The Hon’ble High Court of Gujarat vide its order dated 13^th April 2022 in the matter of Bhagwati Construction Vs. Union of India in R/Speacial Civil Application No. 15114 of 2021, held that Input Tax Credit is as good as tax paid and the payment of tax by utilization of tax credit is a valid mode of payment.  Thus, the denial of refund/reimbursement on the ground that input tax credit from electronic credit ledger has been utilized for payment of GST, and the whole tax has not been paid through electronic cash ledger, is bad in law and liable to be set aside.

The writ-applicants preferred the writ-application praying for setting aside the impugned communication dated 13.05.2019, refusing to release refund/reimbursement of GST due to the petitioner as per Joint Procedure Order (J.P.O.) dated 21.01.2018 issued by the Western Railways in terms of order dated 27.10.2017 passed by Railway Board.  Further directions were sought to the Respondents to release the amount of refund/reimbursement of Rs. 1,23,02,620, paid by the petitioners under the GST Act towards contract dated 29.06.2017.

Facts: –

• The writ-applicant no.1 is a partnership firm having its place of business at Ahmedabad. The writ applicant no.2 is the partner of the said firm. That for last 20 years the writ-applicants are Government approved railway contractors and awarded E-Tender No. Dy CE (C) P&D/ADI/ADI-HMT-16 by the Railways Board and an agreement was entered into on 29.6.2017.
• The writ-applicants were registered under the Gujarat Value Added Tax Act, 2003 and opted for lump-sum tax scheme and their tax liability under the VAT Act was 0.6%. Further the activity of the writ-applicants with respect to service provided to the Railways was exempt vide Notification no. 25/2012.  However, after the introduction of GST regime (w.e.f. 01.07.2017) their activity became taxable @12%.
• The contractors made representations with the Railways for granting reimbursement of the additional tax liability under GST Act for the contracts entered before the GST regime. That having heard the said representations, the Railways Board issued an order dated 27.10.2017 giving instructions to all the Railway Divisions to issue a Joint Procedure Order for neutralizing the impact of the GST on the existing works allotted prior to the implementation of the GST regime.
• That following the instructions, the Western Railway issued a Joint Procedure order on 21.01.2018 specifying the procedure to claim reimbursement. Thereafter a supplementary agreement was entered between the writ-applicants and the Western Railways on 26.02.2018 for the contract pertaining to E-Tender No. Dy CE (C) P&D/ADI/ADIHMT-16 dated 29.6.2017 based on the Joint Procedure Order.
• That in accordance with Joint Procedure Order the writ-applicants put up a claim on 26.02.2018 along with a Chartered Certificate showing input tax credit admissible, if any, for the contract. However, the final claim in respect of the contract in question was submitted by the writ-applicants through their Chartered Accountant on 30.11.2018.
• The Deputy Chief Engineer of Railways after scrutinising the claim of the writ-applicants generated a pay order on 10.02.2019, with respect to refund/reimbursement of GST, amounting to Rs.1,23,02,620 after statutory deductions. Thereafter writ-applicants raised a tax invoice on 11.02.2019 for collection of the amount, however a letter dated 27.02.2019 was issued to the writ-applicants seeking some clarifications, which was responded by the writ-applicants on 01.03.2019.
• That a letter dated 05.04.2019 was issued to the writ-applicants to clarify that why the input tax credit is showing as ‘Nil’ in the working sheet submitted by them for refund, when they are discharging the tax liability in the returns by utilizing the input tax credit. To which the writ-applicants responded vide letter dated 10.04.2019 clarifying that in the contract in question there is no use of goods for which the input tax credit was admissible, the input tax credit utilized pertains to other contracts.
• That again the writ-applicants received a letter dated 07.05.2019 alleging that against their claim of Rs. 1,23,02,620/-, only Rs. 33,92,980/- has been paid through the electronic cash ledger. Thus, was asked to provide the details of other contracts with the input tax credit claimed in those contracts.
• That the writ-applicants, thereafter, filed a complaint dated 10.05.2019 with the chief engineer complaining their refund/reimbursement has been withheld despite the fact all required details and information has been provided.
• Thereafter, the writ-applicants received the impugned letter dated 13.05.2019 informing that the reimbursement would not be granted since only a part amount of tax was paid through the electronic cash ledger.
• Several correspondences were exchanged between the writ-applicants and the respondents and through its submissions dated 05.09.2019, it was submitted by the writ-applicants that all the required documents as per Joint Procedure Order & supplementary agreement had already been submitted, and contract-wise ITC, as sought is beyond the Joint Procedure Order.
• That a meeting was held of similar contractors with Railway Board on 13.01.2020. However, the issued could not be resolved.
• The writ-applicants once again made a request on 26.05.2020. It was submitted that cumulative calculation of all the contracts as sought by the officers of Railway is impossible and beyond the requirement of Joint Procedure Order.
• Thereafter, the writ-applicants gave several reminders to respondents but the refund/reimbursement was not released.

