Time of supply governs GST liability in transition works contracts; reimbursement depends on contract terms and tax-adjustment rules.

In works contracts straddling the VAT-GST transition, GST liability was applied by reference to the time of supply: where invoices were raised and payment was made or became due on or after 01.07.2017, the post-GST regime governed and the circular was upheld. The court treated works contracts as composite supplies of services under GST and rejected interference merely because the result was harsh for some contractors. Claims for reimbursement or upward revision of contract value depended on the contract terms and the tax-adjustment rule under Section 64A of the Sale of Goods Act, 1930; because the contract materials were incomplete, no immediate entitlement was declared and the matter was left for administrative consideration.

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Issues: (i) Whether the impugned GST circular correctly applied GST liability and deduction of tax to invoices and payments arising on or after 01.07.2017 in works contracts executed across the VAT-GST transition. (ii) Whether contractors were entitled, on account of the GST regime, to reimbursement or upward revision of the contract value by the additional tax component.

Issue (i): Whether the impugned GST circular correctly applied GST liability and deduction of tax to invoices and payments arising on or after 01.07.2017 in works contracts executed across the VAT-GST transition.

Analysis: The applicable liability was determined with reference to the statutory concept of time of supply. Under the GST framework, tax on goods or services becomes payable when the supply occurs in the manner prescribed by the charging provisions, and the relevant time is tied to the date of invoice or receipt of payment, depending on which event occurs earlier. Works contract was treated as a composite supply of services under the GST scheme. On that basis, if invoices were raised on or after 01.07.2017 and payment was received or receivable on or after that date, GST liability attached under the new regime. The circular therefore aligned with the statutory scheme and did not warrant interference merely because it operated harshly on some contractors.

Conclusion: The circular was upheld, and GST was held payable on post-01.07.2017 invoices and corresponding payments.

Issue (ii): Whether contractors were entitled, on account of the GST regime, to reimbursement or upward revision of the contract value by the additional tax component.

Analysis: The claim for reimbursement depended on the contractual terms and on whether the price was fixed without scope for adjustment. The governing principle from Section 64A of the Sale of Goods Act, 1930 allows tax adjustment only when there is no contract to the contrary and the tax change occurs after the contract. The Court also noted that the statutory tax burden and the contractual allocation of that burden are distinct, and that anti-profiteering principles and possible input tax credit considerations may affect the final entitlement. As the contract documents were incomplete, the Court found the materials insufficient to decide whether the petitioners satisfied the conditions for reimbursement. It therefore left the petitioners to approach the awarding authorities with representations and directed consideration of the claim on the available materials.

Conclusion: No immediate judicial declaration of entitlement to reimbursement or revised contract value was granted; the claim was left for administrative consideration.

Final Conclusion: The challenge to GST deduction failed, while the request for tax reimbursement was not decided on merits and was relegated to the contractual authorities for consideration.

Ratio Decidendi: In works contracts straddling the VAT-GST transition, tax liability follows the statutory time of supply and applies to invoices and payments arising after the commencement of GST, while any claim for passing on increased tax burden depends on the contract terms and the conditions governing tax adjustment.

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