Vishal Verma S/O Sh. Sham Sunder Verma vs Union Of India Through It Secretary on 8 April, 2025
AI Legal Insights
This GST case law concerns a contractor's plea for a GST refund following a rate reduction on works contract services. The Jammu & Kashmir High Court addressed whether a previous judgment dismissing the contractor's writ petition suffered from an error apparent on the record, warranting review. The central issue revolved around the contractor's liability for differential GST when the rate decreased after tender submission but before work allocation. The court ultimately upheld its original decision, reinforcing the contractor's responsibility.
This case clarifies that contractors are responsible for understanding the potential for GST rate changes between tender submission and work allotment. This decision favors the tax department, highlighting the importance of incorporating clauses addressing tax rate fluctuations in contract agreements to mitigate financial risk.
- GST rate changes between tender and allotment are typically the contractor's responsibility.
- Contractors must factor in potential GST rate changes during the bidding process.
- Contractual clauses can allocate the risk of GST rate changes between parties.
- Review petitions will be dismissed absent errors apparent on the record.
- Ignorance of potential tax liability shifts does not constitute grounds for relief.
QWhat happens if GST rates change after tender submission?
Generally, contractors bear the risk of GST rate changes occurring between tender submission and the final awarding of the contract. Prudent contractors should factor this risk into their bids or seek contractual clauses to address potential rate fluctuations.
QHow can contractors protect themselves from GST rate changes?
Contractors can protect themselves by including clauses in their contracts that specifically address the allocation of GST risk. These clauses can outline how any changes in GST rates will be handled, ensuring both parties are clear on their financial responsibilities.
Ruling Summary
Outcome**
The Review Petition (RP No.41/2024) filed by Vishal Verma is dismissed.
2. Core Issue
The core issue was whether the High Court's previous judgment dated 3rd November, 2023, which dismissed the petitioner's writ petition (WP(C) No.933/2021) seeking relief from differential GST recovery, suffered from an error apparent on the face of the record or any other sufficient reason for review. The underlying dispute revolved around the contractor's liability to refund differential GST when the GST rate on works contract services decreased after the last date for tender submission but before work allotment, in light of specific contractual conditions and statutory provisions.
3. Key Facts
* Petitioner: Vishal Verma, Proprietor of M/s Kiran Constructions, was awarded works contracts by Military Engineering Services.
* Original GST Rate: As per SRO-GST-11 dated 8th July, 2017, construction services (Heading 9954) were taxed at 18%.
* GST Council Recommendation: On 5th August, 2017 (20th GST Council meeting), a recommendation was made to reduce GST on Works Contract Services from 18% to 12%. The petitioner claims to have submitted tenders after this recommendation.
* Formal GST Rate Reduction: The Government of Jammu & Kashmir formally reduced the GST rates from 18% to 12% via SRO-GST-06 (Rate) dated 21st September, 2017.
* Timeline of Bids/Work: The petitioner submitted bids before 21st September, 2017 (the last date for bids was prior to this). However, the bids were accepted, work allotted, and commenced after 21st September, 2017.
* Demand for Differential Tax: Respondent No.6 issued letters dated 6th April, 2021, demanding contractors, including the petitioner, to deposit the differential amount of tax, citing the reduction from 18% to 12%.
* Previous Litigation:
* M/s Pardeep Electricals and Builders Private Limited (and others) had previously challenged similar notices in WP(C) No.2183/2019. A Division Bench judgment dated 23rd December, 2020, found the notices violated natural justice (lack of hearing on quantum) but affirmed that the GST rate on the last date of bid submission was 18%, later reduced to 12%, thus not disputing the liability to pay differential tax.
* The petitioner (Vishal Verma) along with others, including M/s Pardeep Electricals (WP(C) No.170/2021), again raised the same issue. These petitions, including WP(C) No.933/2021 by Vishal Verma, were dismissed by the High Court on 3rd November, 2023, reiterating that GST Council recommendations are not statutory law until formally notified. This review petition challenges the 3rd November 2023 judgment.
* Contractual Term: Special Condition No.49 of the tender document provided for reimbursement to the contractor for any increase in tax rates and refund/deduction by the Government for any decrease, based on rates prevailing on the last due date for receipt of tenders.