Writ-Applicant Submissions: –

• It was submitted on the behalf of the writ-applicants that withholding the refund/reimbursement by the respondents on the ground that only 33,92,980/- was paid out of electronic cash ledger is misconceived. The input tax credit as good as tax and legally admissible for the payment of output tax.  There is no difference between the tax paid through electronic cash ledger and electronic credit ledger.
• Reliance was placed on the decisions of Eicher Motors Ltd. vs. Union of India and Another, (1999) 2 SCC 361 & Jayaswal Neco Ltd. vs. Commissioner of Central Excise, (2015) 10 SCC 651.
• The Joint Procedure Order and the supplementary agreement provide for calculation of contract-wise calculation and insistence to provide the details of other contracts is absolutely unwarranted. Moreover, Chartered Accountant Certificate has been submitted to substantiate that ‘GST- paid’ goods have not been used for the particular contract.  Hence there is no input tax credit for contract in question.
• That the pay order had already been generated by the respondents after due consideration of the facts. However, subsequently withheld for the want of details of other contracts, which are not relevant.
• It is not possible to ascertain that the input tax credit of which contract was utilized to make the payment of tax as once the input tax credit is credit to the electronic credit ledger, it becomes a homogenous pool.
• That if the tax is not paid, returns cannot be filed and the copies of the GST returns have been submitted to the respondents. Moreover, the writ-applicant communication dated 13.05.2019 is completely based on the said returns.  Thus, the evidence of payment has already been furnished and denial of reimbursement is erroneous and illegal.

Submissions on behalf of the Respondents: –

• The respondents are not opposing the refund/reimbursement to the writ-applicants.  However, the writ-applicants are not able to substantiate their claim by showing actual payment through the cash ledger.
• The documents with respect to contract entered with Railways are yet to be submitted by the writ-applicants.
• The pay order generated has been withheld for further verification of refund claim. Thus, for the aforesaid reasons the refund/reimbursement could not be released.

Held/Analysis: –

• The Hon’ble Court after considering the order dated 27.10.2017  of Government of India, through Railways ‘instructing all the Railway Divisions to issue a Joint Procedure Order for neutralizing the impact of GST on the existing works allotted prior to introduction of GST.’ observed that pursuant to this order, the Western Railway issued a Joint Procedure Order dated 21.01.2018 laying down procedure for the GST neutralization based upon the policy of the Government of India.
• That a perusal of Joint Procedure Order shows that Paragraph 4 of the JPO provides for review regarding GST neutrality is to be done on case-to-case basis. Paragraph 2 states that a supplementary agreement is to be entered with the contractor for dealing with impact of GST in individual contracts. Paragraph 8.6 provides for submission of a worksheet for the tax liabilities before the GST and after the GST with details of input & input services availed for the work. Paragraph 8.6 (c) 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) provides for furnishing of copies of GST returns & Paragraph 10 of the JPO provides for calculating differential tax liability for the contract considering the input tax credit for the contract.
• That from reading of JPO implies that ‘(i) The calculation of the GST neutralization is envisaged separately for each contract, (ii) A supplementary agreement is to be entered into by the Railways with the contractor for each contract for the purpose of GST neutralization, (iii) The details of the input tax credit are to be provided by the contractor in respect of the input materials used for a particular work, (iv) Reimbursement/refund is to be granted for differential tax liability taking into account the pre – GST tax liability and the post-GST tax liability. If at all the post-GST liability for a particular contract is lower than the pre-GST liability, then the amount can also be recovered from the contractor.’
• That in the present case, it has not been disputed that the supplementary agreement was entered into with respect to agreement dated 06.2017 and parties to agreement duly agreed to GST neutralization. Further the writ-applicants provided a Chartered Accountant Certificate to substantiate that GST is not paid in respect of inputs used for execution of the contract, no input tax is available pertaining to this contract.  Thus, the writ-applicants are entitled to refund in terms of order of GST neutralization and the said fact was determined by the respondents by generating pay order in favour of the writ-applicants.  However, the same was not released on the ground that the writ-applicants have paid much lower amount of tax through the electronic cash ledger.
• It was observed that it is quite unfortunate that the respondents have not been able to understand the basic scheme of the GST Act. Section 16(1) of CGST provides that input tax credit is admissible for the tax paid on goods and services in the course of business. Further the amount of input tax credit is the actual tax which is further paid to Government treasury by the supplier. Section 49 of the GST Act entitles a taxable person to utilize the balance available in the electronic credit ledger. Thus, the tax which was already paid by a taxable person is effectively allowed to be set off against the output tax liability.
• The Hon’ble Court taking reference of the decisions of Jayaswal Neco Ltd. (supra) & CCE v. Dai Ichi Karkaria Ltd. [(1999) 7 SCC 448: (1999) 112 ELT 353] found that Input Tax Credit is as good as tax and the tax payment through electronic credit ledger is a legally recognized mode of payment under GST Act. Thus, the denial to release refund/reimbursement on the ground that only the part payment has been made through electronic credit ledger is legally not tenable and the entire amount of tax paid by the writ-applicants in this contract, is liable to be immediately released.
• Further when no ‘GST-paid’ inputs have been used for execution of work and input tax credit was not available, the question of passing on the benefit of tax does not arise. To substantiate the same the writ-applicants also provide a Chartered Accountant Certificate.
• That For the purpose of payment of tax, the electronic credit ledger is a homogeneous pool of credit which cannot be vivisected. It appears that the respondents have not been able to understand this distinction between the availment and the utilization of the input tax credit which has led to the present controversy. The non-payment of refund to the writ-applicants is contrary to the order of the Ministry of Railways read with the JPO and the supplementary agreement and the same ought to be forthwith released.

The Hon’ble Court with the above findings allowed the writ-application, setting aside and quashing the impugned communication dated 13.05.2019 with the directions to the respondents to release the refund of Rs. 1,23,02,620/- within four weeks of the receipt of the copy of the order.