2024 (12) TMI 445 - HC - GST

Works contract spanning two states requires proportionate tax liability discharge in each state under Section 12(3) IGST Act

The Telangana HC determined that a works contract for barrage construction spanning two states constitutes intra-state supply proportionate to work ... Short payment of taxes - Whether the work executed by petitioner JV falls under Section 12 (2) (a) or 12 (3) of IGST Act? - Place of Supply - Works Contract (Construction of Barrage) falling in two states - determination of place of supply - inter-state supply or intra-state supply - maintainability of refund application submitted by the petitioner. HELD THAT:- Regarding the Place of supply: As per the explanation to Section 12 (3), when an immovable property is located in more than one State, then the place of supply of service shall be determined by the service supplied in each State in proportionate to value of services collected or determined in terms of contract. Place of supply of service in both the States can be assessed/determined only on the basis of actual works executed in both Telangana and Maharashtra States and also as per the terms of the agreement as specified in the explanation to Section 12 (3) of IGST Act. As per Section 8(2) it can be observed that subject to Section 12 of the IGST Act, the supply of service shall be an intra-state supply when location of supplier and place of supply are in the same State. The issue whether the nature of supply is intra-state or inter-state under Sections 7 and 8 of the IGST Act, is dependant on the location of supplier and place of supply. Since the place of supply is determined depending on the proportion of work executed by L&T & PES and location of supplier in both the States, it falls under the category of intra-state supply under Section 8 of the IGST Act with respect to the proportion of works executed in respective States by the contractors registered in the respective States. Now it is clear that the nature of supply is intra-state supply in proportion to the works carried out in each State. When the nature of supply is intra-state, the tax liability shall be discharged individually in each State to the extent of proportion of the works executed therein. Discharge of GST Liability: Since the nature of supply is of the intra-state, proportionate to the services rendered in respective States, the tax liability shall be discharged individually in each State for the proportion of work executed therein, as such tax liability should be discharged according to GST in each State. It is contended by the petitioner that tax liability has been discharged independently for the works executed in the State of Maharashtra. However, the petitioner has not placed on record any material evidencing discharge of tax liability in the State of Maharashtra. Refund of TDS: In the absence of material, information and documents to substantiate their contention, it would be difficult for this Bench in exercise of writ jurisdiction to grant any relief to the petitioner. Nonetheless it is an admitted fact that TDS has been deducted for the entire amount released and the said entire TDS amount stands deposited with the State of Telangana. If the State of Telangana has not transferred the tax liability to the extent of work executed in the State of Maharashtra to the Tax Authorities in the State of Maharashtra, there are no reason on the part of Joint Commissioner in not granting refund, upon the petitioner providing relevant material, proof evidencing discharge of tax liability in the State of Maharashtra. The grounds taken by the Joint Commissioner while rejecting the claim for refund does not seem to be proper and justified. However, the petitioner shall be at liberty to approach the adjudicating authority with relevant material and on such submission, the adjudicating authority shall consider the same and pass appropriate orders for refund of TDS amount in the event of petitioner furnishing appropriate, cogent documents in proof of discharge of liability in the State of Maharashtra after duly affording opportunity to both the parties. Petition disposed off. Issues Involved:1. Determination of the applicable section under the IGST Act for the works executed by the petitioner JV - Section 12(2)(a) or Section 12(3).2. Classification of the supply as inter-state or intra-state.3. Maintainability of the refund application submitted by the petitioner.Detailed Analysis:Issue 1: Applicable Section under IGST ActThe primary issue was whether the work executed by the petitioner JV falls under Section 12(2)(a) or Section 12(3) of the IGST Act. The court noted that the petitioner's contract is a Works Contract as defined under Section 2(119) of the CGST & IGST Act. Section 12(3) of the IGST Act applies to services directly related to immovable property, including construction work. The court observed that the construction of the barrage is spread across two States, and the place of supply should be determined based on the proportion of work executed in each State, as per the explanation to Section 12(3). The respondent No. 6 had previously held that Section 12(3) applies, and this finding was not challenged. Therefore, the court concluded that Section 12(3) is applicable, not Section 12(2)(a), as contended by the respondents.Issue 2: Inter-State vs. Intra-State SupplyThe court examined whether the supply of services was inter-state or intra-state. According to Section 7(3) of the IGST Act, supply is inter-state if the location of the supplier and the place of supply are in different States. Conversely, under Section 8(2), supply is intra-state if both the supplier and place of supply are in the same State. The court determined that the nature of supply is intra-state, as the supply of services was proportionate to the works executed in each State by contractors registered in those States. Thus, the tax liability should be discharged individually in each State for the work executed therein.Issue 3: Maintainability of Refund ApplicationThe petitioner sought a refund for excess TDS credited to the State of Telangana. The court noted that the petitioner had raised separate invoices for work executed in both States, but the entire TDS was remitted to Telangana. The court found the Appellate Authority's reasons for rejecting the refund claim improper, as the entire TDS amount, including for work done in Maharashtra, was deposited with Telangana. The court highlighted the absence of material evidence from the petitioner regarding the discharge of tax liability in Maharashtra and the proportion of work executed by JV partners. It concluded that the petitioner should approach the adjudicating authority with relevant materials to substantiate their claim for a refund.Conclusion:The court disposed of the writ petitions, allowing the petitioner to approach the adjudicating authority with appropriate documentation to support their refund claim. The authority is directed to consider the evidence and pass orders accordingly, ensuring that the petitioner is granted a refund upon providing proof of tax liability discharge in Maharashtra. The court emphasized the necessity of proper documentation and evidence to resolve the issues raised in the petitions.