. The payments received by the Petitioners pre GST for such of the works executed before 01.07.2017 are to be assessed under KVAT tax regime – either under COT or VAT scheme as applicable. Calculate the balance works to be completed or completed after 01.07.2017, in the original contract. Derive the rate of materials, KVAT items required or used to complete the balance works. Deduct the “KVAT” amount from those materials and the service tax, if applicable. Add the applicable “GST” on those items. Input Credit on the materials is to be arrived at and be set off as against the output GST, for those assessed under regular VAT. Further, the “tax difference” should be calculated on such balance works executed or to be executed after 01.07.2017 separately. Based on the result obtained on calculation of the tax difference on the contract value, concerned department/authority has to decide whether agreement needs to be changed or not. A supplementary agreement may be signed with the Petitioners for the revised GST-inclusive work value for the Balance Work completed or to be completed as determined above and in case the revised GST-inclusive work value for the Balance Work, completed or to be completed after 01.07.2017, is more than the original agreement work value, the Petitioners are to be paid /reimbursed, as the case may be, the differential tax amount by the concerned employer; so also, in case payments for works completed pre-GST are made post GST, the concerned employer has to pay or reimburse, as the case may be, the differential tax amount, to the Petitioners.
