Case Law Details
State of Chhattisgarh Vs D.A. Enterprises (Chhattisgarh High Court)
In this case before the Chhattisgarh High Court, the State of Chhattisgarh challenged the order of a learned Single Judge directing reimbursement of GST liability to a contractor in relation to works contracts executed for the Water Resources Department.
The dispute arose from item rate tenders issued on 02.02.2017 for civil works under the Maniyari Tank Scheme, Padampur Tank Scheme, and Agar Diversion Scheme at Mungeli. The contractor was declared successful bidder and agreements along with work orders were executed on 14.06.2017. Under clause 2.17.1 of the contract, all taxes including sales tax, octroi duties, and other levies on the contractor’s work were payable by the contractor.
Subsequently, the Central Goods and Services Tax Act, 2017 came into force with effect from 01.07.2017. The contractor submitted representations on 23.08.2019 and 04.10.2019 seeking reimbursement of 12% GST amounting to Rs.1,85,64,264 on the ground that GST was not in existence when the agreements were executed. Since the representations were not decided, the contractor earlier approached the High Court, which directed the competent authority to decide the representation. The State thereafter rejected the claim on 27.08.2020 holding that the contract clearly required the contractor to bear all taxes and contained no provision for GST reimbursement.
The contractor again filed a writ petition seeking payment of the additional GST liability or alternatively a 10% additional contract amount. The learned Single Judge allowed the writ petition and directed the contractor to submit a fresh claim showing the differential tax liability arising due to GST implementation so that the State could verify and reimburse the amount after scrutiny.
The State challenged that order in appeal. It argued that under Section 9 of the CGST Act and clause 2.17.1 of the agreement, GST liability had to be borne by the contractor. The State further contended that the contractor had not shown that GST had actually been paid and that the dispute was covered by the arbitration clause under clause 4.3.29 of the agreement, which provided recourse to the Arbitration Tribunal under the Chhattisgarh Madhyastham Adhikaran Adhiniyam, 1983.
The contractor supported the Single Judge’s order and argued that there had been no agreement regarding payment of GST when the contracts were executed. Reliance was also placed on reimbursement practices adopted by other government departments.
After considering the rival submissions, the Division Bench noted that clause 2.17.1 clearly placed responsibility for payment of all taxes on the contractor. The Court also observed that the contractor had sought reimbursement without establishing that GST had actually been deposited. It further held that GST liability under works contracts arose by virtue of Section 9 of the CGST Act read with the contractual clauses.
The Court emphasized that the agreement contained an arbitration clause and that disputes relating to tax liability under the works contract could be decided through arbitration. It also held that reliance on contracts of other departments was misplaced because those contracts contained separate clauses regarding reimbursement of new taxes, unlike the present agreements.
Accordingly, the High Court held that the writ petition ought not to have been allowed by the Single Judge. The impugned order directing verification and reimbursement of GST was set aside and the writ petition was dismissed. Liberty was granted to the contractor to avail the remedy of arbitration in accordance with law. The writ appeal filed by the State was allowed without any order as to costs.
FULL TEXT OF THE JUDGMENT/ORDER OF CHHATTISGARH HIGH COURT
1. This intra-court appeal at the instance of the State of Chhattisgarh has been filed calling in question legality, validity and correctness of the judgment & order dated 17-11-2022 passed in WPT No.94/2020 by which the writ petitioner’s writ petition has been allowed and it has been directed by the learned Single Judge that tax liability of the writ petitioner qua the Central Goods and Services Tax (GST) in the works contract executed by the writ petitioner be quantified and it be reimbursed to him.
