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TMI Blog2023 (6) TMI 93X X X X Extracts X X X X X X X X Extracts X X X X ..... ommercial Taxes, Cauvery Neeravari Nigama Limited, and Other For the Petitioners (By Sri. D.R. Ravishankar, Senior Counsel Appearing For SrI. Naveen Gudikote S, Advocate) For the Respondents (By Sri. Hema Kumar, AGA FOR R1, R5 & R6; SMT. M.R. Vanaja, Advocate For R2, R7 & R8; Sri. Amit Anand Deshpande, Advocate For R3 & R4; Smt. M.P. Geetha Devi, Advocate For R-10; Sri. G.B. Sharath Gowda, Advocate For R-11; Sri. Deshraj, Advocate For R-18; Sri. Rudrabhushan C Benakanalli, Advocate For R-19; SRI. T. Swaroop, Advocate For R-22; Sri. P.D. Surana, Advocate For R-23; SRI. H.N. Shashidhara, Advocate For R-26 & R-56; SRI. G.M. Ananda, Advocate FOR R-29; Smt. K.S.Anasuyadevi, Advocate For R-47; Sri. A.Nagarajappa, Advocate For R-52 & R-60; Sri. B.L. Sanjeev, Advocate For R-57; Sri. K.S.Bheemaiah, Advocate For R-58; Sri. H.R.Showri, Advocate For R-59; Sri. M R C Ravi, Advocate For R-61; Sri. A. Ravishankar, Advocate For R-62; R9, R12 To R14, R16, R17, R20, R21, R24, R25, R27, R28, R30, R32, R34, R36, R37, R38, R39, R40, R41, R42, R43, R44, R45, R46, R48, R50, R51, R53 To R55 Are Served; Vide Order Dated 19.11.2019, Notice To R15, R31, R33, R35, R49, R60 Are Dispensed With) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nvisaged at the time of entering into agreements under the COT/KVAT schemes during the KVAT regime and as such, petitioners are before this Court by way of these petitions. 3. The Petitioners herein are class-I contractors who have entered into 'works contract' with various State Govt agencies as employers and petitioner contractors and the agreements were entered into at a point of time when the KVAT Act and Finance Act 1994 were in force. It is the contention of the Petitioners that they were registered under KVAT by obtaining TIN number and after introduction of GST from 01.07.2017, they have obtained GST registration numbers specifically and individually. Most of the Petitioners are covered under the composition scheme in terms of Section 15 read with Rule 135 of the KVAT Act except for a few Petitioners who are under the regular VAT assessment under KVAT Act. For the Petitioners who are covered under the composition scheme, the tax under KVAT Act was at 4% on the transaction value of the contract and for those who are covered under the regular VAT assessment, it was either 5% or 12% as the case may be. Under the Finance Act 1994, service tax had been exempted in respect of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oners who have rendered service to the Respondent State Govt agencies, are required to collect and pay the taxes. The Petitioners had given representations to the 1st Respondent wherein the Petitioners have contended that the Central Government more particularly the Department of Railways has come out with a scheme for the purpose of ensuring additional burden of tax as per GST regime is absorbed by the Department while taxing under the GST. It is contended that the taxable incidence as per Act in so far as contractor is concerned is fixed and the tax on the differential amount in the invoice would have to be borne by the recipient of the service i.e., the employer. It is contended by the Petitioners that the State of Maharashtra, State of Odisha, State of Andhra Pradesh & Telangana and even in State of Karnataka the differential amount has been ordered to be paid to the contractors and that the Petitioners have to treated the same way as per principles of parity. It is contended that the Petitioners had given representations to the 1st Respondent Government to come out with guidelines to absorb the differential tax burden relating to works contract under GST. Under these circumsta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nior counsel placed reliance upon the State Government Circulars dated 03.01.2020 and 14.12.2020 as well as upon the following decisions:- (i) MAS Constructions vs. Hubballi Dharwad Smart City Limited - W.P.No. 2804/2021 dated 22.09.2021; (ii) Dhalbaleshwar Pattnaik vs. State of Orissa - 2020 SCC Online ORI 623; (iii) Subaya Construction Limited vs. Tamilnadu Water Supply and Sewage Board - WP (MD) 15967 / 2020 dated 08.03.2021; (iv) Bhagawathi Construction vs. Union of India - (2022) 06 CCH GST 0359. 9. Per contra, learned AGA as well as the learned counsel for the other respondents, in addition reiterating the various contentions urged in their statement of objections submit that there is no merit in the petitions and the same are liable to be dismissed. 10. I have given my anxious consideration to the rival submissions and perused the material on record. 11. It is an undisputed fact that the Petitioners herein are class-I contractors who have entered into 'works contract' with various State Govt agencies and that the agreements were entered into at a point of time when the KVAT Act and Finance Act 1994 were in force. It is also not in dispute that the Petitioners ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rnataka Value Added Tax Act and the Service Tax Act. This turnover, in addition to the certified works, also must include the turnover related to the uncertified works which are already executed but yet to be certified. Only that portion of the contract which are executed after the implementation of the GST, i.e., after 01.07.2017 are liable to tax under the GST Act. In case where the works contractor has in stock, materials which are purchased before 01.07.2017 and not incorporated into the contract then the contractor has to claim the transitional rebate of the taxes paid under the earlier laws and the amount eligible would be credited to the Input Tax Credit Ledger of the contractor. With regarding to the issue of the impact of change of tax regime is concerned a detailed annexure explaining the methodology of calculation of the impart of change of tax regime along with an illustration is placed in the file. (Annexure A & 13) Further, the tax difference should be calculated on each works separately. Based on the result obtained on calculation of the tax difference on the contract value, concerned department / Authority has to decide whether contract agreement needs to b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 comp lete 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... our 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." 