In Writ Petition No. 9721 OF 2019 – KAR HC- Karnataka High Court issues Guidelines for calculation of tax differences in works contracts before implementation of GST
Justice S.R. Krishna Kumar [11-04-2023]

Read Order: Sri Chandrashekaraiah and Ors V. The State of Karnataka and Ors

Chahat Varma

New Delhi, June 15, 2023: The Karnataka High Court has issued directions and guidelines to the State and other government agencies regarding the calculation of tax differences in works contracts entered into by the petitioners before the implementation of GST (prior to 01.07.2017). These directions pertain to the contract value and aim to address the tax burden imposed on the petitioners under the Karnataka Value Added Tax Act, 2003 (KVAT Act).

These directions apply to various scenarios, including situations where the works were completed before GST but payments were made after GST, contracts were partly executed before GST and partly after GST, tenders were invited before GST but finalized under the GST regime, or contracts were invited under the old schedule of rates before GST but finalized under the GST regime.

The main issue in these petitions was the grievance of the Petitioners regarding the introduction of the GST from 01.07.2017. The Petitioners, who had previously entered into ‘Works Contract’ and were assessed under the Composition scheme (COT scheme) or regular VAT assessment scheme under the KVAT Act during the pre-GST regime, were required to pay additional tax under GST from 01.07.2017. This additional tax burden was not anticipated at the time of entering into agreements under the COT/KVAT schemes during the KVAT regime.

The single-judge bench of Justice S.R. Krishna Kumar recognized the argument put forth by the counsel for the petitioners that the tax component in works contracts was a statutory payment that the petitioners were obligated to make. Justice S.R. Krishna Kumar acknowledged that the differential tax burden needs to be determined and honored by the respondents/employers.

Considering the facts and circumstances, along with the Circulars dated 03.01.2020 and 14.12.2020 and the judgments of this Court in MAS Constructions vs. Hubballi Dharwad Smart City Limited [LQ/KarHC/2021/7516], the court deemed it appropriate to dispose of the present petitions by issuing appropriate directions.