2023 (6) TMI 1233 - HC - GST

Reimbursement of the GST from the recipient of goods i.e. Indian Railways - differential amount of price variation on steel - whether the Petitioner would be entitled to claim refund of the input tax credit availed on the purchase of steel which was used to pay the output tax while affecting the outward supply of steel to the Railway Authorities? - HELD THAT - The GST legislation came into existence within the purview of a modern economy as a destination based tax. The idea which permeates GST legislation globally is to impose a multi-stage tax under which each point in supply chain is potentially taxed. As a result the suppliers are entitled to avail credit of the tax paid at an anterior stage. In other words GST fulfils the description of a tax which is based on value addition. The value addition is intended to achieve fiscal neutrality and to obviate a cascading effect of taxation which traditional tax regimes were liable to perpetuate. Therefore the purpose of the tax on value addition is not dependent on the distribution or manufacturing model. The tax which is paid at an anterior stage of the supply chain is adjusted. The object therefore is to achieve both neutrality and equivalence by the grant of seamless credit of the duties paid at an anterior stage of the supply chain. It is seen from a perusal of Section 16(1) that every registered person shall subject to such conditions and restrictions as may be prescribed and in the manner specified in Section 49 be entitled to take credit of the input tax charged on any supply of goods or service or both to him which are used or intended to be used in the course of furtherance of his business and the said amount will be credited in the electronic ledger of such person - Taxes on goods and services are identifiable but upon credit to the electronic ledger they form a common pool for utilization. Section 16(1) indicates the manner in which input tax credit can be utilized is spelt out in Section 49. Whether the Petitioner would be entitled to the refund of the Input Tax Credit availed upon purchasing of steel which was used for the purpose of payment of the Output Tax in effecting the outward supply of steel to the Railways? - HELD THAT - This question has arisen in view of the specific and categorical submission of the learned counsel for the Respondents inasmuch as it was submitted that as the Petitioner is getting the benefit of the Input Tax Credit the question of reimbursement of Input Tax Credit availed do not arise. It was submitted that the Petitioner would get double benefit inasmuch as on one hand the Petitioner would get the benefit of Input Tax Credit and on the other hand would get the benefit of GST neutralization and as such hit by Section 171 of the CGST Act 2017. In the previous segments of the instant judgment this Court categorically observed the object and the frame work behind the Input Tax Credit. The GST legislation as observed earlier is a destination based tax meaning thereby GST is a consumption based tax and would effectively tax the consumer of such goods or services or both at the destination thereof or as the case may be at the point of consumption. The supply of steel by the Petitioner to the Railways makes the Railways the end user and therefore the Railways are required to bear the brunt of the final tax amount upon the supply of steel - It is relevant to note that the input tax credit is credited to the Petitioner s electronic credit ledger as the Petitioner had paid from its resources the input tax. Merely because the Petitioner uses the input tax credit which is credited to his electronic credit ledger for payment of the output tax which is a permissible mode of payment as per Section 49 it would be completely contrary to the frame work of the GST Act to accept the contention of the Railways that the Petitioner would not be entitled to the reimbursement of the Input Tax Credit which the Petitioner used for payment of the Output Tax Credit. This Court is therefore of the opinion that the Petitioner herein would be entitled to his PVC claim in terms with the contract and GST paid by the Petitioner from its electronic credit ledger has to be taken into consideration while computing the PVC Claims of the Petitioner. The Petitioner would be well advised therefore to take steps in terms with the JPO dated 29/1/2021 for making its PVC claims if not already done and the Respondent Railways shall pay the PVC claims on the basis of the contract. It is yet again reiterated that on the ground that the Petitioner had paid the output tax through its electronic credit ledger by using its input tax credit the same shall not be a ground to deny the entitlement of the Petitioner to the reimbursement of the GST. The said exercise of the PVC Bills of the Petitioner be completed within one month from the date a certified copy of this judgment is served upon the Respondent No. 7. Petition disposed off.

Summary

Issues Involved:
1. Entitlement to reimbursement of GST on the differential amount of price variation on steel.
2. Application of the Price Variation Clause (PVC) post-GST implementation.
3. Calculation of PVC claims considering pre-GST and post-GST periods.
4. Impact of Input Tax Credit (ITC) on the reimbursement of GST.

Summary of Judgment:

Issue 1: Entitlement to reimbursement of GST on the differential amount of price variation on steel.
The court examined whether the petitioner was entitled to reimbursement of GST on the differential amount of price variation on steel under the contract. The petitioner, a joint venture awarded a railway construction contract, faced issues in settling PVC claims due to the GST implementation. The court concluded that the petitioner was entitled to reimbursement of GST on the differential amount of price variation on steel.

Issue 2: Application of the Price Variation Clause (PVC) post-GST implementation.
Clause 46A of the Indian Railway Standard General Conditions of Contract, which includes the PVC, was analyzed. The court noted that post-GST, the formula for calculating PVC was amended to include GST instead of excise duty. The amendments were applicable to tenders invited post-01/07/2017, but the petitioner's contract was awarded prior to this date, leading to confusion in applying the PVC.

Issue 3: Calculation of PVC claims considering pre-GST and post-GST periods.
The court referred to various circulars and Joint Procedural Orders (JPOs) issued by the Railway Board, which provided guidelines on calculating PVC claims by considering steel costs exclusive of excise duty before 01/07/2017 and exclusive of GST after 01/07/2017. The court emphasized that the petitioner was entitled to GST neutralization, meaning the difference between GST payable on the PVC bill and VAT payable in the pre-GST regime should be reimbursed.

Issue 4: Impact of Input Tax Credit (ITC) on the reimbursement of GST.
The court addressed the contention that since the petitioner availed ITC on the purchase of steel, they should not be reimbursed for GST. The court clarified that ITC is a legally recognized mode of payment under the GST Act and should be credited to the petitioner's electronic credit ledger. The court ruled that the petitioner is entitled to reimbursement of GST paid from its electronic credit ledger while computing PVC claims, and this should not be a ground for denial.

Conclusion:
The court allowed the petition, directing the respondent Railways to pay the PVC claims based on the contract and consider GST paid from the petitioner's electronic credit ledger. The exercise of settling PVC bills should be completed within one month from the date a certified copy of the judgment is served.