Bhagwati Construction Vs Union of India (Gujarat High Court)
No denial of refund of GST in case payment of tax made through electronic credit ledger instead of electronic cash ledger.
Conclusion: The utilization of the input tax credit from the electronic credit ledger was only a mode of payment of the output tax and was a homogeneous pool of credit which could not be vivisected. Refund could not be denied only on the ground that only a part amount of the tax was paid through the electronic cash ledger as Respondents had failed to understand the distinction between the availment and the utilization of the input tax credit.
Held: In the instant case, Deputy Chief Engineer wrote a letter to assessee asking them to clarify as to why the input tax credit was shown to be ‘Nil’ in the working sheet for the refund of the GST even though assessee had discharged tax liability in the returns by utilizing the input tax credit. Assessee clarified that the contract in question did not involve use of any goods in respect of which the input tax credit was admissible. The input tax credit which had been utilized for making the payment of tax in the GST returns was tax credit admissible in respect of other contracts. Assessee had received the letter from the Deputy Engineer informing them that they would not be granted reimbursement of the GST amount since only a part amount of the tax was paid through the electronic cash ledger. It was held that the payment of tax by utilization of the tax credit was a valid mode of payment. The entire amount of the output tax paid under the GST Act in relation to the contract in respect of which the supplementary agreement had been entered into with the writ-applicants need to be forthwith released irrespective of the fact, whether such amount had been paid through electronic cash ledger or through electronic credit ledger. There was a difference between availment of the input tax credit and the utilization of the input tax credit. Insofar as the passing of the benefit of the input tax credit was concerned, the input tax credit factually availed qua the contract was to be calculated. This was clear from the terms of the order of the Ministry of Railways as well as the JPO. However, insofar as the utilization of the input tax credit from the electronic credit ledger was concerned, the same was only a mode of payment of the output tax. For the purpose of payment of tax, the electronic credit ledger was a homogeneous pool of credit which could not be vivisected. It appeared that the respondents had not been able to understand this distinction between the availment and the utilization of the input tax credit which had led to the present controversy. The non-payment of refund to the writ-applicants was contrary to the order of the Ministry of Railways read with the JPO and the supplementary agreement and the same ought to be forthwith released. The denial of refund/reimbursement of the GST was hereby quashed and set-aside.
FULL TEXT OF THE JUDGMENT/ORDER OF GUJARAT HIGH COURT
By this writ-application under Article 226 of the Constitution of India, the writ-applicants have prayed for the following reliefs :
“ A. This Hon’ble Court may be pleased to issue a writ of mandamus or writ in the nature of mandamus or any other appropriate writ or order quashing and setting aside impugned communication dated 13.5.2019 (annexed at Annexure A) refusing to release refund/reimbursement of GST due to the Petitioners as per the Joint Procedure Order dated 21.1.2018 passed by the Western Railways in terms of order dated 27.10.2017 passed by the Railways Board;
B. This Hon’ble Court may be pleased to issue a writ of mandamus or writ in the nature of mandamus or any other appropriate writ or order directing the Respondents to grant reimbursement of Rs. 1,23,02,620 paid by the Petitioners under the GST Act towards contract dated 29.6.2017;
C. Pending notice, admission and final hearing of this petition, this Hon’ble Court may be pleased to direct the Respondents to grant reimbursement of Rs. 1,23,02,620 paid by the Petitioners under the GST Act towards contract dated 29.6.2017;
D. Ex parte ad interim relief in terms of prayer C may kindly be granted;”
2. The facts giving rise to the present writ-application may be summarised as under :
3. The writ-applicant no.1 is a partnership firm having its place of business at Ahmedabad. The writ-applicant no.2 is the partner of the said firm.
4. The writ-applicants are the Government approved railway contractors since last 20 years. The writ-applicants had been awarded E-Tender No. Dy CE (C) P&D/ADI/ADI-HMT-16 by the Railways Board and an agreement was entered into on 29.6.2017.
5. The writ-applicants were registered under the Gujarat Value Added Tax Act, 2003 (for short, ‘the VAT Act’). It appears that the writ-applicants had opted for a lump sum tax scheme and hence their tax liability under the VAT Act was 0.6%. Further, the service tax in respect of the construction contracts pertaining to the railways was exempt by virtue of the Mega Exemption Notification No.25/2012 issued under the Finance Act, 1994.
