2025 (4) TMI 1373 - HC - GST

GST rate reduction applies prospectively only, not to contracts signed before notification date

Vishal Verma S/o Sh. Sham Sunder Verma Versus Union of India, Engineer in Chief Branch, HQ Chief Engineer, Udhampur Zone, PCDA Northern Command Narwal Pain, HQ CWE Rajouri, Garrison Engineer 881 EWS, Assistant Garrison Engineer

The J&K HC dismissed a review petition challenging its earlier judgment regarding GST rate application on works contracts. The petitioner sought ... Effective date of application - Reduction in GST rate on works contract services from 18% to 12%, recommended by the GST Council on 5th August 2017 but notified only on 21st September 2017 - whether reduction of rate could be applied retrospectively to tenders submitted before the notification date? - recall of order - HELD THAT:- The judgment passed by this Court does not suffer from any error apparent on the face of record nor there is discovery of any new fact, which was not in the knowledge of the review petitioner when the judgment sought to be reviewed was passed. The review petitioner has also not been able to point out any other sufficient reason, which would persuade to recall our well considered judgment. Special Condition 49, as reproduced in paragraph No.12 of the judgment passed in M/s Pardeep Electricals and Builder Pvt. Ltd, [2023 (11) TMI 1369 - JAMMU AND KASHMIR HIGH COURT] makes it abundantly clear that the rate quoted by the contractor shall be deemed to be inclusive of all taxes, duties, royalties, octroi and other levies payable under the respective statutes. 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 - From a plain reading of Clause 49, in its entirety, it becomes abundantly clear that the rates quoted by the contractor in his tender shall be inclusive of all taxes related to contract value, which would obviously include GST. The rate quoted by the contractor shall be taken to be inclusive of GST with existing percentage rate as prevailing on the last date for receipt of tenders. Suffice it to say 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. Similarly, Clause (v) of the said notification deals with composite supply of works contract supplied by way of construction, erection, commissioning or installation of original works pertaining to railways, a single residential units other than as a part of a residential complex, low-cost housing etc etc. GST Notification dated 22nd August, 2017 brought about changes in respect of item No.(iii) of Serial No.3 of SRO-GST 11 dated 8th July, 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.3 (i) 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(iii). 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 applicable GST rate on the petitioner's contract at the time of tender submission was 18%, and the reduction to 12% notified later applied prospectively. There are no merit in the petition - petition dismissed. 1. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered by the Court in this matter are:Whether the reduction in GST rate on works contract services from 18% to 12%, recommended by the GST Council on 5th August 2017 but notified only on 21st September 2017, could be applied retrospectively to tenders submitted before the notification date.Whether the contractual Special Condition No. 49, which provides that tendered rates are inclusive of taxes prevailing on the last date of receipt of tenders and mandates adjustment of any subsequent increase or decrease in tax rates, is valid and binding, or whether it conflicts with the statutory provisions of the GST Act.Whether the GST rate applicable to the petitioner's contract was 18% or 12% at the time of tender submission, considering the interplay of multiple notifications including SRO-GST-11 dated 8th July 2017, SRO-GST-2 dated 22nd August 2017, and SRO-GST-06 dated 21st September 2017.Whether the notices issued by the department demanding differential tax amounts were justified and in accordance with principles of natural justice.Whether the review petition raised any new grounds or errors apparent on the face of record warranting recall of the earlier judgment dated 3rd November 2023.2. ISSUE-WISE DETAILED ANALYSISIssue 1: Applicability of GST Rate Reduction and Timing of NotificationRelevant Legal Framework and Precedents: The GST Council's recommendation on 5th August 2017 to reduce GST on works contract services from 18% to 12% was a policy decision. However, the statutory effect arises only upon issuance of a government notification under Article 265 of the Constitution of India, which mandates that no tax shall be levied or collected except by authority of law. The notification SRO-GST-06 dated 21st September 2017 formally reduced the GST rate to 12%.Court's Interpretation and Reasoning: The Court emphasized that the GST Council's recommendations are not binding until notified by the government. Therefore, the GST rate applicable on the last date for submission of tenders (1st August 2017) was 18%. The subsequent notification dated 21st September 2017 reducing the rate to 12% could not be applied retrospectively to affect tenders submitted earlier.Key Evidence and Findings: The tender submission date and last date for receipt of tenders were prior to the notification date. The petitioner's bids were submitted and accepted when the applicable GST rate was 18%. The works commenced after the notification, but the liability to pay tax is determined by the rate prevailing on the last date of tender submission.Application of Law to Facts: The Court applied Article 265 and the statutory scheme of the GST Act to conclude that the statutory notification date governs the applicability of tax rates, not the GST Council's recommendations or subsequent events.Treatment of Competing Arguments: The petitioner argued that knowledge of the GST Council's recommendation at the time of tender submission should govern the applicable rate. The Court rejected this, holding that recommendations do not have legal effect until notification.Conclusion: The GST rate applicable to the petitioner's tender was 18% as on the last date of tender submission, and the reduction to 12% notified later could not be applied retroactively.Issue 2: Validity and Effect of Special Condition No. 49 of the Tender DocumentRelevant Legal Framework and Precedents: Section 13 and 14 of the Central Goods and Services Tax Act, 2017, govern the time and liability of tax payment. Contractual terms are binding on parties unless they contravene statutory provisions.Court's Interpretation and Reasoning: Special Condition No. 49 explicitly states that tendered rates are inclusive of all taxes prevailing on the last date of receipt of tenders and that any subsequent increase or decrease in tax rates shall be reimbursed or refunded accordingly. The Court found this