2025 (4) TMI 1012 - HC - GST

GST Council recommendations cannot substitute formal rate notifications under Article 265 Constitution

The J&K and Ladakh HC dismissed a petition challenging GST rate application on works contracts. The court held that composite supply of works ... Reduction of GST rate on works contract services from 18% to 12%, recommended by the GST Council on 5th August, 2017 but formally notified on 21st September, 2017, applied retrospectively to tenders submitted before the notification date but after the recommendation date - HELD THAT:- In terms of SRO-GST-11 dated 8th July, 2017, the construction services falling under Section 5 Heading 9954 were taxable @ 18%. The composite supply of works contract as defined in clause 119 of Section 2 of the CGST Act, 2017 was included in the aforesaid heading. The subsequent notification SROGST- 2(Rate) dated 22nd August, 2017 did not bring any change with regard to the construction services rendered in the shape of composite supply of works contract. SRO-GST-2(Rate) dated 22nd August, 2017 brought about changes in the rates of GST only with respect to specific composite supply of works contract, which, as indicated above, were the works contracts supplied to Government, a local authority or a Governmental authority by way of construction, erection, commissioning, installation etc of specified items like a historical monument, canal, pipeline conduit etc. This is evident from Clause (iii) of Notification dated 22nd August, 2017. The composite supply of works contract as defined in Clause 119 of Section 2 of Central Goods and Services Tax Act, 2017 figures at item No. 3(ii) of Notification dated 8th July, 2017 prescribing 18% GST was not altered by SRO-GST-2(Rate) dated 22nd August, 2017. What was sought to be amended and elaborated by notification dated 22nd August, 2017 was only item No.(iii) at serial No.3 dealing with construction services other than composite supply of works contract mentioned in item No.3(ii) and the construction services mentioned in Clause 3(i). The rate of GST prescribed vide notification dated 8th July, 2017, which was in-vogue at the time of submission of bids by the petitioner as also on the last due date for submission of bids, on composite supply of works was 18%. Vide notification dated 21st September, 2017, the rate of GST came to be reduced from 18% to 12%. Conclusion - The GST Council in its meeting had only made a recommendation for reduction GST on works contract from 18% to 12%, which recommendations were accepted and statutory notification was issued only on 21st September, 2017. Recommendations of the GST Council, as already held, are only recommendations and cannot be taken as notifying new rates of GST, particularly, in the face of provisions of Article 265 of the Constitution of India. Petition dismissed. 1. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered by the Court in this review petition include:Whether the reduction of GST rate on works contract services from 18% to 12%, recommended by the GST Council on 5th August, 2017 but formally notified on 21st September, 2017, applied retrospectively to tenders submitted before the notification date but after the recommendation date;Whether the contractual Special Condition No.49, which provided that tendered rates shall be inclusive of taxes prevailing on the last date for receipt of tenders and any subsequent increase or decrease in tax rates shall be reimbursed or refunded accordingly, is contrary to the statutory provisions of the GST Act and thus liable to be ignored;Whether the liability to pay differential GST amount could be recovered from the contractor when the contract was awarded after the notification date reducing the GST rate;Whether the notification dated 22nd August, 2017 (SRO-GST-2(Rate)) reducing GST on certain composite works contract supplied to government authorities at 12% applied to the petitioner's contract, thereby excluding applicability of the subsequent notification dated 21st September, 2017 reducing GST on works contract from 18% to 12%;Whether the review petition raised any new facts or legal grounds sufficient to recall or modify the earlier judgment dated 3rd November, 2023 dismissing the writ petition filed on similar grounds.2. ISSUE-WISE DETAILED ANALYSISIssue 1: Applicability of GST Rate Reduction Recommendation vs. NotificationRelevant legal framework and precedents: The GST Council's recommendations are advisory and do not have statutory force until notified under the relevant GST rules and notifications. Article 265 of the Constitution mandates that no tax shall be levied or collected except by authority of law. The statutory notification dated 21st September, 2017 formally reduced the GST rate on works contract services from 18% to 12%.Court's interpretation and reasoning: The Court emphasized that the GST Council's recommendation on 5th August, 2017 was only a recommendation and did not constitute