The Hon’ble Orissa High Court, in the case of M/s. Bhanjadeo Constructions v. State of Odisha & Others, [W.P.(C) No.38497 of 2021] granted major relief to contractors by staying the coercive steps against the contractors and ordered the State GST department to abide by its circular, Finance Department vide Office memorandum No. FIN-CTI-TAX-0045-2017/38535/F dated December 10, 2018 to address the problems with works contracts brought on by the change from the Value-Added Tax (“VAT”) to the Goods and Services Tax (“GST”) tax system.
M/s. Bhanjadeo Constructions (“the Petitioner”) challenged the decision of Respondent to withhold payment of the differential tax amount resulting from the change in tax regime, i.e. from VAT into the GST which took place on July 1, 2017.
Whether Petitioner is liable to pay tax which they never anticipated while entering into the Contract?
The High Court noted that the Odisha Government has come out with revised guidelines vide Office Memorandum No. FIN-CTI-TAX-0045-2017/38535/F dated December 10, 2018 (“Revised Guidelines”) related to work contract suppressing the guidelines issued vide Finance Department letter dated December 7, 2017. The revised guidelines states that:
In view of the revised guidelines issued by the State Government, the Court asked the Petitioner to make a comprehensive representation before the appropriate authority and directed the authorities that if such representation is filed then the authority shall consider and dispose the same in the light of the revised guidelines.
In case, the Petitioner is still aggrieved by the decision of the authority, Petitioner shall have the opportunity to challenge the same before the Court.
FULL TEXT OF THE JUDGMENT/ORDER OF ORISSA HIGH COURT
1. It is submitted at the Bar that, the present writ petition being identical to W.P.(C) No.38490 of 2021, the same may be disposed of in terms of the order dated 14th December, 2021 passed in W.P.(C) No.38490 of 2021.
2. By way of this writ petition, the Petitioner has challenged the action of the Opposite Parties in not reimbursing the differential tax amount arising out of change 2 in tax regime from Value Added Tax (VAT) to Goods and Service Tax (GST) with effect from 1st July,
3. Batch of writ petitions are being filed on this issue. The main issue involved in such matters is that the difficulty faced by the contractors due to change in the regime regarding works contract under GST. The grievance of the Petitioner is that in view of the introduction of the GST, Petitioner is required to pay tax which was not envisaged while entering into the agreement.
4. The Government has now come out with a revised guidelines in this respect in supersession of the guidelines issued vide Finance Department letter dated 7th December, 2017. He has filed Additional Counter Affidavit of Opposite Party-authority in similar cases annexing the revised guidelines relating to works contract under GST issued by the Government of Odisha, Finance Department vide Office memorandum No. FIN-CTI-TAX-0045 -2017/38535/F Dated 10th December, 2018, which reads as under:
“Sub: Revised guidelines relating to works contract under GST.
The guidelines regarding works contract under GST was issued vide Finance Department letter No. FIN-CTI-TAX-0045-2017- 361 16/F dated 07.12.2017. Subsequently, the National Rural Infrastructure Development Agency (NRIDA), Ministry of Rural Development, Government of India have issued guidelines for works contract on implementation of Goods and Services Tax. Several representations have 3 been received from the contractors claiming additional amount towards GST in respect of the works put to tender prior to 01.07.2017 but executed either partly or wholly after 01.07.2017.
On careful consideration of the representation of the contractors vis-à-vis existing guidelines issued in the matter, Government have been pleased to issue following revised guidelines in supersession of the guidelines issued vide Finance Department letter dated 07. 12.2017.
1. The Goods and Services Tax (GST) has come into force w.e.f. 1st July, 2017 by subsuming various indirect taxes such as Excise Duty, VAT, CST, Entry Tax, Service Tax etc. Works contract is treated as composite supply of service under GST and are taxable @18%, 12% or 5% depending on the nature of works contract. In order to comply the provisions of GST relating tow works contract the State Government have revised the Schedule of Rates – 2014 (SoR-2014) vide Works Department OM No. 13827/WD dated 16.09.2017 w.e.f. 01.07.2017. While the item rates in the SOR-2014 were inclusive of all taxes i.e. Excise Duty, VAT, Entry Tax, Service Tax etc., the same has been excluded in the Revised SoR-2014. Therefore, while preparing estimates for a work after 01.07.2017, the GST exclusive work value is to be arrived at as per the revised SoR-2014 and then GST will be added at the appropriate rate.
2. In GST regime, the works contractor is required to raise Tax Invoice clearly showing the taxable work value and GST (CGST+SGST) separately.
3. In case of work, where the tender was invited before 07.2017 on the basis of SoR-2014, but payments made for balance work or full work after implementation of GST, the following 4 procedure shall be followed to determine the amount payable to the works contractor;
(i) Item-wise quantity of work done after 30.06.2017 (i.e. the Balance Work) and its work value as per the original agreement basing on the pre-revised SoR-2014 is to be ascertained first.
(ii) The revised estimated work value for the Balance Work is to be determined as per the Revised SoR-2014. (In case of rates of any goods or service used in execution of the balance Work not covered in the Revised SoR-2014, the tax-exclusive basic value of that goods or service shall be determined by removing the embedded tax incidences of VAT, Entry Tax, Excise Duty, Service Tax, etc. from the estimated Price/Quoted Price.)
(iii) The revised estimated work value for the Balance Work shall then be enhanced or reduced in the same proportion as that of the tender premium/discount.
(iv) Finally, the applicable GST rate (5%, 12%, or 18% as the case may be ) is to be added on the revised estimated work value for the Balance Work to arrive at the GST inclusive work value for the Balance Work.
(v) A model format for calculation of the GST inclusive work value for the Balance Work is attached as Annexure. The competent authority responsible for making payment to the works contractor will determine GST inclusive work value for the Balance Work for which agreement executed on the basis of SoR-2014. 5
(vi) A supplementary agreement shall be signed with the works contractor for the revised GST-inclusive work value for the Balance Work as determined above.
(vii) In case the revised GST-inclusive work value for the Balance Work is more than the original agreement work value for the Balance Work, the works contractor is to be reimbursed for the excess amount.
(viii) In case the revised GST-inclusive work value for the Balance Work is less than the original agreement work value for the Balance Work, the payment to the works contractor is to be reduced accordingly. In case excess payment has already been made to the works contractor in pursuance of the original agreement, the excess amount paid must be recovered from the works contractor.
(ix) These procedures shall be applicable to all works contract including those executed in EPC/Turnkey/Lumpsum mode.
The Administrative Departments should issue suitable instructions to the Competent Authority responsible for making payments to the works contractors to implement this revised guidelines.”
5. In that view of the matter, the Petitioner shall make a comprehensive representation before the appropriate authority within four weeks from today ventilating the grievance. If such a representation is filed, the authority will consider and dispose of the same, in the light of the aforesaid revised guidelines dated 10th December, 2018 issued by the Finance Department, Government of Odisha, as expeditiously as possible, preferably within a period of three months from the date of receipt of the certified copy of this order.
6. If the Petitioner will be aggrieved by the decision of the authority, it will be open for the Petitioner to challenge the same.
7. No coercive action shall be taken against the Petitioner till a decision by the authority is taken.
8. The writ petition is disposed of accordingly.
9. Issue urgent certified copy of this Order as per Rules.
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