GST Provisions Cannot Retroactively Apply to Service Contracts Completed Before July 2017, Protecting Taxpayer Rights

HC ruled that GST provisions do not apply retrospectively to works contracts where services were rendered before 01.07.2017. Authorities lack jurisdiction to issue notices or take coercive action under GST Act from that date. The Court directed respondent (BDA) to consider the petitioner's VAT refund claim of Rs. 34,03,391 within six weeks, emphasizing GST's collect-and-pay principle and rejecting retrospective tax liability.

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1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Court in this petition are:

a. Whether the provisions of the Goods and Services Tax (GST) Act are applicable to works contracts where the service provisions were made prior to 01.07.2017, and whether the authorities have jurisdiction to issue notices or take coercive action under the GST Act from 01.07.2017 onwards.

b. Whether GST, being an indirect tax based on the principle of collection from the recipient and payment by the taxable person, imposes liability on the employer (Respondent No. 2) to reimburse the petitioner for GST paid without collection from the employer.

c. Whether the Endorsement dated 18.04.2023 issued by the second respondent is liable to be quashed by a writ of certiorari.

d. Whether the second respondent can be directed by a writ of mandamus to execute a supplementary agreement or any other order to pay/reimburse differential GST amounts at the rate of 7.6% for works executed or to be executed after 01.07.2017.

e. Whether the petitioner is entitled to a refund of Rs. 34,03,391/- deducted as VAT while releasing amounts due in terms of certain RA bills, and whether the respondents are liable to refund the said amount.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (a), (b), (c), and (d): Applicability of GST provisions to works contracts and reimbursement liability

Relevant legal framework and precedents: The Court referred extensively to its prior decisions in Chandrashekaraiah and Others Vs State of Karnataka and Others (Writ Petition No.9721 of 2019), M G Arun Kumar Vs State of Karnataka (Writ Petition No.104908 of 2023), and M/s Apoorva Construction Co., Vs State of Karnataka and Others (Writ Petition No.28 of 2024). These judgments have addressed the applicability of GST to works contracts where services were rendered prior to 01.07.2017 and the liability for payment and reimbursement of GST under such contracts.

Court's interpretation and reasoning: The Court held that the provisions of the GST Act do not apply retrospectively to works contracts where the service component was provided before 01.07.2017. Consequently, authorities lack jurisdiction to issue notices or take coercive action under the GST Act with effect from 01.07.2017 in respect of such contracts. The Court reaffirmed the principle that GST is an indirect tax based on the collect-and-pay mechanism, where the taxable person's liability arises only after collecting tax from the recipient of goods or services.

Key evidence and findings: The petitioner's claim that GST was paid without collecting it from the employer (Respondent No. 2) was considered in light of the established legal principles and earlier judgments. The Court found that the petitioner's prayers relating to the declaration of inapplicability of GST provisions, reimbursement of differential tax, and quashing of the endorsement were substantially covered by the precedent judgments.

Application of law to facts: Applying the precedents, the Court disposed of the petitioner's prayers (a), (b), (c), and (d) in accordance with the earlier rulings, thereby denying the relief sought on these issues as the law and facts did not warrant a deviation.

Treatment of competing arguments: The Court considered the petitioner's argument regarding the reimbursement of GST paid without collection and the jurisdictional challenge to the GST Act's applicability but found these arguments to be addressed and settled in the earlier judgments.

Conclusions: The Court concluded that the GST provisions are not applicable retrospectively to works contracts where services were rendered before 01.07.2017, and the authorities have no jurisdiction to take coercive action under the GST Act from that date. The liability to pay GST arises only after collection from the recipient, and the petitioner is not entitled to reimbursement from the employer under the GST framework as argued.

Issue (e): Refund of VAT amount deducted while releasing payments

Relevant legal framework: The issue involves the refund of VAT deducted by the respondent while releasing payments under RA bills. The legal framework involves the provisions relating to VAT recovery and refund under the applicable tax laws and contractual obligations between the parties.

Court's interpretation and reasoning: The Court did not decide the entitlement to refund on merits but directed the respondent No. 2 (BDA) to consider the petitioner's request for refund of Rs. 34,03,391/- deducted as VAT within a stipulated timeframe and in accordance with law.

Key evidence and findings: The petitioner submitted a representation dated 18.05.2019 requesting refund of the VAT amount deducted. The Court took note of this representation and the amount involved.

Application of law to facts: The Court mandated that respondent No. 2 must consider the refund claim within six weeks from receipt of the order copy, ensuring due process and compliance with applicable legal provisions.

Treatment of competing arguments: The Court did not elaborate on opposing submissions but emphasized adherence to legal process in considering the refund claim.

Conclusions: The Court ordered a direction to respondent No. 2 to consider the refund claim expeditiously and in accordance with law but did not grant an outright refund in the judgment.

3. SIGNIFICANT HOLDINGS

"The provisions of GST Act as inapplicable in respect of works contract where 'provisions of service are made prior to 01.07.2017 in so far as petitioner is concerned and consequently that the third respondent or any other authority under their jurisdiction have no jurisdiction to either issue notice or to take any coercive steps against the Petitioner under the provisions of the GST Act with effect from 01.07.2017."

"GST being an Indirect tax is based on the concept of collect and pay, and the liability to pay is on the taxable person after collecting it from recipient of goods or services."

"Respondent No.2 - BDA is directed to consider the request of the petitioner to refund sum of Rs.34,03,391/- deducted as VAT ... within

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