6. The GST regime was introduced in the country w.e.f. 1.7.2017. The VAT as well as the service tax was subsumed in the GST Act. It is not in dispute that the applicable rate of tax under the GST Act in case of the writ-applicants is 12%.
7. The contractors preferred a representation with the Railways for granting reimbursement of the additional tax liability under the GST Act in respect of the contracts which were entered into prior to the GST regime. This was particularly because the GST Act has conferred a right to the suppliers of goods or services to collect tax from the recipients by way of issuance of tax invoice.
8. Having regard to the representations made by the contractors, the Railways Board issued an order dated 27.10.2017 giving instructions to all the Railway Divisions to issue a Joint Procedure Order for neutralizing the impact of the GST on the existing works allotted prior to the implementation of the GST regime.
9. Pursuant to such order, the Western Railways issued a Joint Procedure Order on 21.1.2018 and specified the procedure to claim the GST reimbursement. It is the case of the writ-applicants that the working for grant of the reimbursement of tax under the GST Act was contemplated contract-wise in such Joint Procedure Order.
10. A supplementary agreement was entered into by the writ-applicants with the Western Railways on 26.2.2018 for the contract pertaining to E-Tender No. Dy CE (C) P&D/ADI/ADI-HMT-16 based on the Joint Procedure Order.
11. The writ-applicants put up a claim on 26.2.2018 for reimbursement of the differential tax paid under the GST Act in accordance with the Joint Procedure Order and the supplementary agreement. The claim was supported by a Chartered Accountant certificate and also by taking into consideration the input tax credit admissible, if any, for the contract. The final claim in respect of the contract in question was submitted by the writ-applicants through their Chartered Accountant on 30.11.2018.
12. After scrutiny of the claim of the writ-applicants along with the supporting documents, the Deputy Chief Engineer of Railways generated a pay order on 10.2.2019 granting refund of the GST to the tune of Rs.1,23,02,620=00 after making statutory deductions.
13. The writ-applicants issued tax invoice on 11.2.2019 for collection of the amount under the GST Act. Thereafter, a letter was issued to the writ-applicants on 27.2.2019, inter alia, requiring them to give some clarifications, to which response was given by the writ-applicants on 1.3.2019.
14. The Deputy Chief Engineer, thereafter, wrote a letter to the writ-applicants on 5.4.2019 asking them to clarify as to why the input tax credit was shown to be ‘Nil’ in the working sheet for the refund of the GST even though the writ-applicants had discharged tax liability in the returns by utilizing the input tax credit.
15. The writ-applicants responded vide letter dated 10.4.2019 clarifying that the contract in question did not involve use of any goods in respect of which the input tax credit was admissible. The input tax credit which had been utilized for making the payment of tax in the GST returns was tax credit admissible in respect of other contracts.
16. The writ-applicants received a letter from the Deputy Engineer on 7.5.2019 again alleging that as against the tax refund/reimbursement of Rs.1,23,02,620=00 claimed by the writ- applicants, the tax of only Rs.33,92,980=00 was paid through the electronic cash ledger. The writ-applicants were asked to furnish the details of other contracts and input tax credit claimed qua such contracts.
17. Thereafter, it appears that the writ-applicants lodged a complaint dated 10.5.2019 with the Chief Engineer complaining that the refund/reimbursement was being withheld despite the fact that all the details as called for had been provided. The writ-applicants further pointed out that the details of the other contracts which were irrelevant were being called for.
18. The writ-applicants, thereafter, received the impugned letter dated 13.5.2019 from the Deputy Engineer informing them that they would not be granted reimbursement of the GST amount since only a part amount of the tax was paid through the electronic cash ledger.
