TaxTMI 
TaxTMI 
2023 (6) TMI 1233
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....Single Line BG Tunnel No. 12 from CH. 105840.00 to 115391.00 at CH. 112623 and Adit-2 at CH. 115391 between Tupul -- Imphal in connection with a construction of a new railway line project from Jiribam to Tupul. The Petitioner having emerged as a successful tenderer was awarded the contract vide a letter of acceptance issued by the Respondent No. 3 on 20/7/2015 for a total cost of Rs. 784,87,54,402.79 (Rupees Seven Hundred Eight-Seven Crores Eighty-Seven Lakhs Fifty-Four Thousand Four Hundred Two and Seventy-Nine paise only). Subsequent to the letter of acceptance, the Petitioner entered into an agreement with the Respondents through the Respondent No.3 on 31/12/2015. 4. From a perusal of the said contract agreement dated 31/12/2015, it reveals that the general conditions of the contract and the specifications of the North East Frontier Railway, 1998 edition corrected up-to-date and the special conditions and special specifications, if any in conformity with the drawings enclosed therewith formed a part of the Agreement. 5. For the purpose of the instant dispute, Clause 46A of the Indian Railway Standard General Conditions of Contract, which is in Chapter IV is relevant. Claus....
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....the said formula can be illustrated as under :- If "O" i.e. the total quantity of steel procured is Metric Tonnes; 1,000 Bso i.e. the Base Price of Steel is --- Rs. 100/-; Bs i.e. the price of steel for the period under consideration is ---- Rs. 120/- and the rate of applicable excise duty is ---- 18% Then applying the formula as mentioned in Clause 46A.7 (iv) :- i.e.:- Ms (PVC) = O X (Bs --Bso) = 1,000 x [( 120+18%) - (100+18%)] = 1,000 X (141.6-118) = 1,000 X 23.6 = 23,600/- 7. The above being the formula, there was no difficulty in settling the PVC claims. However, with the Parliament enacting the Central Goods and Service Tax Act, 2017, a confusion arose as to how to apply the PVC w.e.f. 01/07/2017. It reveals that the Respondent No. 9 had issued a Circular dated 5/7/2017. This Circular however was only relevant to those tenders invited on or after 01/07/2017. Be that as it may, there were certain amendments brought into effect to Clause 46A.7 of Clause 46 Part-II of the Indian Railway Standard General Conditions of Contract, July, 2014. In terms with the said amendments, Clause 46A.7 w....
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....en place as to how the PVC claim is to be ascertained in respect to those cases similar to the present one, this Court finds it relevant to refer to certain facts involved in the instant case. 10. It is the case of the petitioner herein that in view of the lack of clarity, several PVC bills of the Petitioner were kept pending by the Respondent Railway Authorities. The Petitioner therefore submitted a representation on 23/12/2019 to the Respondent No. 4 ventilating the grievances of such non-payment. Pursuant to the said representation, the Respondent No. 7 herein had issued a notification relating to price variation bills (works contract -- evaluation, recording and checking of price variation bills). 11. Clause 11 of the said notification dated 22/5/2020 is pertinent to the present dispute. The said Clause 11 is quoted as herein under:- "11. Certificate regarding checking of issue of "Excise Duty" in that contract in which "base period" falls in Pre-GST and "period" under consideration "falls in post-GST period". For "steel", it has been mentioned in the PVC clause that, SAIL's ex-works price plus Excise duty thereof (in rupees per ton) for the relevant cat....
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....e matter of GST on steel after 01/07/2017 needed some clarification from the Railway Board, the matter was referred to the Railway Board. It was further mentioned that at present only the ex-work price of sale both for "base period" and the "period under consideration" shall be taken up for payment. The final PVC bill would be paid after getting clarification of the Railway Board. It further reveals from the records that in view of the said specific stand, as the Petitioner was in urgent need of money, the Petitioner submitted the PVC bills without including the GST components on the premise that the reimbursement of the GST would be done only after the clarifications are issued by the Railway Board. Accordingly, pursuant to the submission of the said PVC bills without including the GST components, the Petitioner's PVS bills were cleared on 14/9/2020 and 23/10/2020. Under such circumstances, the Petitioner withdrew both the writ petitions i.e. W.P.(C) No. 2836/2020 and W.P.(C) No. 2842/2020 with a liberty to file a fresh writ petition on 31/3/2021 in view of the pendency of the claim relating to the GST component. It is under such circumstances that the instant writ petition was fi....
