Karnataka High Court Issues Directions To Determine Tax Difference Calculation For Pre-GST Works Contract

The Karnataka High Court has issued directions determining the tax difference calculation for pre-GST works contracts.

The bench of Justice S. Sunil Dutt Yadav observed that the "tax difference" should be calculated on balance works executed or to be executed after July 1, 2017, separately.

The petitioners sought the declaration that the provisions of the GST Act are inapplicable in respect of works contracts where provisions of service are made prior to 01.07.2017.

The respondents have no jurisdiction to either issue notice or take any coercive steps against the petitioners under the provisions of the GST Act dated July 1, 2017.

The court directed the respondent-State to calculate the works executed pre-GST (prior to July 1, 2017) under the KVAT regime and payments received by the Petitioners. The payments received by the Petitioners pre-GST for such works executed before July 1, 2017, are to be assessed under the KVAT tax regime, either under the COT or VAT schemes as applicable. Input Credit on the materials is to be arrived at and set off as against the output GST for those assessed under regular VAT.

The court issued the direction in respect of the "tax difference" on balance works executed or to be executed after 01.07.2017 separately. Based on the result obtained from the calculation of the tax difference in the contract value, the concerned department or authority has to decide whether the agreement needs to be changed or not. A supplementary agreement may be signed with the Petitioners for the revised GST-inclusive work value for the Balance of work completed or to be completed. In case the revised GST-inclusive work value for the Balance Work, completed or to be completed after July 1, 2017, is more than the original agreement work value, the Petitioners are to be paid or reimbursed, as the case may be, the differential tax amount by the concerned employer. In case payments for works completed pre-GST are made post-GST, the concerned employer has to pay or reimburse, as the case may be, the differential tax amount to the Petitioners.

The court directed the petitioners to submit comprehensive representations to the respective employers within a period of 4 weeks, irrespective of whether they have completed the works pre-GST or post-GST or whether payments have been received or are yet to be received post-GST. The respective employers are directed to consider and dispose in light of the directions as expeditiously as possible and at any rate within a period of 8 weeks from the date of submission of the representations.

Case Title: B S Kumar Swamy Versus State Of Karnataka

Case No.: Writ Petition No. 2130 Of 2022 (T-Res)

Citation: 2023 LiveLaw (Kar) 236

Date: 08/09/2023

Counsel For Petitioner: D.R. Ravishankar

Counsel For Respondent: K. Hemakumar

Click Here To Read The Order