15. So also, in the case of Dhabaleshwar Pattnaik Vs. State of Orrisa, referred to supra, certain directions have been given by the Division bench of the said Court as under: 3. In case of work, where the tender was invited before 01.07.2017 on the basis of SOR-2014, but payments made for balance work or full work after implementation of GST, the following procedure shall be followed to determine the amount payable to the works contractor; (i) Item-wise quantity of work done after 30.06.2017 (i.e. the Balance Work) an its work value as per the original agreement basing on the pre-revised SoR 2014 is to be ascertained first. (ii) The revised estimated work value for the Balance Work is to be determines 2014 is to be ascertained first. as per the Revised SoR-2014. (In case of rates of any goods or service used in execution of the balance Work not covered in the Revised SoR-2014, the tax exclusive basic value of that goods or service sha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ra, the Gujarat High Court held as under:- 25. The issue that arises for our consideration is, whether the respondents are justified in withholding the refund/reimbursement in favour of the writ-applicants. 26. The Government of India through the Ministry of Railways, had issued an order on 27.10.2017 for the GST neutralization of the contracts. The order reads as under "Government of India Ministry Of Railways (Railway Board) New Delhi No. 2017/CE-I/CT/7/GST, dated 27.10.2017 To As per list attached Sub: Impact of GST on Existing Works Contracts 1. Ministry of Railways have received a number of representations from Zonal Railways, railway contractors and contractors associations with a request that the increased tax liability due to implementation of GST should be borne by railways in works contracts awarded before implementation of GST. The issue was under consideration of Board for some time. It is seen that the impact of GST varies, depending upon the type of work, business model adopted by contractor and also on the state in which these works are being carried out. The impact is much more in labour intensive works like P. Way linking. Earthwork etc. 2. C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with associate finance. 3.6 Sample post checks of the compensation made to the contractor may be got undertaken by the GST consultant engaged by the Zonal Railways/Production Units. 3.7 Recovery, if any, which is required to be done from the contractors, may be regulated as per Section 171(1) of CGST Act 2017. 4. This is issued with the approval of Board (ME, FC, CRB) (Prem Sagar Gupta) Executive Director/Civil Engineering (G)/Railway Board 27. Pursuant to such order, the Western Railways issued a Joint Procedure Order dated 21.1.2018 laying down the procedure for the GST neutralization based upon the policy of the Government of India. The relevant portion of the order reads thus: "4. The review for GST neutrality is to be done on a case to case basis on the production of various detailed out in the following paragraphs of the JPO Xxxxxxxxxxxxxxxxxx 8. Procedure to be followed for GST neutralization: 8.1 In accordance with the Railway Board's letter dated 27.10.2017 all contracts awarded prior to at 01.07:2017 and all such contracts for which tenders were opened prior to 01.07.2017 but finalized after the implementation of GST are to be considered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... applicable at the time of actual passing of bills will be adopted. The worksheet shall contain details of the quantities of all input materials/services procured for the particular work/works. The contractor shall also certify that the invoices submitted for the work have not been/will not be used for any other work to claim Input Tax Credit (ITC)/refund. The contractor shall also give a certificate that no refund claims of GST are pending settlement with the GST authorities. At the Railway end, the component of input materials/services for SOR/USSOR items will be checked with reference to the rate analysis available in the SOR/USSOR for NS items, the executive officer will carry out a detained rate analysis considering the input materials/services required for executing the NS item which will be approved by JAG/Senior Scale ( independent charge) c. The contractor shall, for the On Account/FCC bills, shall submit all the original Tax Invoices for all the input material/services procured for the particular work, enfaced with agreement number, in support of the ITC and the same shall be duly certified by the Statutory/Tax Auditor auditing the books of the contractor. d. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of the JPO that a supplementary agreement is to be entered in to by the executive with the contractor for dealing with the impact of the GST in individual contracts Paragraph 8.6 (b) of the JPO provides that the contractor will have to provide a work sheet for the tax liabilities before the GST and after the OST including the list of items for which the input tax credit is available for the work. It is further provided that the worksheet should contain the details of the quantities of the input materials/services procured for the particular works. Paragraph 8.6 (C) of the JPO further provides that the contractor shall submit the original tax invoices for all the input material/services procured for the particular work in support of the input tax credit. Paragraph 8.6 (f) of the IPO require furnishing the copies of the GST returns. Paragraph 10 of the JPO provides for calculating differential tax for the contract considering the input tax credit for the contract. A draft of the supplementary agreement is annexed along with the JPO 29. From the reading of the terms of the JPO as aforesaid, the following factual position emerges (a) The calculation of the GST neutralization is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were invited during KVAT regime under old schedule of rates (SR) but finalised under GST regime and that a certain procedure is required to be followed to determine the amount payable by or to the works contractors/Petitioners. 19. In view of the aforesaid facts and circumstances and the Circulars dated 03.01.2020 and 14.12.2020, which have been followed by this Court in MAS constructions's case supra, and also the judgments of other High Courts referred to supra rendered under identical / similar circumstances, in order to do substantial justice, I deem it just and appropriate to dispose of the present petitions by issuing appropriate directions in this regard. 20. In the result, I pass the following:- ORDER (i) Petitions are hereby disposed of. (ii) The Respondents-State and other Govt agencies / Respondents who have entered into works contract with the Petitioners are issued the following directions / guidelines:- (a) Calculate the works executed pre-GST (prior to 01.07.2017) under KVAT regime and payments received by the Petitioners. (b) The payments received by the Petitioners pre- GST for such of the works executed before 01.07.2017 are to be assessed under KVAT ta ..... 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