2021 (6) TMI 381 - HC - GST

Implementation of GST in works contract in post-GST regime - demand notice issued under Section 61 of the Odisha Goods and Services Act - HELD THAT - It is seen that the increased value of the contract after inclusion of GST is to be reimbursed by the employer whereas the decreased value of the contract, if any, after inclusion of GST is being recovered from the contractor after calculation. Whenever it is found that the contractor has received excess payment, the same is required to be recovered. The impugned demand notice issued to the Petitioner under Annexure-9 is a result of excess payment made thereof. Since the demand of recovery is pertaining to the excess payment received by the Petitioner, we do not see any flaw or illegality in the same as it is clear that the amount which is sought to be recovered from the Petitioner is the decreased value of contract and not the GST amount. The submission of the Petitioner to the contrary is misconceived. It is made clear that the Petitioner has not challenged the tax liability on works contract nor any of the provisions of GST Act. Clause-30 of the General Conditions of Contract makes the contractor liable to bear all the taxes, cesses, tollage and charges etc. - contention of the Petitioner that after issuance of the OM dated 10th December 2018, the agreement between the contractor and employer stands amended or modified accordingly, does not hold any merit for the reason that, it is a purely contractual obligation between the parties to either agree or disagree. The statute should clearly and unambiguously convey three components of the tax law i.e., the subject of the tax, the person who is liable to pay the tax and the rate at which the tax is to be paid. In the instant case, three components of the tax, i.e., subject of tax, person liable to pay the tax and rate of tax has been clearly defined in the statute. The OM dated 10th December, 2018 only prescribes the manner/procedure of calculation to determine the amount of tax in a particular eventuality in the transitional period of migration to GST Act with effect from 1st July, 2017 - Petition dismissed.

Issues Involved:
1. Legality of the Office Memorandum dated 10th December 2018.
2. Validity of the Revised Schedule of Rates-2014 (Revised SoR-2014).
3. Legality of the demand notice issued under Section 61 of the Odisha Goods and Services Act (OGST Act).
4. Financial burden due to differential tax amount post-GST implementation.
5. Applicability of GST on works contracts executed pre and post-GST regime.
6. Procedure for determining payable amounts to contractors post-GST.

Issue-wise Detailed Analysis:

1. Legality of the Office Memorandum dated 10th December 2018:
The Petitioner challenged the Office Memorandum (OM) dated 10th December 2018, arguing it was illegal, arbitrary, and unreasonable. The OM set guidelines for calculating GST on works contracts where tenders were invited before 1st July 2017 but executed or paid post-GST implementation. The Court found no merit in the Petitioner’s challenge, noting the OM was consistent with the earlier notification by the National Rural Infrastructure Development Agency (NRIDA) and was aimed at addressing transitional difficulties due to the GST regime.

2. Validity of the Revised Schedule of Rates-2014 (Revised SoR-2014):
The Petitioner argued that the revised SoR-2014, which came into effect on 1st July 2017, was illegal and discriminatory. The Court rejected this argument, stating the revision was necessary to exclude pre-GST tax components and include only the GST component. The revised SoR-2014 was prepared uniformly for the entire state, and any discrepancies in local rates could be addressed with the employer.

3. Legality of the demand notice issued under Section 61 of the OGST Act:
The Petitioner contested the demand notice issued under Section 61 of the OGST Act, claiming it was illegal. The Court clarified that the demand notice was issued due to excess payments made to the Petitioner, which needed to be recovered. The notice pertained to the decreased value of the contract post-GST and not the GST amount itself, thus finding no flaw or illegality in the notice.

4. Financial burden due to differential tax amount post-GST implementation:
The Petitioner claimed a heavy financial burden due to the differential tax amount as the contract rates were based on pre-revised SoR-2014 inclusive of VAT. The Court noted that the revised SoR-2014 excluded pre-GST tax components, reducing the contract value, and the GST component was added separately. This adjustment was necessary for effective GST implementation and did not impose an undue financial burden on the Petitioner.

5. Applicability of GST on works contracts executed pre and post-GST regime:
The Court highlighted that works contracts are treated as composite supplies of services under the GST regime, taxable at applicable rates. The GST law allowed contractors to avail input tax credit (ITC) on inputs used for materials or services. The revised SoR-2014 and the OM dated 10th December 2018 provided a clear procedure for calculating GST on contracts executed before and after 1st July 2017.

6. Procedure for determining payable amounts to contractors post-GST:
The OM dated 10th December 2018 detailed the procedure for determining payable amounts to contractors for works executed post-GST. This included calculating the revised estimated work value based on the revised SoR-2014, adjusting for tender premiums or discounts, and adding the applicable GST rate to arrive at the GST-inclusive work value. The Court found this procedure consistent with the guidelines issued by NRIDA and necessary for addressing transitional issues.

Conclusion:
The Court dismissed the writ petition, finding no merit in the Petitioner’s challenges. The OM dated 10th December 2018 and the revised SoR-2014 were upheld as legal and necessary for effective GST implementation. The demand notice under Section 61 of the OGST Act was also deemed valid, as it pertained to the recovery of excess payments made to the Petitioner. The Court emphasized that the Petitioner had not challenged the tax liability on works contracts or any provisions of the GST Act, and the contractual obligations between the parties remained unaffected by the OM.

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