In a recent ruling, the Telangana High Court ruled that GST payments and TDS claims must be state-specific based on the proportion of work executed in each state.
Larsen & Toubro Ltd ( L&T ) and PES Private Limited ( the petitioners ) formed a Joint Venture (JV) to execute the Medigadda Irrigation Barrage project under the Kaleshwaram irrigation project in Telangana and Maharashtra.
The project was funded entirely by the State of Telangana but involved work executed in both Telangana and Maharashtra. The JV obtained separate GST registrations in Telangana and Maharashtra reported turnover and filed GSTR-3B returns in both states.
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Kaleshwaram Irrigation Project Corporation Limited ( KIPCL ) ( the respondent ) deducted TDS at 2% on the total value of invoices but remitted the entire amount to Telangana which led to excess credit in Telangana and no credit in Maharashtra.
The petitioner applied for a refund of the excess TDS credited in Telangana of Rs. 27.06 crore and Rs. 10.12 crore for two separate periods. The department rejected the refund claims stating that the tax liability should be discharged entirely in Telangana because the funding originated from Telangana and imposed fines on the petitioner.
The petitioner argued that the works contract was a state-specific supply and that GST liability should be split between the two states based on the work executed.
The bench comprising Justices P. Sam Koshy and Laxmi Narayana Alishetty clarified that GST liability must be state-specific and proportional to the work executed in each state regardless of where the project funding originated.
Complete Supreme Court Judgment on GST from 2017 to 2024 with Free E-Book Access, Click here
The court also clarified that TDS deductors are only required to remit taxes to the state where they are registered and have no obligation to remit taxes for works executed in another state where they lack registration.
The court pointed out that TDS deductions and remittances made by the respondent were improper because the deductions were based on the total project cost but remitted entirely to Telangana avoiding the portion of work executed in Maharashtra.
It was observed discrepancies between GSTR-3B and GSTR-7A filings due to the respondent’s erroneous TDS remittance practices and pinpointed that such mismatches could not be used to hold the petitioner liable for tax in Telangana for work executed in Maharashtra.
The court directed the adjudicating authority to reassess the refund claims upon submission of relevant documents by the Joint Venture ( petitioner ).
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