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....iod under consideration" falls in post-GST period, then how to calculate PVC, needs to be clarified. For payment of PVC for steel, if the base period is of before GST implementation i.e. before 01.07.2017 and period under consideration is post GST implementation i.e. after 01.07.2017, Railways can work out PVC for steel, considering steel cost exclusive of excise duty before 01.07.2017, and steel cost exclusive of GST after 01.07.2017, keeping in view the provisions of Para 1265 of Engineering Code. 15. From a perusal of the above clarification, it reveals that if the base period is before the GST implementation i.e. before 1/7/2017 and the "period under consideration" is post-GST implementation i.e. after 1/7/2017, the Railways can work out the PVC for steel, considering the steel cost exclusive of the excise duty before 1/7/2017 and the steel cost exclusive of the GST after 1/7/2017 keeping in view the provisions of Para 1265 of the Engineering Code. 16. Para 1265 of the Engineering Code was enclosed as Annexure-3 to the said affidavit-in-opposition dated 19/8/2021. A perusal of the said Para 1265 of the Engineering Code shows that the power to vary the terms of the cont....
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.... The Respondent No. 4 had filed an affidavit on 27th of May, 2022. In the said affidavit, it was mentioned that the contract agreement involved in the present writ proceedings was signed before the GST implementation i.e. before 1/7/2017 and hence in the contract agreement the formula for calculating the PVC for steel was based on the excise duty and the base price of steel for calculating the price variation. It was stated that after the implementation of the GST w.e.f. 1/7/2017, excise duty has been abolished and the GST was introduced. Under these circumstances, payment of the PVC for steel items by applying the formula as contained in the contract agreement was no longer possible. Reference was again made to a clarification given by the Railway Board dated 24/2/2021. It was mentioned that the Petitioner is also eligible for reimbursement of the additional tax liability due to implementation of the GST i.e difference on the tax liability in the pre-GST regime and the post-GST regime as per the instructions of the Ministry of Railways dated 27/10/2017. In that regard, reference was made to another Joint Procedural Order (JPO) in compliance to the Railway Board's letter dated 27/1....
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....would not apply. 3.4-For neutralizing GST impact on the works contracts awarded before implementation of GST; along with documentary evidence, the contractor should submit work sheet of tax liability before GST and after GST duly certified by chartered accountant engaged by him. 3.5 The rate reasonability and quantities of input materials for which ITC shall be available to the contractor, should be ensured by the executive with due care in consultation with associate finance. 3.7 Recovery, if any, which is required to be done from the contractors, may be regulated as per Section 171(1) of CGST Act, 2017." 19. A perusal of the above quoted clauses in the circular dated 27/10/2017 would show that the Railway Board had decided to make existing works contract awarded before implementation of GST, as GST neutral after taking into account the input tax credit available to the contractor on a case to case basis, by virtue of documentary evidence. It was mentioned that this exercise may involve reimbursement to the contractors or recovery from the contractors depending upon the tax liability of the contractors before GST and after GST including input tax cred....
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....he time of final bill by the Executive to be scrutinized in internal check by Associate Accounts Office. Contractor cannot claim for compensation of GST neutralization once the final bill is passed and contractor submits a no claim certificate. However, in case a contractor is not able to submit bill of GST neutralization before submitting the final bill, his final bill will be cleared by Railway provided contractor mentions in the 'No Claim Certificate' that he has No Claims against Railways except for GST neutralization amount and also that he is agreeable to Railways withholding the Security Deposit for recovery (if any) on account of GST neutralization by Railway, till such time GST neutralization amount is settled by Railways". 21. From a perusal of the above quoted Clauses, it would reveal that the Railways shall pay the GST neutralization for the PVC bills for contracts of the present nature to the contractors and the amount shall be equal to the difference of the GST payable on the PVC bills and the VAT payable on that bill in the pre-GST regime. It further reveals that the review of the GST neutrality is to be done on a case to case basis on a production of various docu....