19. Several correspondences were exchanged between the writ-applicants and the respondents and the writ-applicants gave their submission on 5.9.2019. It was pointed out that all the documents as required by the Joint Procedure Order and the supplementary agreement had already been submitted. Insofar as the requirement for contract-wise input tax credit for other contracts was concerned, it was pointed out that this was beyond the Joint Procedure Order and, in fact, not practically possible. There was no requirement under the GST Act or any other law to maintain contract-wise details of the input tax credit claim. It was pointed out that insofar as the contract in question was concerned, the goods which were used did not entail the input tax credit and that such fact was not disputed. The writ-applicants, ultimately, requested for release of the GST refund/reimbursement.
20. A meeting of the writ- applicants, other similar contractors as well as the officers of the Railway Board was held on 13.1.2020 to resolve the issue. However, the issue could not be resolved.
21. The writ-applicants once again renewed their request on 26.5.2020. It was pointed out that the neutralizing of the GST impact and the input tax credit in respect of each contract would be taken care of separately. In fact, the price for contracts which were entered into after the implementation of the GST regime would be a relevant consideration for seeking the benefit of the input tax credit accruing to the writ-applicants. Thus, it appears that the cumulative calculation of all the contracts which was being demanded by the officers was impossible and also beyond the requirement of the Joint Procedure Order. Thereafter, it appears that the writ-applicants gave several reminders to the respondents.
22. As the respondents have declined to release the GST refund/reimbursement, the writ-applicants are here before this Court with the present writ-application.
SUBMISSIONS ON BEHALF OF THE WRIT-APPLICANT :
23. Mr.Uchit Sheth, the learned counsel appearing on behalf of the writ-applicants made the following submissions :
(a) The non-release of the refund by the respondents on the ground that while tax paid through the cash ledger is only Rs.33,92,980=00, the refund cannot be claimed of Rs.1,23,02,620=00, is absolutely misconceived and not tenable in law insofar as the input tax credit is concerned. It is well established that the input tax credit is as good as tax paid. The input tax credit is admissible under the GST Act of tax actually paid on the inward supply, which is legally admissible as credit for the purpose of payment of the output tax. There is no distinction between the tax paid through the electronic cash ledger and the tax paid through the electronic credit ledger. Therefore, the refusal to grant the refund on the basis that substantial amount is paid through the electronic credit ledger is not sustainable. The reliance is placed on the following judgements :
(i) Eicher Motors Ltd. vs. Union of India and Another, (1999) 2 SCC 361.
(ii) Jayaswal Neco Ltd. vs. Commissioner of Central Excise, (2015) 10 SCC 651.
(b) The insistence on the part of the respondents to produce the details of other contracts with a view to establish as to the input tax credit in respect of which the contract has been utilized for making the payment of the output tax is absolutely unwarranted. At the outset, the Joint Procedure Order of the Western Railways clearly provides for contract-wise calculation of the refund/recovery. The supplementary agreement has also been entered into for the contract in question. A Chartered Accountant has certified that the GST-paid goods have not been used for this particular contract and hence there is no input tax credit qua this contract. In fact, the pay order had already been generated by the respondent no.2 after due consideration of all the relevant facts. Thus, the details of other contracts are absolutely irrelevant for the purpose of determining the refund/reimbursement of the contract in question. In any event, it is otherwise even not possible to ascertain as to the input tax credit of which contract was utilized for making the payment of the output tax. It is fundamental to the scheme of the GST Act that the input tax credit, once credited to the electronic credit ledger, forms a homogeneous pool and, therefore, it is impossible to determine which input tax credit is utilized for the payment of what liability. The correct approach ought to be to work out the differential tax liability of each contract which would also be in consonance with the formula prescribed in the Joint Procedure Order. The respondent no.2 authority is bound by the policy of the Ministry of Railways as well as by the Joint Procedure Order passed by the Western Railways and the non-compliance of the same is wholly without jurisdiction, arbitrary and illegal.
(c) The GST returns cannot be filed on the portal unless the tax liability as admitted in the returns is paid. The copies of the GST returns have been furnished to the respondents and, in fact, the impugned communication dated 13.5.2019 is clearly based on such returns. Thus, the evidence regarding the payment of tax has already been furnished. The respondents are, however, refusing to grant refund on the basis that a part liability has been paid through the electronic credit ledger. Such stance of the respondents is completely erroneous and illegal.
