The Madras High Court held that Goods and Services Tax ( GST ) is not payable by an Assessee in the event that Invoice for payment has not been raised and amount has not been received by the Assessee. The Madras High Court upon perusal of the facts and circumstances of the case, placed reliance on a Circular issued by the Central Board of Indirect Taxes and Customs ( CBIC ) and set aside the impugned orders and remitted the case back to the Respondent State Tax Officer to re-examine the issues in light of the Circular.
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The Petitioner company, K N R Srirangam Infra, based in Trichy was contractually engaged to provide services to the National Highways Authority of India (NHAI). A Writ Petition was filed before the Madras High Court by K N R Srirangam Infra seeking to call for the records pertaining to the impugned assessment orders passed by the Respondent State Tax Officer (STO), Trichy.
K N R Srirangam Infra had entered into a Hybrid Annuity Model (HAM) contract with the NHAI for the purpose of issuing payments for the work undertaken. Under the HAM, the Petitioner is required to undertake the highway development projects employing a Design, Build, Operate and Transfer Model (DBOT) and conduct Operation and Maintenance (O&M) as well. The Petitioner was set to receive 40% of the total consideration during the execution of the work and the remaining 60% was to be paid as annuities over the 14 years succeeding the work.
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It was contended by the STO that the Assessee was liable to pay tax on the entire value of the amount to be paid to the Assessee, as majority of the work had been completed. Additionally, the counsel for the STO averred that K N R Srirangam Infra had booked income in its Profit and Loss Account and availed 100% input tax credit on the tax paid by a subcontractor working under the Assessee company.
Circular No.-221/15/2024-GST issued by the CBIC provides clarifications on the time of supply in respect of supply of services of construction of road and maintenance pertaining to highway projects undertaken by NHAI. The Circular provided clarification with reference to Section 13(2) read with Section 31(5) of the Central Goods and Services Tax Act, 2017 stating that in the event of ‘continuous supply of services, the date of provision of service may be deemed as the due date of payment as per the contract, as the invoice is required to be issued on or before the due date of payment as per the provisions of Section 31(5) of CGST Act.’
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In light of these observations, the Single Judge Bench of Justice C. Saravanan of the Madras High Court pronounced that the Assessee, K N R Srirangam Infra is not liable to pay tax if no invoice is raised on the NHAI. Further, the Petitioner shall only be liable to pay tax as and when the Petitioner raises invoices or receives the payments due; the availing of input tax credit on the tax charged by the sub-contractor of the Petitioner does not cause harm to the impending tax liability of the Petitioner.
In closing, the Madras High Court set aside the impugned orders passed by the Respondent STO and remitted the cases back to the STO while advising the STO to expeditiously re-examine the assessment as per the clarifications provided by the Circular issued by CBIC.
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