TaxTMI 
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2023 (6) TMI 1233
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....05840.00 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. Clause 46A is the Price Variation Clause(PVC). I....
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....al 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 was amended as under : "46A.7 : Formula : SQ SAIL's (Steel Authority of India Limited) ex-works price plus applicable GST and C....
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....volved 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 category of steel supplied by the contractor, as prevailing on the first day of the month in which the "steel" was purchased by the contractor(or) as prevailing on the first day of the ....
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....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 filed claiming the reimbursement of the GST on the differential amount of price variation of steel. In the instant writ petition, the Petitioner has also assailed the Joint Procedural Order dat....
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....7.2017 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 contract lies only upon the volition of the actual parties thereto and the contractor and his sureties, if any. Therefore the consenting parties have to agree to all variations which should be subject of a su....
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....entation 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 27/10/2017 issued vide a letter dated 29/1/2021. It was mentioned that the Petitioner was duly compensated for the additional cost if any on account of the variation in the base price of steel and also on account....
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....ied 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 credit available to the contractors after GST. How it is to be worked out was mentioned in Clause 3.4. Clause 3.1 and 3.2 relates to entering into a supplementary agreement and what the contents of the supplementary agreement should be and this very aspect of th....
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....ubmit 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 documents as mentioned in the said JPO. It further stipulates that the tax liability of the contractors before implementation of the GST is to be reckoned irrespective of whether the same was actually payable or not. It was stipulated that the net effect of the GST neutrality may involve either r....
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....e 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/- relating to reimbursement of the GST for the contract agreement supported with the claim as per the Annexure-A alongwith the worksheet duly signed by the Chartered Accountant as Annexure-B. From a perusal of the Annexure-B, it reveals that the Petitioner's claim that they have received an amount of 31,2....
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....xure-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 have heard the learned counsels for the parties and the materials on record are duly noted. 27. Before analyzing the dispute as regards the entitlement of the Petitioner, this Court finds it relevant to take into account a very pertinent aspect of the matter. Though the learned counsels for the Petition....
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....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 provisions of sub-sections (3) and (4) of Section 9 of the respective State Goods and Services Tax Act; or (e) the tax payable under the provisions of sub-sections (3) and (4) of Section 7 of the Union territory Goods and Services Tax Act, but does not include the tax paid under the composition levy" The expression 'input tax' in relation ....
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....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 49 envisages that 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 provisions of Act or its Rules in the manner and subject to the conditions and within such time as is prescribed. Similarly Sub-Section (4) of Section 49 stipulates that the amount available in the electronic credit ledger ca....
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....ccordance 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 payment of the tax, interest, penalty, fees or any other amount payable under the Act or the Rules may be refunded in accordance with the provisions of Section 54. In the backdrop of the above, let this Court analyse and consider in the facts of the instant case whether the Petitioner would be entitled to claim refund of the input tax credit availed on the purchase of steel which was used to pay the output tax while affecting the outward ....
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....n 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, this Court categorically observed the object and the frame work behind the Input Tax Credit. The GST legislation as observed earlier is a destination based tax meaning thereby GST is a consumption based tax and would effectively tax the consumer of such goods or services or both at the destination thereof or as the case may be at the point of consumption. The supply of steel by the Petitioner to the Railways makes the Railways the end user and t....
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....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 unfortunate to note that the respondents have not been able to understand the basic scheme of the GST Act. The input tax credit is admissible under Section 16(1) of the GST Act of the tax paid on goods and services used in the course of the business. The input tax credit claimed by a taxable person gets credited into his electronic credit ledger. Such amount is the actual tax such taxable person has paid to his supplier, which is further paid to the Government treasury. Thereafter, while making the payment of the output ....