GST Rate Mentioned Prevalent on Day of Receipt of Tender is Leviable by contractors. J&K HC [Read Order]

The Jammu and Kashmir High Court ruled that the contractors were required to pay Goods and Services Tax (GST) at the rate in effect on the final day of the tender submission process rather than when the work was assigned.

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Vishal Verma, the petitioners had filed the review on the ground that as per section 13 of the CGST Act the liability to pay tax on services arise at the time of supply of the work and thus provision of the contract was contrary to the section 13 of the Act.

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The petitioner had argued that the contract which the review petitioner executed was governed by SRO-GST-2 whereby the composite supply of works contract was made exigible to GST @ 12%. Thus, the recovery of differential tax based on 18% is not justified.

Following the GST Council's recommendation to lower GST from 18% to 12%, but prior to the official notification dated September 21, 2017, the petitioner, who is the sole proprietor of M/s Kiran Constructions, submitted bids for a construction contract. According to SRO-GST-11 dated 8 July 2017, the GST rate was still 18% on August 1, 2017, the deadline for tender submissions. The petitioner was notified on April 6, 2021, to deposit the difference tax amount, which was computed using the previous 18% rate, after the contract was awarded and work started following the 12% notification.

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A bench of Justices Sanjeev Kumar, Justice Puneet Gupta observed that the review petitioner, being a contracting party was bound by the terms of the contract, which provide that tax rates as prevailing on the last due date for receipt of tenders will be applicable and in the absence of any challenge to above provision at any point of time the arguments presented were unsustainable.

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The court ruled that the GST tax rate was 18% on the last day of the tender's receipt and that the GST council's decision to lower the tax rate to 12% was implemented by a notification sent out after the tender date, but that the petitioners were exempt from this rule. Despite a recommendation from the GST Council, the court ruled that the applicable GST rate was 18%. This decision was made after the bidding was concluded on September 21, 2017.

The court noted that it was unclear how the occurrence of GST and how changes in tax rates pertaining to the supply of goods and services would affect the imposition of GST charges would be helpful to the review petitioner.

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In response to this submission, the court said that changes in the rates of GST in above SRO-GST were only with respect to specific composite supply of works contract which were the works contracts for construction or installation of specified items like a historical monument, canal, pipeline conduit etc. The court added that at the time of submission of bids prevalent rate of GST was 18% change in SRO-GST-2 which is pleaded by review petition was only with respect to above specific items.

To Read the full text of the Order CLICK HERE

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