2. The aforesaid challenge has been made in the following factual backdrop: –
3. On 2-2-2017, item rate tender was published by the Water Resources Department of the State for civil work in Maniyari Tank Scheme, Padampur Tank Scheme and Agar Diversion Scheme at Mungeli in response to which the writ petitioner submitted its tender. The State Government finding the writ petitioner to be the successful bidder, executed Agreement Nos.10, 11, 12, 13, 14, 15, 16, 17 & 18 and issued work orders in favour of the writ petitioner for the year 2017-18. As per the terms of the contract and Annexure P-3 filed along with the writ petition, all dues regarding taxes including the Sales Tax, Octroi duties, etc. levied on the contractor’s work by Government and local bodies or private individuals were payable by the contractor and the Water Resources Department will grant a certificate for the quantities actually used on the work but will not entertain any claim on this account. In the meanwhile, during the pendency of contract, the Central Goods and Services Tax Act, 2017 came into force with effect from 1-7-2017. On 23-8-2019 and 4-102019, the writ petitioner made representation to the Executive Engineer, Water Resources Department for payment of 12% GST amounting to Rs. 1,85,64,264/- stating therein that when the agreements were executed on 14-6-2017, GST was not payable and it came into force with effect from 1-7-2017 by which the writ petitioner is liable to pay GST at the rate of 12% and the GST payable was Rs. 1,85,64,264/-, but the amount of GST has not been paid to him, therefore, it be paid to him by issuing appropriate writ / direction, etc..
4. The representation submitted by the writ petitioner was not decided by the State Government leading to filing of W.P.(T) No.41/2020 in which the writ court by order dated 25-6-2020, directed the competent authority to decide the representation of the writ petitioner for reimbursement of the GST tax liability. The State Government by order dated 27-8-2020 decided the representation holding that as per clause 2.17.1. of the contract, all taxes are payable by the contractor and there is no provision of refund of GST and rejected the representation of the writ petitioner accordingly.
5. Feeling aggrieved and dissatisfied with the order dated 27-82020, the writ petitioner filed another writ petition before this Court namely, W.P.(T)No.94/2020 claiming that the State authorities be directed to release the amount of claim raised by him in respect of additional tax to be paid under the Central Goods and Services Tax Act, 2017 (for short, ‘the Central GST Act’) or in alternative, the writ petitioner be paid 10% additional amount of contracts/work orders so that he can pay GST without any financial burden. The State filed its return stating inter alia that as per clause 2.17.1. of the contract, all taxes mentioned in clause 2.17.1. of the agreement are required to be paid by the contractor and the writ petitioner is the contractor. Even after commencement of new tax regime under the GST Act, additional tax liability to be paid is required to be born by the writ petitioner and as such, the writ petition deserves to be dismissed.
6. The learned Single Judge by its impugned order allowed the writ petition and directed the writ petitioner to make a fresh claim showing the difference of tax liability that was incurred at the time of submission of bids and the excess tax paid by him in light of the introduction of the GST and upon such claim made by the writ petitioner, the State will process the same and reimburse the same after due scrutiny and enquiry against which this writ appeal has been preferred on behalf of the State.
7. Mr. Rahul Tamaskar, learned Government Advocate appearing for the State / appellants herein, would submit that the writ petition as framed and filed was not maintainable, there is no statement made in the writ petition that the writ petitioner has paid GST as per clause 2.17.1. of the agreement, which is required to be paid by the writ petitioner contractor and the earlier representation has also been rejected finding no merit. Furthermore, as per Section 9 of the Central GST Act, the writ petitioner is responsible to make payment of the amount of GST and the writ petition is conspicuously silent as to the details of GST paid and the relief sought was to arbitrarily pay the amount of GST or 10% additional amount of public money, which has no basis and as such, the dispute is arbitrable as per clause 4.3.29 of the contract agreement and reference can be made to the Arbitral Tribunal constituted under the provisions of the Chhattisgarh Madhyastham Adhikaran Adhiniyam, 1983. As such, the impugned order deserves to be set aside and the instant writ appeal deserves to be allowed.
