Subaya Constructions Company Ltd VS Commissioner Of Municipal Administration Chennai

Mr. Rishikesh, the learned counsel representing the writ petitioner, along with Mr. R.P. Pratapsingh, the learned Government Advocate for the first respondent, Mr. S. Sathish, the learned Standing Counsel for Salem City Municipal Corporation representing the second respondent, and Mr. K.S. Ramaswamy, the learned Standing Counsel for the third respondent, are present before the Court. With the consent of all parties, the main writ petitions are being heard and disposed of.

The subject matter of the writ petitions concerns a contract between the Salem City Municipal Corporation (second respondent) and the petitioner company, dated January 23, 2015. The contract pertains to the provision of an underground Sewerage system (Collection System) for Salem Corporation – Package III (Zone III), specifically addressing the balance work.

Following the submissions made by the counsel and the proceedings during the hearing, it is noted that the focus of the writ petitions now revolves around a narrow issue.

The central concern of the writ petitions is the payment of Goods and Services Tax (GST) under the Central Goods and Services Tax Act, 2017 (CGST Act).

The proceedings before the court involved Mr. Rishikesh, representing the writ petitioner, and other counsels representing various respondents. They collectively agreed to proceed with and dispose of the main writ petitions. The petitions revolved around a contract between Salem City Municipal Corporation (the second respondent) and the petitioner company for providing an underground sewerage system. The contract, dated January 23, 2015, did not include provisions for the payment of Goods and Service Tax (GST), as it predates the GST regime that came into effect on July 1, 2017.

The issue at hand is the liability for GST payment under the Central Goods and Services Tax Act, 2017 (CGST Act). The petitioner company, upon the commencement of the GST regime, wrote to the Salem City Municipal Corporation on July 11, 2018, inquiring about the GST liability. In response, the second respondent stated in a communication dated August 10, 2018, that the GST payable would be 1% for State GST and 1% for Central GST, totaling 2%. Accordingly, they informed the petitioner that they would deduct 2% at the time of making payments under the contract, which is currently underway. There is no dispute that the second respondent is deducting 2% as Tax Deducted at Source (TDS) from payments made to the petitioner.

Mr. Rishikesh, representing the writ petitioner, and other learned counsels representing the respondents, are present in court. The main writ petitions, concerning a contract between Salem City Municipal Corporation and the petitioner company for providing an underground sewerage system, are being disposed of with the consent of all parties.

The crux of the matter revolves around the payment of Goods and Service Tax (GST) under the Central Goods and Services Tax Act, 2017 (CGST Act). It’s acknowledged that the GST regime commenced on July 1, 2017, while the contract in question predates this, being dated January 23, 2015, hence not stipulating GST payments.

Work under the contract is ongoing, and the petitioner notified the Corporation on July 11, 2018, about GST liability. In response, the Corporation informed the petitioner on August 10, 2018, that 2% GST (1% State GST and 1% Central GST) would be deducted at source from payments made under the contract, which is being implemented.

However, the actual tax liability for the contract is 12%, prompting the petitioner to file these writ petitions seeking direction for the respondents to pay the additional 10% GST as per the law applicable when the contract was active and work was underway.

The central issue to be resolved is how the GST liability should be discharged. The Standing Counsel for Salem Corporation refers to Government Order G.O.Ms.No.296, issued on October 9, 2017, by the Finance Department of the Government of Tamil Nadu, which revises the GST on works contracts for government work to 12%, previously 18%.

This Government Order stems from a writ petition (W.P.No.24853 of 2017) filed earlier, which a Single Judge of the Court disposed of on October 5, 2017, instructing authorities to consider the petitioner’s representation. Subsequently, G.O.Ms.No.296 was issued.

However, this order was challenged in court through W.P.No.2307 of 2018, though the challenge failed, and the petition was disposed of. Thus, the dispute in the writ petitions centers on the mode of GST payment, particularly in light of the applicable government orders and past judicial decisions.

Mr. Rishikesh, representing the writ petitioner, along with Mr. R.P. Pratapsingh, the learned Government Advocate for the first respondent, Mr. S. Sathish, the learned Standing Counsel for Salem City Municipal Corporation representing the second respondent, and Mr. K.S. Ramaswamy, the learned Standing Counsel for the third respondent, are present before the Court. The main writ petitions, with the consent of all parties, are heard and being disposed of.

The crux of the matter revolves around a contract dated 23.01.2015 between the Salem City Municipal Corporation (second respondent) and the writ petitioner company, concerning the provision of an underground sewerage system to Salem Corporation – Package III (Zone III). The key issue pertains to the payment of Goods and Service Tax (GST) under the Central Goods and Services Tax Act, 2017 (CGST Act).

It’s acknowledged that the GST regime came into effect on 01.07.2017, postdating the contract. Initially, the contract did not include provisions for GST payment. However, following the implementation of the GST regime, the writ petitioner notified the second respondent about the liability for GST payment on 11.07.2018. The second respondent responded, stating that they would deduct 2% (1% State GST and 1% Central GST) from payments made under the contract, in accordance with the GST regime. However, the actual tax liability is 12%.

Consequently, the writ petitioner filed these petitions seeking directions to respondents 1 and 2 to pay the additional 10% GST on the original contract value to align with the prevailing law during the contract period and subsequent work progress.

The focus of the petitions is on determining how the GST liability should be settled. The Standing Counsel for Salem Corporation referred to Government Order G.O.Ms.No.296, Finance [Salaries] Department, dated 09.10.2017, issued by the Government of Tamil Nadu, which sets the GST rate for works contracts at 12%.

This Government Order underwent legal challenges but ultimately stands operational. Paragraphs 10(a) and 12 of G.O.Ms.No.296 specify procedures for estimating the value of subsumed tax and negotiating agreements with works contractors, respectively.

The task at hand for the Court is to ascertain which portion of the Government Order applies. Paragraph 10(a) is applicable up to 30.06.2017, while paragraph 12 applies from 01.07.2017 onwards. These paragraphs outline procedures for estimating taxes and negotiating agreements with contractors, ensuring compliance with GST regulations.

In essence, the Court must determine the appropriate method for calculating and settling the GST liability under the contract in accordance with the relevant legal provisions and Government Orders.

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