SUBMISSION ON BEHALF OF THE RESPONDENTS :
24. Mr. Siraj Gori, the learned counsel appearing on behalf of the respondents has relied upon the affidavit-in-reply filed by the respondents. He has made the following submissions:
(a) The respondents are not averse to granting the GST refund/reimbursement to the writ-applicants. However, the writ-applicants are not able to substantiate their refund claim by showing the actual payment of the GST through the cash ledger and, therefore, the respondents are not releasing the refund/reimbursement to the writ-applicants.
(b) The documents with respect to other contracts executed by the writ-applicants with the Railways are yet to be furnished and, therefore, the refund/reimbursement with respect to the present contract cannot be released.
(c) While the pay order for grant of refund/reimbursement was generated, the respondents wanted to further verify the refund claim and, therefore, the same has been withheld.
ANALYSIS :
25. The issue that arises for our consideration is, whether the respondents are justified in withholding the refund/ reimbursement in favour of the writ-applicants.
26. The Government of India, through the Ministry of Railways, had issued an order on 27.10.2017 for the GST neutralization of the contracts. The order reads as under :
“Government Of India
Ministry Of Railways
(Railway Board)
New Delhi
No. 2017/CE-I/CT/7/GST,
dated 27.10.2017
To,
As per list attached
Sub: Impact of GST on Existing Works Contracts
1. Ministry of Railways have received a number of representations from Zonal Railways, railway contractors and contractors’ associations with a request that the increased tax liability due to implementation of GST should be borne by railways in works contracts awarded before implementation of GST. The issue was under consideration of Board for some time. It is seen that the impact of GST varies, depending upon the type of work, business model adopted by contractor and also on the state in which these works are being carried out. The impact is much more in labour intensive works like P. Way linking, Earthwork etc.
2. Considering the above, it has been decided to make existing works contracts awarded before implementation of GST, as GST neutral after carefully taking into account the input tax credit available to the contractor, on a case to case basis, on production of documentary evidence. This exercise may involve reimbursement to contractors or recovery from contractors depending upon the tax liability of the contractor before GST and after GST including input tax credit available to the contractor after GST.
3. Zonal Railways/Production Units may therefore work out modalities through a procedure order with the approval of General Manager in consultation with Principal Financial Advisor & legal cell. Following should be kept in view while framing the procedure order:
3.1 For dealing with impact of GST in individual contracts, a supplementary agreement is to be entered into with the contractor in consultation with financial advisor in terms of Para 1265 of the Engineering Code.
3.2 A clause is to be added in the supplementary agreement to state that in case there is any further change in the GST tax structure till the date of completion of work or any error is noticed in the calculation of amount payable/ recoverable till the release of Final Bill amount to contractor, the same shall be paid by the Railways or recovered from the contractor’s bills/security deposit or any other dues of contractor with the Govt. of India.
3.3 In case while awarding the contracts, the reasonability of rates was justified by Tender committee considering the impact of GST, such compensation would not apply.
3.4 For neutralizing GST impact on the works contracts awarded before implementation of GST; along with documentary evidence, the contractor should submit work sheet of tax liability before GST and after GST duly certified by chartered accountant engaged by him.
The tax liability of the contractor before implementation of GST should be worked out taking into account all stipulated taxes in force before GST implementation i.e., Excise duty, VAT including VAT on Excise duty, Entry tax, Octroi duty, prevalent Service tax etc., irrespective of whether the same were actually paid by agency or not.
3.5 The rate reasonability and quantities of input materials for which ITC shall be available to the contractor, should be ensured by the executive with due care in consultation with associate finance.
3.6 Sample post checks of the compensation made to the contractor may be got undertaken by the GST consultant engaged by the Zonal Railways/Production Units.
3.7 Recovery, if any, which is required to be done from the contractors, may be regulated as per Section 171(1) of CGST Act, 2017.
