2023 (11) TMI 778 - HC - GST

Refund of GST - Scope of the contract terms (tender) - post GST era - Refund of the payments made by way of Goods and Services Tax (GST) by the petitioners in respect of the different work orders - effective alteration in the contract between the parties or not - who is liable to pay GST? - HELD THAT - The price quoted as per the rate contract and accepted by the petitioners/suppliers was inclusive of all duty, levies such as VAT, Excise Duty, etc., and there shall not be any deviation permissible on any ground. Merely because the VAT/Excise Duty has been abolished which was there at the relevant time when the prices were quoted and the rate contract was executed and thereafter has been substituted by the GST, the petitioner cannot be permitted to change the rate contract/rates and cannot be permitted to have the price revision. Hence, from the perspective of the contract between the parties, it is the petitioner/supplier who is to bear taxes in the GST regime as well - Even considering from a different perspective, the petitioner also has a statutory obligation under the GST Act, as a supplier, to bear GST. In the present case, no new liability is being imposed on the petitioner which was not contemplated in the original contract and the tender document. The petitioner was clearly to bear VAT, Sales Tax and similar other statutory levy, including all indirect taxes payable for the service chain. The expression similar other statutory levy/cess in the relevant clause of the contracts makes it abundantly clear - The GST regime has only introduced a common taxation for the entire supply chain which subsumes and does not add to the previous taxes payable on such count. Hence, the argument that the petitioner is saddled with a new liability beyond the contract is untenable in law and in fact. Thus, it is the petitioner who is liable to pay the GST - In the present case, there is no reason to deviate from the literal rule of construction, since the plain meaning of the relevant taxation clause in the contracts is unambiguous. Secondly, even if the autonomy of the contractual parties and their joint intent is gathered, the unerring intent was for the contractor/bidder to bear all indirect taxes such as VAT, Sales Tax and the like, which has been merely replaced by the GST Act now. Essentiality of price was never an issue between the parties from the inception and, since not taken at the inception of the contract or the tender but only subsequently, cannot be permitted to be agitated by the petitioner in the circumstances of the present case at all. All commercial contracts obviously include an element of calculated business risk which includes the enhancement or reduction in taxes. Even if the petitioner argues that the taxes have been enhanced, the same was factored into the original clauses of the contract. Mere replacement of Sales Tax, Excise Duty, VAT and other similar taxes by the GST regime does not change such parameters in any manner - Price escalation, being not provided for in the contract, cannot be read into the contract just because a new taxation regime has replaced the earlier one. There is no scope of directing refund of the GST paid by the petitioner in respect of any of the work orders/contracts involved in the four connected writ petitions - Petition dismissed.

Summary

Issues Involved:

1. Liability of the contractor/bidder to bear taxes under the GST regime.
2. Interpretation of the contractual clause regarding tax liabilities.
3. Applicability of retrospective operation of tax laws or circulars.
4. Commercial viability and business efficacy of the contract.

Summary:

1. Liability of the contractor/bidder to bear taxes under the GST regime:
The petitioner participated in tender processes and was the successful bidder. The contracts specified that the contractor/bidder was to bear all statutory levies, including Income Tax, VAT, Sales Tax, Royalty, and Construction Workers' Welfare Cess. With the introduction of the GST Act, the petitioner argued that additional taxes were imposed beyond the contract's contemplation and sought a refund of GST payments. However, the court held that the GST Act merely replaced other indirect taxes and did not alter the contract terms. The petitioner was liable to pay taxes under the GST regime as per the statute and the contract.

2. Interpretation of the contractual clause regarding tax liabilities:
The court examined the relevant clause in the contracts, which stated that the contractor/bidder should bear all statutory levies and quote rates accordingly. The clause did not restrict the taxes to those applicable "as on that date." The court emphasized that the terms of the contract must be strictly construed and given their natural meaning. The GST regime subsumed the previous indirect taxes, and the petitioner's liability to bear all such taxes remained unchanged.

3. Applicability of retrospective operation of tax laws or circulars:
The petitioner argued against the retrospective operation of an oppressive circular, citing the principle that beneficial circulars should be applied retrospectively while oppressive ones prospectively. The court clarified that the respondents did not seek retrospective application of any law but insisted on the petitioner's liability to pay taxes under the current tax regime. The payment of GST was required only from the introduction of the GST law, not retrospectively.

4. Commercial viability and business efficacy of the contract:
The petitioner contended that the contract should be interpreted to maintain its commercial viability and efficacy. The court noted that the taxation clause was unambiguous and required no external aid for interpretation. The contract's terms clearly indicated that all indirect taxes, including those subsumed by the GST Act, were to be borne by the petitioner. The introduction of the GST regime did not introduce a new liability but replaced existing taxes. The court rejected the argument that the petitioner was absolved of tax liabilities due to the change in the taxation regime.

Conclusion:
The court dismissed the writ petitions, concluding that the petitioner was liable to pay GST under the terms of the contract and the applicable law. The contracts clearly stipulated that the contractor/bidder should bear all statutory levies, including those subsumed by the GST regime. The introduction of the GST Act did not alter the contractual obligations or impose a new liability on the petitioner.