clause to be clear, unambiguous, and binding on the parties.Key Evidence and Findings: The clause was not challenged by the petitioner at any stage prior to the judgment. The Court noted that the clause provides a reciprocal mechanism for adjustment of tax rate changes post tender submission.Application of Law to Facts: The Court held that the petitioner, being a party to the contract, is bound by the terms therein, including Special Condition No. 49, which governs tax rate adjustments. The contractual provision aligns with the statutory scheme and principles of fairness.Treatment of Competing Arguments: The petitioner contended that Special Condition No. 49 was contrary to the GST Act provisions, particularly Section 13, which determines tax liability at the time of supply. The Court rejected this, observing that the contractual clause does not conflict with statutory provisions and was accepted by the parties.Conclusion: Special Condition No. 49 is valid and binding, and the petitioner cannot escape the contractual obligation to refund the differential tax amount arising from the reduction in GST rates.Issue 3: Applicability of Different GST Notifications and Rate on Composite Supply of Works ContractRelevant Legal Framework and Precedents: Notifications SRO-GST-11 dated 8th July 2017, SRO-GST-2 dated 22nd August 2017, and SRO-GST-06 dated 21st September 2017 regulate GST rates on various categories of construction services and works contracts.Court's Interpretation and Reasoning: The Court analyzed the scope of each notification. SRO-GST-11 dated 8th July 2017 imposed GST at 18% on construction services under Heading 9954, including composite supply of works contract. SRO-GST-2 dated 22nd August 2017 reduced GST to 12% only for specific composite works contracts supplied to government or local authorities involving historical monuments, canals, pipelines, etc., but did not alter the rate for general composite works contracts.The petitioner argued that his contract fell under the reduced 12% rate notified on 22nd August 2017. The Court rejected this, holding that the petitioner's contract did not fall within the specific categories covered by that notification and that the general composite works contract rate remained 18% until the 21st September 2017 notification reduced it to 12%.Key Evidence and Findings: The Court scrutinized the classification of the petitioner's contract and the relevant items in the notifications, concluding that the petitioner's contract was governed by the 18% rate as per SRO-GST-11 dated 8th July 2017 at the time of tender submission.Application of Law to Facts: The Court applied the principle of strict interpretation of taxing statutes and notifications, concluding that the petitioner's contract was not covered by the reduced rate notification dated 22nd August 2017.Treatment of Competing Arguments: The petitioner's contention that the 12% rate applied was rejected as the notification dated 22nd August 2017 did not amend the rate for his category of works contract.Conclusion: The applicable GST rate on the petitioner's contract at the time of tender submission was 18%, and the reduction to 12% notified later applied prospectively.Issue 4: Principles of Natural Justice and Validity of Recovery NoticesRelevant Legal Framework and Precedents: The Court referred to its prior Division Bench judgment dated 23rd December 2020, which held that recovery notices demanding differential tax amounts without affording contractors an opportunity of hearing violated principles of natural justice.Court's Interpretation and Reasoning: The Court acknowledged that the liability to pay tax was not disputed but the quantum was. Contractors were entitled to a hearing to demonstrate correct tax calculations. However, this issue was settled in earlier judgments and was not the subject of the present review petition.Key Evidence and Findings: The petitioner's writ petition and review petition raised similar grounds already adjudicated upon. The Court found no fresh grounds or procedural irregularities warranting reconsideration.Application of Law to Facts: The Court applied settled principles of natural justice and procedural fairness but found that the petitioner had not raised new issues in the review petition.Treatment of Competing Arguments: The petitioner did not advance any new arguments on this point in the review petition.Conclusion: The recovery notices' validity was addressed in earlier judgments; no fresh challenge was raised warranting review.Issue 5: Review Jurisdiction and Grounds for Recall of JudgmentRelevant Legal Framework and Precedents: Review petitions are maintainable only on grounds of discovery of new and important facts, errors apparent on the face of the record, or other sufficient reasons. Repetition of old grounds without new facts or law is not permissible.Court's Interpretation and Reasoning: The Court found that the review petitioner failed to point out any error apparent on the face of the record or any new fact unknown at the time of the original judgment. The petitioner's arguments were a reiteration of earlier contentions already rejected.Key Evidence and Findings: The Court noted that the petitioner did not challenge Special Condition No. 49 earlier and did not plead the applicability of SRO-GST-2 dated 22nd August 2017 in the original writ petition.Application of Law to Facts: The Court applied the settled principles governing review jurisdiction and dismissed the review petition as devoid of merit.Treatment of Competing Arguments: The petitioner's attempt to reopen settled issues was rejected as impermissible in review proceedings.Conclusion: The review petition was rightly dismissed as it did not disclose any valid ground for review.3. SIGNIFICANT HOLDINGSThe Court made the following crucial determinations and legal pronouncements:'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 49, as reproduced, makes it abundantly clear that the rate quoted by the contractor shall be deemed to be inclusive of all taxes ... with existing percentage rates prevailing on the last due date for receipt of tenders. Any increase ... 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 petitioner being one of the contracting party is bound by the Special Condition No.49 of the Contract Agreement, which clearly provides for reciprocal liability of both parties.''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.''In the absence of demonstration of any error apparent on the face of record, the review jurisdiction cannot be exercised by this Court to recall its order, which has since attained finality.'These holdings establish the principle that statutory notification governs tax rates, contractual terms providing for tax adjustments are binding unless challenged, and review jurisdiction is limited to exceptional circumstances.