02.05.2023: Reimbursement of additional tax liability allowed to the companies involved in construction in pre-GST regime: Chhattisgarh High Court

The Chhattisgarh High Court in the case of M/s Surana and Company vs. Union of India vide Order No. WPC No. 5555 of 2022 dated 17.04.2023, has allowed the reimbursement of additional tax liabilities on companies involved in construction in the pre-GST regime.

The petitioners were involved in the construction of roads, bridges, tolls, etc., and were awarded work contracts at different points in time. The main grievance of the petitioners is against the inaction on the part of the respondent state authorities in not granting a refund or reimbursement of the additional 6% GST liability imposed upon them w.e.f. 18.07.2022, on the work contract being executed by the petitioners, even though the contract between the parties was signed prior to 18.07.2022. The tender was submitted and accepted by the respondent authorities with a 12% rate of GST liability at the relevant point in time.

The petitioners submitted that the actions and inactions on the part of the respondents were wholly unreasonable, illegal, arbitrary, and violative of the petitioner's fundamental rights enshrined under Articles 14, 19(1)(g), and 21 of the Constitution of India.

The petitioner contended that it is highly unjustified, inappropriate, and highhanded to apply the amended GST rate of 18% in respect of the concluded contract. It is highly illegal on the part of the respondents to accept execution of work under the contract, which was extended prior to July 18, 2022, at the revised rate of 18%.

The petitioners have sought a declaration that the notification prescribing the 18% GST for work contract services be declared inapplicable for the contracts that have been executed prior to July 18, 2012. The petitioners sought the declaration that they were entitled to a refund of 6% of the additional GST paid by them for the contract executed prior to July 18, 2022, from the respondent authorities upon submission of valid proof.

The department contended that if the rates calculated by the contractor shall be deemed to be inclusive of all taxes, which includes an increased or decreased rate of tax, then the prayer sought for by the petitioner is itself frivolous and without any basis. The reliefs claimed by the petitioners have no locus standi on their own and have no legal backing to support them. The stand taken by the petitioners that the state government has decided to reimburse the amount of tax is not at all justified, as the state government has only decided to reimburse those differential amounts that have been incurred by the contractor on account of the new tax for those contracts that have been executed prior to the coming of GST.

The Hon'ble Court directed the petitioner to make a fresh claim showing the difference between the tax liability that was incurred at the time of submission of bids and the excess tax paid by him in light of the introduction of the GST, and upon such a claim being made, the respondents were directed to forthwith process the same after due scrutiny and inquiry.

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