MAS Constructions Vs Hubballi Dharwad Smart City Limited (Karnataka High Court)
The petitioner, MAS Constructions, sought an appropriate writ directing Hubballi Dharwad Smart City Limited to reimburse GST of Rs.42,01,582/- and sought interest on the tax dues at 18% per annum, referring to the statutory interest rate under Section 50 of the CGST Act, 2017. The petitioner had been awarded contracts pursuant to tenders invited by the respondent authority. According to the petitioner, the rates finalised under the bid documents included sales tax at 5%. The tender and work orders were allotted on 07.12.2018 and 29.12.2018, after the coming into force of the Central Goods and Services Tax Act, 2017.
The petitioner submitted that it had made the applicable GST payments as a statutory requirement. The unpaid GST component comprised Rs.15,42,727/- relating to renovation of the swimming pool and operation for the period from 14.07.2019 to 30.11.2019 and Rs.26,58,856/- relating to rehabilitation of MG Park for the period from 31.07.2019 to 04.08.2020, aggregating to Rs.42,01,582/-.
The petitioner had made representations dated 01.08.2019 and 27.02.2020 requesting release of the GST amount. The respondent authority sought clarification from the Karnataka Urban Infrastructure Development and Finance Corporation (KUIDFC) by letter dated 06.12.2019 as to whether GST was required to be made good to the contractor when only 5% of VAT had been provided for in the contract.
KUIDFC, by communication dated 03.01.2020, suggested a methodology for calculating taxes for the pre-GST and post-GST periods. The procedure contemplated calculating the balance works under the original contract, deriving the rate of materials and KVAT items required for completion of the balance works, deducting KVAT and service tax amounts, adding applicable GST and arriving at input credit on materials for adjustment against output GST billed to the Smart City.
The High Court noted that the respondent authority had sought the clarification and that KUIDFC had communicated its clarification on 03.01.2020. The Court also recorded that various other contentions had been raised, including reliance on a dispute resolution clause in the contracts. However, the Court found that the petition could be disposed of without recording any finding on that contention.
The Court further noticed that the Karnataka Urban Water Supply and Sewerage Board had sought clarification concerning implementation of GST for portions of contracts performed after GST came into force. The Finance Department, by clarification dated 14.12.2020, had opined that the tax difference ought to be calculated on each work and necessary steps taken to decide whether the contract agreement required modification. The clarification considered reconciliation of tax paid in the pre-GST regime and taxes applicable in the post-GST regime, along with the methodology and impact of the tax change. The stand had been approved by the Additional Chief Secretary to Government, Finance Department.
Considering the clarification made by KUIDFC and the Finance Department’s clarification in the context of the statutory authority, the Court held that the respondent was required to act in terms of the clarification dated 03.01.2020. Since the contracts were entered into after the coming into force of the GST Act, the respondent was required to make good the GST after adjusting the amounts of sales tax provided for in the contracts.
The Court further observed that the tax component was an independent component which the petitioner did not retain as profit but was a statutory payment to be made. In view of the nature of the GST payment and the clarification dated 03.01.2020, the respondent was required to honour the same. The consideration by the respondent was directed to be made within a period of not later than twelve weeks from the date of release of the order.
Accordingly, the petition was disposed of.
FULL TEXT OF THE JUDGMENT/ORDER OF KARNATAKA HIGH COURT
The petitioner has sought for issuance of an appropriate writ to the respondent to reimburse GST amount of Rs.42,01,582 /- to the petitioner and has sought for directions for payment of interest on tax dues at 18% per annum being the statutory interest rate chargeable under Section 50 of the CGST Act, 2017.
2. The petitioner submits that the respondent authority had invited bids pursuant to floating of tender and the petitioner was awarded the contract. It is further submitted that the rates that were finalised as per the bid documents included sales tax component @ 5%. It is to be noted that the tender and work orders were allotted to the petitioner on 07.12.2018 and 29.12.2018 which is admittedly after coming into force of the Goods and Services Act (“the GST Act”, for short).
