Sri Chandrashekaraiah Vs State of Karnataka (Karnataka High Court)
Summary: The Karnataka High Court, in a common order dated 11 April 2023, considered a batch of writ petitions concerning the additional tax burden arising from the transition from the pre-GST regime to GST in respect of works contracts entered into during the KVAT regime and executed, completed or paid for after 01.07.2017. The petitions were before the Court under Article 226 of the Constitution of India.
The petitioners were class-I contractors who had entered into works contracts with various State Government agencies at a time when the Karnataka Value Added Tax Act, 2003 and the Finance Act, 1994 were in force. Most petitioners were covered by the KVAT composition scheme under Section 15 read with Rule 135 of the KVAT Act; a few were under regular VAT assessment. The Court recorded that composition-scheme contractors paid KVAT at 4% of the transaction value, while contractors under regular VAT assessment paid either 5% or 12%, as applicable. Service tax had been exempted in respect of works contracts rendered to Government and statutory agencies.
The petitioners contended that, after GST came into force on 01.07.2017, works contracts were treated as deemed services and they became liable to GST at 18% from 01.07.2017 to 21.08.2017 and at 12% from 22.08.2017 onwards. They claimed that the resulting differential tax burden had not been contemplated when the contracts were entered into under the earlier KVAT regime. The cases included contracts completed before 01.07.2017 for which inspection, invoices or payments remained pending; contracts partly executed before GST and partly thereafter; contracts entered into before GST but completed or paid after GST; and tenders invited during the KVAT regime but finalised under GST using the old Schedule of Rates.