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.... the differential amount of price variation. It was mentioned that the Petitioner is not entitled to such reimbursement due to the fact that apart from getting the benefit of GST neutralisation, the Petitioner is also getting input tax credit which can be verified from the documents submitted by the Petitioner to the Railway Authorities while claiming the PVC bills. It was further mentioned that from Annexure-1 (colly) to the said additional affidavit filed by the Respondent No. 4, it would be clearly established that the Petitioner is getting the input tax credit and hence the Railway is not required to reimburse the tax to the Petitioner after coming of the GST i.e. after 01/07/2017. It was further mentioned that the instruction submitted by the GST Department was contrary to the actual position of the Petitioner as they are in fact availing ITC. It is relevant to take note of that Annexure-1(colly) is a set of documents which were submitted by the Petitioner through his Chartered Accountant. A Communication dated 2/8/2019 is a part of the Annexure-1 (colly). The said communication dated 2/8/2019 is a document submitted by the Petitioner making a claim of Rs. 21,81,27,548/- relat....
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....ed that the Petitioner by way of the instant writ petition had prayed for realization of the entire PVC and the Respondents have no legal basis to contend that since the Petitioner is availing input tax credit, it is not entitled to payment of PVC in its entirety. It was further mentioned that the Annexure-1(colly) to the additional affidavit filed by the Respondent No. 4 clearly depicts that the Petitioner had submitted/declared the Input Tax Credit amount so availed by them as was required under Clause 10 of the JPO dated 29/1/2018 and accordingly deducted the ITC from the Tax Post GST and claimed the difference of tax payable (i.e. after Net Tax Liability Post GST minus Net Tax Liability Pre-GST) which came out to 7.04%. It was further mentioned that the Petitioner would submit the exact amount of the input tax credit (if so any) in the GST neutralization for CC bills and make necessary deductions in terms with Section 171(1) of the CGST Act, 2017 and also as per the JPO dated 29/1/2021 as and when the input tax credit is availed by the Petitioner. The Joint Procedural Order dated 29/1/2018 was enclosed to the Affidavit-in-Reply filed by the Petitioner dated 27/3/2023. 26. I ....
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....s. In fact, the background materials antecedent to the adoption of the constitutional and legal structure underlying GST in the country indicates the importance which was ascribed to developing a tax regime which would achieve a continuous chain of set off from the original producer and service provider's point up to the retailer's level in the supply chain and eliminate the burden of cascading tax effects. 30. Taking into account the issue involved herein, this Court finds it relevant to take note of some of the definitions in the CGST Act, 2017. (a) Section 2 (62) defines input tax credit which is quoted herein under :- "2.(62) "input tax" in relation to a registered person, means the central tax, State tax, integrated tax or Union territory tax charged on any supply of goods or services or both made to him and includes - (a) the integrated goods and services tax charged on import of goods ; (b) the tax payable under the provisions of sub-sections (3) and (4) of Section 9; (c) the tax payable under the provisions of sub-sections (3) and (4) of section 5 of the Integrated Goods and Services Tax Act; (d) the tax payable under the p....
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.... tax charged on any supply of goods or service or both to him which are used or intended to be used in the course of furtherance of his business and the said amount will be credited in the electronic ledger of such person. Sub-section (2) of Section 16 spells out the conditions, upon the fulfillment of which, the entitlement to the credit of input tax in respect to supply of goods or services can be availed. It further stipulates that the credit of input tax charged on any supply of goods or services, or both, can be availed of by a registered person subject to the conditions which are set out in the provisos. The credit of input tax is therefore, relatable both to the supply of goods and services. Whether tax is paid on the supply of goods or services, the recipients receive input tax credit in a similar manner. Taxes on goods and services are identifiable but upon credit to the electronic ledger, they form a common pool for utilization. As already stated above, Section 16(1) indicates the manner in which input tax credit can be utilized is spelt out in Section 49. 34. Section 49 stipulates the payment of tax, interest, penalty, fee and other amounts. Sub-Section (3) of Section....
