12% vs 18% GST on Works Contract Executed before 2022: Madras HC Directs Contractor to Submit Evidence before Dept for Re-confirming Demand [Read Order]
The Court directed department to redo the assessment after affording the petitioner an opportunity to submit documentary proof that the works were completed prior to July 2022.
works - contract - Taxscan
works - contract - Taxscan
In a recent ruling, the Madurai bench of Madras High Court recently on the issue of the applicable rate of GST ( Goods and Services Tax ) on a works contract executed before the 2022 rate revision, directed the department to re-do the demand based on the evidence submitted by the GST Department.
The petitioner, V.Janarthanan, a contractor, challenged an assessment order passed under Section 74, where the department had raised a demand on the ground that tax was paid at 12% instead of 18% in light of Notification No. 03/2022-Central Tax (Rate) dated 13.07.2022.
The petitioner argued that the works were fully completed in 2020, much before the change in tax rate, and that only the invoice had been raised belatedly in July 2022 to regularise records. On this basis, it was contended that the levy of differential tax at 18% was unjustified.
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The State, however, contended that the petitioner had been given an opportunity to substantiate his claim but failed to produce supporting documents, thereby justifying the assessment order.
The Court, after examining the facts, noted that the demand pertaining to other defects had already been dropped and only the dispute regarding the rate of tax remained.
Justice C. Saravanan observed that the important issue was whether the work was indeed completed before the effective date of the notification enhancing the GST rate from 12% to 18%.
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The Court held that the matter required reconsideration and accordingly quashed the impugned order insofar as it related to the higher rate of tax. The department was directed to redo the assessment after affording the petitioner an opportunity to submit documentary proof that the works were completed prior to July 2022.
The High Court clarified that if the petitioner fails to furnish the requisite evidence, the department would be at liberty to reconfirm the demand.
As regards the penalty imposed under Section 74, the Court left it open for the petitioner to challenge the same once a fresh final order is passed.
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