3. The petitioner submits that necessary payment at the petitioner’s end of the applicable GST being statutory requirement has been made and the details of the payment are as per the table mentioned in Para 11 of the petition, which reads as under:
| Particulars | Period | Balance GST not paid to petitioner |
| Renovation of Swimming pool and operation |
From 14/7/2019 to 30/11/2019 | Rs.15,42,727 |
| Rehabilitation of MG Park | From 31/07/2019 to 04/08/2020 | Rs.26,58,856 |
| Total | Rs.42,01,582 |
4. The petitioner submits that after having paid the applicable GST, the petitioner has made representations on 01.08.2019 vide Annexure-‘F’ and 27.02.2020 vide Annexure-‘H’, whereby the petitioner has called upon the respondent to release the GST amount. The request of the petitioner was taken note of by the respondent authority which has sought for clarification from the Karnataka Urban Infrastructure Development and Finance Corporation (“KUIDFC”, for short) as per their letter dated 06.12.2019. The specific clarification that was sought is as to whether GST is required to be made good to the contractor as it was only 5% of the VAT which was provided for in the contract.
5. The KUIDFC by their communication dated 03.01.2020 has opined as follows:
“With reference to the above, your request for clarification on Tax calculation for the pre-GST period and post-GST period in the running bills of works has been examined by the GM (PF), KUIDFC and has suggested the following procedure for calculating Taxes for pre-GST period and post-GST period as follows:
1. Calculate the balance works to be completed in the original contract.
2. Derive the rate of materials, KVAT items required to complete the balance works.
3. Deduct the “KVAT” amount from those materials and the service tax also.
4. Add the applicable “GST” on those items.
5. Input Credit on the materials is to be arrived at and to be set at against the output GST (Billed to the Smart City)
In this regard, a copy of the detailed report submitted by the Consultants M/s.S.R. & M.R. Associated, Chartered Accountants to KUIDFC on goods & service tax matters is enclosed herewith for your reference and further action in the matter.”
6. It is not in dispute that the respondent authority had sought for clarification from KUIDFC, communication has been made out to the respondent authority as per the letter dated 03.01.2020 in terms as noticed above.
7. Various other contentions are raised including that the contracts have a dispute resolution clause and accordingly, any dispute relating to the rates or as regards to the assertion of the petitioner that GST paid by him is required to be made good, is a matter to be referred in terms of the dispute resolution clause.However, the petition could be disposed off without recording any finding on such contention.
8. It is to be noticed that clarification on 03.01.2020 by the KUIDFC is clear.
9. The Karnataka Urban Water Supply and Sewerage Board had sought for a clarification relating to implementation of GST in relation to performance of portions of contract after coming into force of GST. The Finance Department by its clarification dated 14.12.2020 has also opined that the tax difference ought to be calculated on each of the works and necessary steps to be taken to decide as to whether contract agreement needs to be changed. While making such clarification, the nature of reconciliation of tax paid in the pre-GST regime as well as taxes as applicable relating to all taxes in post-GST regime has been taken note of. The methodology and impact of change of tax has also been referred to. This stand has been approved by the Additional Chief Secretary to Government, Finance Department. This clarification made in the context of an authority set up under a statute and taking note of the clarification made by the KUIDFC, the respondent is required to act in terms of the clarification made.
10. Further, insofar as tax component is concerned, as the contracts were entered after coming into force of the GST Act, and in light of the opinion expressed by a clarification made on 03.01.2020, the respondent is required to make good the GST after adjusting the amounts of sales tax that was provided for in the contract entered into between the petitioner and the respondent.
11. It is further to be noticed that the tax component is an independent component which the petitioner does not retain as a profit and is a statutory payment to be made. Looking into the nature of such payment of GST, the respondent is required to honour the same in terms of the clarification dated 03.01.2020. The consideration by the respondent to be made within a period of not later than twelve weeks from the date of release of the order.
12. Accordingly, the petition is disposed off.
