GST Cannot be Levied on Work Contracts Already Taxed Under VAT: Allahabad HC [Read Order]
The Court held that jurisdiction under the GST Act does not extend to pre‑GST transactions merely because payments were made later. Observing that VAT had been deducted for the relevant years, the Bench quashed the impugned orders and directed the refund of any deposits with interest.
The Allahabad High Court, in a recent case, has ruled that GST authorities cannot levy tax, interest, or penalty on payments received for work contracts executed before the GST regime, where such contracts were already taxed under VAT.
The petitioner, M/S Vimlesh Kumar Contractor, challenged orders passed underSection 73 of the CGST Act for FY 2018–19, which levied tax, penalty, and interest based on an alleged mismatch between figures in GSTR‑3B and Form 26AS.
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The petitioner, a registered GST work contractor, argued that the payments in question related to contracts executed for UP Jal Nigam in AY 2015–16 and 2016–17, before the introduction of GST.
The petitioner submitted that UP Jal Nigam had deducted VAT at 4% on those payments and deposited the same with the authorities. A certificate confirming VAT deduction was issued. Despite this, GST authorities initiated proceedings under Section 73, contending that payments received post‑GST attracted GST liability.
Counsel for the petitioner contended that the contracts were executed before GST came into force, and therefore fell under the VAT regime. Also, the payments received later did not constitute supplies under GST. And VAT had already been deducted and deposited, evidenced by a certificate from Jal Nigam.
It was further argued that GST authorities acted without jurisdiction by initiating proceedings under Section 73 for pre‑GST work. And no inquiry was made from Jal Nigam to verify the nature of the payments, rendering the proceedings arbitrary.
The State argued that the petitioner had not discharged tax liability and that the mismatch between GSTR‑3B and Form 26AS justified the initiation of proceedings. It was submitted that the petitioner failed to produce sufficient evidence to prove that the payments related to the VAT period. The State maintained that the certificate from Jal Nigam was insufficient to grant relief.
Counsel for Jal Nigam, however, supported the petitioner’s case, confirming that the payments pertained to contracts executed in AY 2015–16 and 2016–17, and VAT had been deducted accordingly.
Justice Piyush Agrawal examined the records, including original work orders allotted to the petitioner by Jal Nigam for AY 2015–16 and 2016–17. The Court noted that the contracts were executed before GST implementation, and payments were subject to VAT deduction.
The Court held that merely because payments were received later, after GST came into force, GST authorities could not assume jurisdiction to levy tax, interest, or penalty. The mismatch between GSTR‑3B and Form 26AS could not justify the GST demand when the underlying transactions belonged to the VAT regime.
The Court noted that it was the duty of GST authorities to refer the matter to the VAT assessing authority if any doubt existed, rather than initiating proceedings under GST. No provision under the GST Act empowered authorities to levy GST on payments for pre‑GST work.
The Court concluded that the authorities had exceeded their jurisdiction by initiating proceedings under Section 73 of the GST Act. The impugned orders were quashed. The writ petition was allowed, with directions that any amount deposited by the petitioner be refunded along with interest from the date of deposit until actual payment, within one month of producing the certified copy of the order.
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