8. Mr. Jitendra Pali, learned counsel appearing for the respondent herein / contractor, would support the impugned order and submit that there was no agreement to pay the amount of GST on coming into force of the Central GST Act with effect from 1-7-2017 which other Departments like Public Works Department, Chhattisgarh Rural Road Development Agency, Urban Administration Department and Public Health Engineering Department had already reimbursed the said additional tax liability arising from GST implementation and in view of the decision of the Supreme Court in the matter of Deputy Commissioner of Income Tax and another v. Pepsi Foods Limited’, the learned Single Judge has rightly held the State to be responsible to pay the additional tax liability in shape of GST and therefore the writ appeal deserves to be dismissed.
9. We have heard learned counsel for the parties and considered their rival submissions made herein-above and also went through the record with utmost circumspection.
10. It is not in dispute that agreements were entered into between the writ petitioner and the State through the Water Resources Department for execution of various works and work orders were issued in favour of the writ petitioner on 14-6-2017. As per clause 2.17.1. of the contract agreement, all dues regarding taxes including the Sales Tax, Octroi duties, etc. levied on the contractor’s work by Government and local bodies or private individuals were payable by the contractor. It appears that the writ petitioner made representation vide Annexure P-6 attached with the writ petition for release of 12% GST amount without giving any particulars whether he has incurred and paid the GST liability to the competent authority as per clause 2.17.1. of the contract agreement and the said representation was rejected pursuant to the order passed by the writ court against which he has filed second writ petition in which this Court has directed to verify and return the additional tax liability which the writ petitioner is required to pay in the form of GST.
11. It is appropriate to mention that GST came into force with effect from 1-7-2017 and sub-section (119) of Section 2 of the Central GST Act defines “works contract” means a contract for building, construction, fabrication, completion, erection, installation, fitting out, improvement, modification, repair, maintenance, renovation, alteration or commissioning of any immovable property wherein transfer of property in goods (whether as goods or in some other form) is involved in the execution of such contract. By virtue of Section 9 of the Central GST Act and mirror provisions contained in the Chhattisgarh Goods and Services Tax Act, 2017, read with clause 2.17.1. of the contract agreements, the writ petitioner is required to pay GST, as all taxes were required to be paid by the writ petitioner / contractor.
12. It appears that in this case, the writ petitioner without making payment of GST and without making any statement in the writ petition that the said 12% GST has been deposited by him well in time, sought reimbursement of the GST liability suffered by it on account of introduction of GST, whereas, clause 2.17.1. of the contract agreements is absolutely clear and all the tax liability are to be born by the contractor which the writ petitioner had already included in the tax quotient in their price while filing tender. Clause 4.3.29 of the agreement provides for arbitration clause and the dispute in works contract is also cognizable by the Arbitration Tribunal constituted under the Chhattisgarh Madhyastham Adhikaran Adhiniyam, 1983, despite that, suppressing the said fact, the writ petitioner filed writ petition despite having the arbitration clause.
13. In our considered opinion, since there is arbitration clause in the agreement, the dispute like the present one, which is about tax liability (GST), could have been decided by the remedy of arbitration. However, the contracts of different Departments relied upon by the writ petitioner had a clause for making payment with respect to new taxes and therefore that parity cannot be claimed with the present contract, as the writ petitioner is governed by the terms of the contract entered between the State and him. The present writ petition for reimbursement without actual payment of GST could not have been allowed by the learned Single Judge. Therefore, the impugned order passed by the learned Single Judge directing to verify and reimburse the GST amount, deserves to be and is accordingly set aside and consequently, the writ petition filed by the writ petitioner stands dismissed. The writ petitioner is at liberty to avail the remedy of arbitration clause in accordance with law. However, it is made clear that any of the observations made in this order are only for the purpose of deciding the writ appeal and the Arbitration Tribunal, if recourse is made, shall decide the same strictly in accordance with law, without being prejudiced by any of the observations made herein-above.
14. The writ appeal stands allowed. No order as to cost(s).
Notes:
1 (2021) 7 SCC 413
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