Contractor Company rightfully entitled to claim Reimbursement of Sales Tax levied on Taxable Turnover of Works Contracts: SC [Read Judgment]

The Supreme Court of India while dismissing the appeal by the State of Orissa held that the contractor company is rightfully entitled to claim reimbursement of the amount of sales tax levied on the taxable turnover of the works contracts executed by it.

The respondent, M/s B. Engineers & Builder Ltd. is a company of engineers and builders, who had been engaged in undertaking various works contracts, responded to the tenders floated by the various offices of the Government of Orissa and, on being determined as the lowest tenderer, was awarded the contracts from time to time.

The State Government, in its Department of Water Resources, issued the impugned Circular, said to be a clarificatory one, stating that a completed item of works, for which the contractor had entered into an agreement with the department, was either an immovable property or a works contract and in either case, was not exigible to sales tax; and therefore, the question of payment of sales tax on such immovable property or works contract and consequential reimbursement by the department as per Clause 45.2 of the General Conditions of Contract, or similar provision in other contracts, did not arise. Accordingly, the State Government instructed its Engineers in charge not to reimburse the sales tax levied on cement, steel, etc.; and also directed for recovery of the amount from the contractor wherever any such amount of sales tax had been reimbursed.

The Orissa High Court at Cuttack accepted the claim of the M/s B. Engineers & Builder Ltd. for reimbursement of the amount of sales tax levied in respect of the works contracts executed by it. The High Court also directed the State Government to grant appropriate reimbursement as claimed by the writ petitioner in terms of Clause 45.2 of the General Conditions of Contract under the National Competitive Bidding Contract while quashing the clarification Circular issued by the Government of Orissa in its Department of Water Resources.

The three-judge bench of Justice A. M. Khanwilkar, Justice Indira Banerjee, and Justice Dinesh Maheshwari while dismissing the appeal by the State of Orissa held that the contractor company is rightfully entitled to claim reimbursement of the amount of sales tax levied on the taxable turnover of the works contracts executed by it.

“While noticing that diametrically opposite views were expressed by the State Government in the two main Circulars dated 04.11.1986 and 07.11.2001, we had observed in the earlier part of this judgment that the said Circulars were based on the given day understanding of the State Government but such vacillating understanding of the State Government was not determinative of the matter; and hence, we had ignored the said Circulars while dealing with the principal issues involved in this matter, but had also indicated that we shall refer to the said Circulars at a later and appropriate stage,” the court said.