Recommendations Of GST Council Are Only Recommendations, Can’t Be Taken As Notifying New Rates Of GST: Jammu & Kashmir and Ladakh High Court
The Jammu & Kashmir and Ladakh High Court was considering a review petition preferred by the Proprietor of a Construction Company.
While dismissing a review petition questioning the date of application of reduction of the rate of GST on Works Contract Services, the Jammu and Kashmir and Ladakh High Court has observed that the recommendations of the GST Council are only recommendations and cannot be taken as notifying new rates of GST, particularly, in the face of provisions of Article 265 of the Constitution.
The Jammu and Kashmir and Ladakh High Court was considering a review petition preferred by the Proprietor of M/s Kiran Constructions.
The Division Bench of Justice Puneet Gupta and Justice Sanjeev Kumar said, “It is true that before the last date of submission of bids, there was a decision taken by the GST Council on 5th August, 2017 recommending reduction of taxes on works contract from 18% to 12%, but the said recommendation fructified into issuance of statutory notification only on 21st September, 2017. Recommendations of the GST Council, as already held, are only recommendations and cannot be taken as notifying new rates of GST, particularly, in the face of provisions of Article 265 of the Constitution of India.”
Advocate Ajay Kumar Vali represented the Petitioner while DSGI Vishal Sharma represented the Respondent.
Factual Background
The Government of Jammu & Kashmir Vide SRO-GST-11 dated July 8, 2017, notified different rates of taxes on intra-State supply of services of various descriptions. The construction services under Heading 9954 were notified to be taxed at the rate of 9%. However, in the 20th GST Council meeting, a decision was taken to reduce the rate of GST on Works Contract Services from 18% to 12 %. This information was available to the review petitioner when he submitted his tender. Formal notification by the Government of Jammu & Kashmir in terms of SRO-GST-06 (Rate) notifying the new rates of GST was issued after the submission of the bids by the review petitioner.
The bids submitted by the review petitioner were accepted by the department concerned, and work commenced after the issuance of the notification. The review petitioner, like the other similarly situated contractors, was called upon to deposit the differential amount of tax by April 30, 2021. Aggrieved by such notice, the Petitioner filed a Petition, which came to be dismissed. It was in such circumstances that the Review Petition came to be filed.
Arguments
It was the case of the Petitioner that the High Court had not appreciated that the order allotting the work to the review petitioner was issued after September 21, 2017, i.e. after the rate of tax had already reduced. It was argued that in terms of SRO GST-06 dated September 21, 2017, there was no reduction of GST on Works Contract and the Works Contract continued to be governed by SRO-GST-02 dated August 22, 2017, which had notified the rate of GST for Works Contract as 12%.
Reasoning
As per the Bench, Clause 49 of the Special Conditions of the tender document made it clear that the rates quoted by the contractor in his tender shall be inclusive of all taxes related to the contract value, which would include GST. The rate quoted by the contractor had to be taken to be inclusive of GST with the existing percentage rate as prevailing on the last date for receipt of tender.
It was further noticed that before the last date of submission of bids, there was a decision taken by the GST Council on August 5, 2017 recommending the reduction of taxes on works contract from 18% to 12%, but the said recommendation fructified into issuance of statutory notification only on September 21, 2017. “Recommendations of the GST Council, were only recommendations and cannot be taken as notifying new rates of GST, particularly, in the face of provisions of Article 265 of the Constitution of India”, the Bench said.
As per the Bench, the review petitioner being one of the contracting parties, is bound by the Special Condition No. 49 of the Contract Agreement, which provides for reciprocal liability of both parties. “It clearly and in no uncertain terms provides that the Contractor shall include in the tender rates of taxes directly related to the contract value with existing percentage rates as prevailing on the last due date for receipt of tenders and if there is any subsequent increase in percentage rates of taxes, same shall be reimbursed to the contractor and similarly, if there is any decrease, the differential amount shall be refunded by the contractor to the Government or deducted by the Government from any payment due to the contractor”, it stated.
The High Court clarified that the composite supply of works contract as defined in Clause 119 of Section 2 of Central Goods and Services Tax Act, 2017 figures at item No. 3(ii) of Notification dated 8th July, 2017 prescribing 18% GST was not altered by SRO-GST-2(Rate) dated 22nd August, 2017. As per the Bench, what was sought to be amended and elaborated by the notification dated August 22, 2017 was only item No.3 (i) at serial No.3 dealing with construction services other than composite supply of works contract mentioned in item No.3(ii) and the construction services mentioned in Clause 3(iii). The rate of GST prescribed vide notification dated July 8, 2017, which was in vogue at the time of submission of bids by the petitioner, as also on the last due date for submission of bids, on the composite supply of works was 18%. Vide notification dated September 21, 2017, the rate of GST came to be reduced from 18% to 12%.
Thus, finding no merit in the Petition, the Bench dismissed the same.
Cause Title: Vishal Verma S/o Sh. Sham Sunder Verma v. Union of India & Ors. (Case No.: RP No.43/2024)
Appearance:
Petitioner: Advocates Ajay Kumar Vali, Raghav Gaind
Respondent: DSGI Vishal Sharma
