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2021 (6) TMI 102 - HC - GSTScope of the Contract - Deduction at source towards GST - Impact of increase rate of GST as 12% from existing tax as 2% or 5% - G.O.Ms.No.296 Finance (Salaries) Department, dated 09.10.2017 - HELD THAT - The agreement between the parties was entered into on 25.01.2016. The nature of work was to provide Under Ground Sewerage Scheme to Karaikudi Municipality in Sivagangai District including maintenance of the scheme for five years. The contract price was ₹ 102,63,58,582/- only - There can be no doubt that this contract price included cost factor, profit margin and tax component(TNVAT and Excise Duty). There can also be no doubt that during the relevant time, rate of tax was 2% for civil works contract and 5% for other works contract. There is again no doubt that it has now been enhanced to 12% under the GST. The Government itself has taken a policy decision that this additional tax burden will have to be borne only by the purchaser and not by the contractor. The petitioner's counsel made it clear that the petitioner should not be saddled with tax liability. When the petitioner entered into an agreement with the respondent Board, the contract price comprised three components, namely, cost factor, profit margin and tax component. There cannot be any contest regarding the cost factor and profit margin. The tax liability will have to be borne by the respondent Board. The respondents are directed to rework the terms of the contract and enter into a revised agreement with the petitioner. The entire exercise shall be concluded within a period of eight weeks from the date of receipt of a copy of this order. Petition allowed.
Issues:
1. Interpretation of contract terms post-GST implementation. 2. Applicability of Government Order for reworking contract terms. 3. Dispute over tax liability between parties. 4. Compulsion to sign revised agreement and its implications. Issue 1: Interpretation of contract terms post-GST implementation: The petitioner entered into a contract with Tamil Nadu Water Supply and Drainage Board for laying Under Ground Sewerage works. The contract included TNVAT and Excise Duty components. With the introduction of GST, the tax regime changed, necessitating a reworking of contract terms. The Government issued G.O.Ms.No.296 directing the estimation of subsumed taxes in the contracted value of work. The petitioner argued their case fell under paragraph 10(a) of the Government Order, while the respondents contended it fell under paragraph 10(c. Issue 2: Applicability of Government Order for reworking contract terms: The court analyzed the bid documents and determined that the quotation was on an itemwise basis, supporting the petitioner's contention that reworking should be done in terms of paragraph 10(a) of the Government Order. Referring to a previous judgment, the court held that the parties would be covered by specific paragraphs of the Government Order for reworking the contract terms post-GST implementation. Issue 3: Dispute over tax liability between parties: The court emphasized that the additional tax burden due to GST should be borne by the purchaser, as per the Government's policy decision. It directed the respondent Board to calculate the tax component in the contract price and rework the terms of the contract in accordance with the relevant Government Order. The respondents were instructed to conclude the exercise within a specified timeframe. Issue 4: Compulsion to sign revised agreement and its implications: The petitioner claimed they were under compulsion to sign a revised agreement due to the Board's funding release conditions. The court acknowledged the situation faced by the petitioner but focused on the rights of the parties. It directed the respondent Board to rework the agreement terms and enter into a revised agreement with the petitioner within a stipulated period, ensuring the petitioner was not burdened with tax liability. In conclusion, the court allowed the writ petition on the terms mentioned, emphasizing the reworking of contract terms post-GST implementation and the allocation of tax liability as per the Government's policy decision.
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