4. Arguments
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Taxpayer (Vishal Verma):
- The work allotment orders were issued after 21st September, 2017, when the GST rate was already reduced to 12%.
- Special Condition No.49 of the tender document is in contravention of statutory provisions of the GST Act, specifically Section 13 (Time of Supply of Services), and should have been ignored.
- The contract was governed by SRO-GST-02 dated 22nd August, 2017, which had already notified a 12% GST rate for works contracts. Therefore, the bids were made considering 12%, and there was no reduction from 18% to 12% that would authorize recovery.
- SRO-GST-06 dated 21st September, 2017, did not apply to all works contracts but only specific ones.
-
Revenue (Union of India):
- All issues raised in the review petition had already been conclusively decided by previous judgments of the High Court in WP(C) No.2183/2019 (23.12.2020) and WP(C) No.170/2021 (03.11.2023).
- The review petition fails to demonstrate any error apparent on the face of the record or any new fact or law to warrant the exercise of review jurisdiction.
- The petitioner is attempting to re-litigate a concluded judgment on the same old grounds.
5. Court’s Reasoning
The High Court dismissed the review petition based on the following reasoning:
* No Error Apparent: The Court found no error apparent on the face of the record, no discovery of new facts, nor any other sufficient reason to recall its well-considered judgment dated 3rd November, 2023.
* Binding Nature of Contractual Condition 49: Special Condition No.49 of the tender document explicitly states that tendered rates are inclusive of all taxes prevailing on the last due date for receipt of tenders. It also clearly provides for reciprocal adjustment: any increase in tax rates would be reimbursed to the contractor, and any decrease would be refunded by the contractor to the Government or deducted from payments. The petitioner, as a contracting party, is bound by this condition, and it was not challenged at any point.
* GST Rate at Tender Submission: Indisputably, the GST rate on the last due date for receipt of tenders was 18%.
* GST Council Recommendations vs. Statutory Notification: The Court reiterated its previous stance that recommendations by the GST Council (e.g., on 5th August, 2017) are merely recommendations and do not acquire the force of law until a statutory notification is issued (which occurred on 21st September, 2017). This is consistent with Article 265 of the Constitution.
* Inapplicability of CGST Act Sections 13 & 14: Arguments based on Sections 13 and 14 of the CGST Act regarding the time of supply and effect of change in rates do not override the specific contractual terms in Special Condition No.49.
* Rejection of SRO-GST-02 Argument: The argument that the rate was already 12% under SRO-GST-02 dated 22nd August, 2017, for this type of works contract was rejected. The Court clarified that SRO-GST-11 dated 8th July, 2017, taxed composite supply of works contract (item No. 3(ii) under Heading 9954) at 18%. SRO-GST-02 dated 22nd August, 2017, only brought changes to specific types of works contracts (e.g., for historical monuments, canals, pipelines, railways, low-cost housing, etc.), which were different from the petitioner's contracts. Therefore, the 18% rate remained applicable for the petitioner's contracts on the last date of bid submission, and it was indeed reduced to 12% by the notification dated 21st September, 2017. This argument was also raised for the first time in review.
6. Statutory References
* Constitution of India: Article 265
* Central Goods and Services Tax Act, 2017 (CGST Act, 2017):
* Section 2, Clause 119 (Definition of composite supply of works contract)
* Section 13 (Time of supply of services)
* Section 14 (Effect of change in rate of tax in respect of supply of services)
* Notifications/SROs:
* SRO-GST-11 dated 8th July, 2017
* SRO-GST-02 (Rate) dated 22nd August, 2017
* SRO-GST-06 (Rate) dated 21st September, 2017
7. Precedents Cited
* WP(C) No.2183/2019, M/s Pardeep Electricals and Builders Private Limited v. Union of India and others (Decided on 23rd December, 2020)
* WP(C) No.170/2021, M/s Pardeep Electricals and Builders Private Limited v. Union of India and others (Decided on 3rd November, 2023)
* WP(C) No.933/2021, Vishal Verma v. Union of India and others (Decided on 3rd November, 2023 – the judgment under review)