a statutory change. The binding effect arose only upon issuance of the notification dated 21st September, 2017. Therefore, the GST rate prevailing on the last date for receipt of tenders (16th September, 2017) was 18%, and the reduction to 12% was effective only thereafter.Key evidence and findings: The petitioner submitted the tender on 28th August, 2017, and the last date for submission of bids was 16th September, 2017, both prior to the notification date. The contract was awarded and work commenced after the notification date.Application of law to facts: Since the statutory notification had not come into force at the time of tender submission, the GST rate applicable was 18%. The recommendation alone could not alter this position.Treatment of competing arguments: The petitioner argued that the GST Council's recommendation was known and considered while submitting the bid, but the Court rejected this, holding that only the statutory notification governs the tax liability.Conclusions: The GST rate applicable at the time of tender submission was 18%, and the subsequent reduction to 12% applied only prospectively from the date of notification.Issue 2: Validity and Effect of Special Condition No.49 of the Tender DocumentRelevant legal framework and precedents: Contractual terms govern the relationship between parties unless they are contrary to statutory provisions. Section 13 and 14 of the CGST Act govern the time and liability for payment of tax. The Court considered earlier judgments including the Division Bench judgment dated 23rd December, 2020.Court's interpretation and reasoning: Special Condition No.49 explicitly provided that the tendered rates were inclusive of all taxes prevailing on the last date for receipt of tenders. It further stipulated that any increase or decrease in tax rates post that date would be reimbursed or refunded accordingly. The Court held that this clause was clear, unambiguous, and binding on the parties.Key evidence and findings: The petitioner did not challenge this clause at any stage before the Court and accepted it as part of the contract. The clause clearly contemplated adjustment of tax differential based on changes in tax rates after the tender submission date.Application of law to facts: The petitioner was bound by the contractual term which mandated refund of any decrease in tax rates (from 18% to 12%) to the Government or deduction of such amount from payments due to the contractor.Treatment of competing arguments: The petitioner argued that this clause was contrary to the GST Act, particularly Section 13, but the Court found no inconsistency and held that the clause did not contravene statutory provisions. The Court also noted that the petitioner did not raise this argument in the earlier writ petition.Conclusions: Special Condition No.49 is valid and enforceable, and the petitioner is liable to refund the differential tax amount arising from the reduction in GST rate.Issue 3: Liability to Pay Differential GST Amount Despite Contract Award Post NotificationRelevant legal framework and precedents: The contract terms and the timing of tender submission govern the tax liability. The GST Act provisions on time of supply and tax liability are relevant.Court's interpretation and reasoning: The Court noted that the tender submission date and last date for receipt of tenders are critical for determining applicable tax rates, not the date of contract award or commencement of work. Since the tender was submitted when GST rate was 18%, the quoted rates included 18% GST.Key evidence and findings: The contract was awarded after the notification reducing GST to 12%, but the tender was submitted before the notification. The contractual clause required adjustment of tax differential.Application of law to facts: The Court applied the contractual clause to hold that the petitioner must refund the differential amount arising from the reduction in GST rate, irrespective of the contract award date.Treatment of competing arguments: The petitioner contended that the contract award date should govern the applicable GST rate, but the Court rejected this, emphasizing the contractual terms and statutory provisions.Conclusions: The petitioner is liable to refund the differential GST amount despite contract award post notification.Issue 4: Applicability of Notification dated 22nd August, 2017 (SRO-GST-2(Rate)) to the Petitioner's ContractRelevant legal framework and precedents: Notifications issued under the GST Act specify rates for different categories of services. The Court analyzed SRO-GST-11 dated 8th July, 2017, SRO-GST-2 dated 22nd August, 2017, and SRO-GST-06 dated 21st September, 2017.Court's interpretation and reasoning: The notification dated 22nd August, 2017 reduced GST to 12% only for specific composite works contracts supplied to government or local authorities involving construction of historical monuments, canals, pipelines, railways, single residential