4. This is issued with the approval of Board (ME, FC, CRB).
(Prem Sagar Gupta)
Executive Director/Civil Engineering(G)/Railway Board”
27. Pursuant to such order, the Western Railways issued a Joint Procedure Order dated 21.1.2018 laying down the procedure for the GST neutralization based upon the policy of the Government of India. The relevant portion of the order reads thus :
“4. The review for GST neutrality is to be done on a case to case basis on the production of various detailed out in the following paragraphs of the JPO.
xxxx xxxxx
8. Procedure to be followed for GST neutralization:
8.1. In accordance with the Railway Board’s letter dated 27.10.2017 all contracts awarded prior to 01.07.2017 and all such contracts for which tenders were opened prior to 01.07.2017 but finalized after the implementation of GST are to be considered for GST neutralization. However, if any of the tender has been finalized duly considering the impact of GST, then such contract will not be eligible for the proposed GST neutralization.
8.2 For dealing with the impact of GST in individual contract, a Supplementary (Subsidiary) agreement is to be entered into by the Executive, with the contractor , duly vetted by Finance, in terms of Para 1265 of the Indian Railway Engineering Code. A Supplementary agreement is to be signed by the Original Agreement Signing Authority or by the Authority delegated such powers. (Proforma for the agreement is given in Annexure-A)
xxxx xxxxx
8.5 The contractor shall submit a work sheet for On Account/FCC bills for assessing the tax liability before and after GST including the input tax credit available to the contractor. This shall be duly certified by the Statutory/Tax Auditor auditing the books of the contractor. The tax liability of the Contractor before implementation of GST should be worked out talking into account all stipulated taxes in force prior to the implementation of GST i.e. excise duty, VAT, including VAT on excise duty, entry tax, octroi duty, prevalent service tax etc. irrespective of whether the same were paid by the agency or not for the On Account/FCC Bills
8.6 On receipt of the Account/Final contract certificate from the executive, the contractor shall submit the following documents (for the on Account/FCC to the Executive for the GST neutralization:
a) The invoice (Bill) duly segregating the GST component from the gross amount of the work executed. This should contain details of GSTIN, TIN & STRN numbers- state-wise (if he is working in more than one State) along with the worksheet.
b) A work sheet for the tax liabilities before GST and after GST, including the list of items for which the Input Tax Credit (ITC) is available for the work. A sample copy of the work sheet is given in the Annexure-B for general guidance. The details given in this worksheet and calculations should be duly certified by Statutory/Tax Auditor auditing books of the contractor. This worksheet shall be submitted for each of the bills, which may have already been passed as per provision of para 15 of this JPO and also for all other bills being processed after the notification of the GST for the contracts falling in the categories in para 1(i) and (iii) GST rates as applicable at the time of actual passing of bills will be adopted.
The worksheet shall contain details of the quantities of all input materials/services procured for the particular work/ works. The contractor shall also certify that the invoices submitted for the work have not been/ will not be used for any other work to claim Input Tax Credit (ITC)/refund. The contractor shall also give a certificate that no refund claims of GST are pending settlement with the GST authorities.
At the Railway end, the component of input materials/services for SOR/USSOR items will be checked with reference to the rate analysis available in the SOR/USSOR, For NS items, the executive officer will carry out a detained rate analysis considering the input materials/services required for executing the NS item which will be approved by JAG /Senior Scale (independent charge)
c) The contractor shall, for the On Account/FCC bills, shall submit all the original Tax Invoices for all the input material/services procured for the particular work, enfaced with agreement number, in support of the ITC and the same shall be duly certified by the Statutory/Tax Auditor auditing the books of the contractor.
d) The tax liability of the Contractor, before implementation of GST, shall be worked out for On Account/FCC bills taking into account all stipulated taxes in force before the GST implementation i.e. excise duty, VAT, including VAT on Excise duty, entry tax, octroi duty, prevalent service tax etc., irrespective of whether the same were paid by the agency or not.
e) In case the contractor has procured material from unregistered vendors/ suppliers the details of such procurement should be included in worksheet.
f) The contractor shall submit copies of GST returns GSTR1, GSTR2, GSTR3, GSTR3, etc., as available on GST Network from time to time.
xxxx xxxxx
10. The difference of bill amount arrived at as per the old taxes (before GST) and GST, duly considering the ITC, certified by the Statutory/Tax Auditor auditing the books of the contractor, shall be checked by the Executive. The tax liability of the contractor before and after implementation of the GST, submitted by the contractor, shall be recorded in the Measurement Book clearly showing—