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....ST Act or under the IGST Act. 73.2 The amount available in the electronic cash ledger may be used for making any payment towards tax, interest, penalty, fees or any other amount payable under the CGST Act or its Rules. 73.3. The balance in the electronic cash ledger or electronic credit ledger after the payment of tax, interest, penalty, fees or any other amount payable under the Act or Rules may be refunded in accordance with the provisions of Section 54. 73.4 Sub-section (6) of Section 49, in other words contemplates a refund of the balance which remains in the electronic cash ledger or electronic credit ledger in the manner stipulated by the provisions of Section 54." 37. From the above quoted paragraphs, it transpires that the input tax credit in the electronic credit ledger may be availed of for making any payment towards output tax under the CGST Act or under the IGST Act. Furthermore, the amount available in the electronic cash ledger may be used for making any payment towards tax, interest, penalty, fees or any other amount payable under the CGST Act or its Rules. The balance in the electronic cash ledger or the electronic credit ledger after p....
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....r No. 1/2020 makes it clear that the Petitioner herein would be entitled to the GST neutralisation in respect to the difference in the amount of the liability arrived at as per the Pre-GST Taxes and Post-GST Taxes in the manner to be worked out as per Annexure-B to the Joint Procedural Order dated 29/1/2021. 40. However, the most pertinent question is whether the Petitioner would be entitled to the refund of the Input Tax Credit availed upon purchasing of steel which was used for the purpose of payment of the Output Tax in effecting the outward supply of steel to the Railways. This question has arisen in view of the specific and categorical submission of the learned counsel for the Respondents inasmuch as, it was submitted that as the Petitioner is getting the benefit of the Input Tax Credit, the question of reimbursement of Input Tax Credit availed do not arise. It was submitted that the Petitioner would get double benefit, inasmuch as on one hand the Petitioner would get the benefit of Input Tax Credit and on the other hand would get the benefit of GST neutralization and as such hit by Section 171 of the CGST Act, 2017. 41. In the previous segments of the instant judgment, ....
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....dit ledger of the supplier. In view of Section 49, the said amount lying in the electronic credit ledger can be used for payment of output tax, penalty etc. Therefore, when the supplier pays the output tax from its electronic credit ledger, it would amount that the supplier had paid the output tax which is reimbursable. In that view of the matter, the amount paid from the electronic credit ledger has to be taken into consideration while computing the PVC Claim. Therefore, if this Court accepts the contention of the Respondent Railways, it would result in the supplier getting reimbursed an amount which would be less than the purchase price during the period under consideration. 43. This Court at this stage, finds it relevant to refer to a judgment of the Division Bench of the Gujrat High Court in the case of Bhagwati Construction vs. Union of India (C/Special Civil Application No. 15114 of 2021) dated 13/4/2022. The issue therein was similar and related to the Joint Procedural Order dated 21/1/2018 passed by the Western Railways in terms with the Circular dated 27/10/2017 passed by the Railway Board. Paragraphs 32 to 34 being relevant are quoted herein below : 32. It is ....
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....It is entitled to use the credit at any time thereafter when making payment of excise duty on the excisable product. There is no provision in the Rules which provides for a reversal of the credit by the Excise Authorities except where it has been illegally or irregularly taken, in which event it stands cancelled of if utilised, has to be paid for. We are here really concerned with credit that ahs been validly taken, and its benefit is available to the manufacturer without any limitation in time or otherwise unless the manufacturer itself chooses not to use the raw material in its excisable product. The credit is, therefore, indefeasible. It should also be noted that there is no co-relation of the raw material and the final product; that is to say, it is not as if credit can be taken only on a final product; that is manufactured out of the particular raw material to which the credit is related. The credit may be taken against the excise duty on a final product manufactured on the very day that it becomes available. 19. It is, therefore, that in Eicher Motors Ltd. v,. Union of India. [(1999) 2 SCC 361 : (1999) 106 ELT 3) this Court said that a credit under the Modvat Scheme ....