GST on Works Contract: Orissa HC directs Govt to issue Instructions for Reimbursement of differential Tax Amount [Read Order]

A two-judge bench of the Orissa High Court, last week has directed the Government administrative departments to provide instructions for the reimbursement of differential tax amounts arising out of change in tax regime from Value Added Tax (VAT) to Goods and Service Tax in connection with the works contracts.

Before the Court, the petitioner challenged the action of the opposite parties in not reimbursing the differential tax amount arising out of change in tax regime from Value Added Tax (VAT) to Goods and Service Tax. They claimed that in view of the introduction of the GST, they required to pay tax which was not envisaged while entering into the agreement.

The counsel appeared for the department relied on the revised guidelines issued by the government respect in supersession of the guidelines issued vide Finance Department letter dated 07.12.2017. He has filed an Additional Counter Affidavit of O.P. No.2 in similar cases annexing the revised guidelines relating to works contract under GST issued by the Government of Odisha. Such guidelines include the following;

• Item-wise quantity of work done after 30.06.2017 (i.e. the Balance Work) and its work value as per the original agreement basing on the pre-revised SoR2014 is to be ascertained first.
• The revised estimated work value for the Balance Work is to be determined as per the Revised SoR-2014. (In case of rates of any goods or service used in the execution of the balance Work not covered in the Revised SoR-2014, the tax-exclusive basic value of that goods or service shall be determined by removing the embedded tax incidences of VAT, Entry Tax, Excise Duty, Service Tax, etc. from the estimated Price/Quoted Price.)
• The revised estimated work value for the Balance Work shall then be enhanced or reduced in the same proportion as that of the tender premium/discount.
• Finally, the applicable GST rate (5%, 12%, or 18% as the case may be) is to be added on the revised estimated work value for the Balance Work to arrive at the GST-inclusive work value for the Balance Work.
• A model format for calculation of the GST inclusive work value for the Balance Work is attached as Annexure. The competent authority responsible for making payment to the works contractor will determine GST inclusive work value for the Balance Work for which agreement executed on the basis of SoR2014.
• A supplementary agreement shall be signed with the works contractor for the revised GST inclusive work value for the Balance Work as determined above.
• In case the revised GST-inclusive work value for the Balance Work is more than the original agreement work value for the Balance Work, the works contractor is to be reimbursement for the excess amount.
• In case the revised GST-inclusive work value for the Balance Work is less than the original agreement work value for the Balance Work, the payment to the works contractor is to be reduced accordingly. In case the excess payment has already been made to the works contractor in pursuance of the original agreement, the excess amount paid must be recovered from the works contractor.
• These procedures shall be applicable to all works contract including those executed in EPC/Turn-key/Lumpsum mode.

The Court, considering the difficulty faced by the contractors due to change in the regime regarding works contract under GST, observed that in case of F2 contracts, the taxable value under GST for each item of the balance work is to be determined by the competent authority applying the premium/discount offered by the works contractor on respective item.

“The Administrative Departments should issue suitable instructions to the Competent Authority responsible for making payments to the works contractors to implement this revised guidelines,” the bench said.