units, etc. The petitioner's contract did not fall within these specific categories but was covered under the general category of composite supply of works contract taxable at 18% as per the 8th July, 2017 notification.Key evidence and findings: Clause (iii) of the notification dated 8th July, 2017, covering 'construction services other than (i) and (ii) above,' was not amended by the 22nd August notification. The 22nd August notification only amended specific items listed under certain categories.Application of law to facts: The petitioner's contract was governed by the general 18% GST rate applicable on composite works contracts at the time of tender submission. The subsequent 21st September notification reduced the rate to 12% for all such contracts.Treatment of competing arguments: The petitioner argued that the 22nd August notification applied to its contract, but the Court rejected this, finding that the petitioner's contract was outside the scope of that notification.Conclusions: The 22nd August notification did not apply to the petitioner's contract; therefore, the GST rate reduction from 18% to 12% notified on 21st September, 2017 was applicable.Issue 5: Grounds for Review and Exercise of Review JurisdictionRelevant legal framework and precedents: Review jurisdiction is limited to errors apparent on the face of the record, discovery of new facts or law, or sufficient reasons justifying recall of the earlier judgment.Court's interpretation and reasoning: The Court found that the review petition did not disclose any error apparent on the face of the record, nor did it bring any new facts or legal principles not previously considered. The issues raised were substantially identical to those already decided in prior judgments dated 23rd December, 2020 and 3rd November, 2023.Key evidence and findings: The petitioner failed to demonstrate any fresh ground or error warranting review. Arguments on contractual clause 49 and applicability of notifications were already addressed.Application of law to facts: The Court held that the review petition was an attempt to re-agitate settled issues and therefore was not maintainable.Treatment of competing arguments: The petitioner contended that the Court failed to appreciate certain facts and contractual provisions, but the Court found these contentions insufficient to disturb the earlier judgment.Conclusions: The review petition was dismissed for lack of merit and absence of any valid ground for review.3. SIGNIFICANT HOLDINGSThe Court held:'The GST Council in its meeting had only made a recommendation for reduction GST on works contract from 18% to 12%, which recommendations were accepted and statutory notification was issued only on 21st September, 2017. Recommendations of the GST Council, as already held, are only recommendations and cannot be taken as notifying new rates of GST, particularly, in the face of provisions of Article 265 of the Constitution of India.''Special Condition No.49, as reproduced in paragraph No.12 of the judgment passed in M/s Pardeep Electricals and Builder Pvt. Ltd, makes it abundantly clear that the rate quoted by the contractor shall be deemed to be inclusive of all taxes... The tendered rates shall be deemed to be inclusive of all 'taxes directly related to contract value' with existing percentage rates prevailing on the last due date for receipt of tenders. Any increase in percentage of rate of 'taxes directly related to contract value'... shall be reimbursed to the contractor and similarly any decrease... shall be refunded by the contractor to the Government/deducted by the Government from any payment due to the contractor.''The GST rate applicable at the time of tender submission was 18%, and the subsequent reduction to 12% applied only prospectively from the date of notification.''The notification dated 22nd August, 2017 brought about changes in the rates of GST only with respect to specific composite supply of works contract... The composite supply of works contract as defined in Clause 119 of Section 2 of Central Goods and Services Tax Act, 2017 figures at item No. 3(ii) of Notification dated 8th July, 2017 prescribing 18% GST was not altered by SRO-GST-2(Rate) dated 22nd August, 2017.''The review petitioner being one of the contracting party is bound by the Special Condition No.49 of the Contract Agreement... It clearly and in no uncertain terms provides that the Contractor shall include in the tender rates of taxes directly related to the contract value with existing percentage rates as prevailing on the last due date for receipt of tenders and if there is any subsequent increase in percentage rates of taxes, same shall be reimbursed to the contractor and similarly, if there is any decrease, the differential amount shall be refunded by the contractor to the Government or deducted by the Government from any payment due to the contractor.'The Court concluded that the review petition lacked merit and dismissed it accordingly.