Facts of the Case

The petitioner, Vishal Verma, sole proprietor of M/S Kiran Constructions, along with connected petitioners in ten other writ petitions (WP(C) Nos. 933/2021, 934/2021, 1379/2021, 1656/2021, 1818/2021, 1819/2021, 1820/2021, 494/2022, 1274/2023 and 1041/2021), were contractors executing works for the Union of India through the Military Engineering Services (MES). Their contracts contained a tax-variation clause (special condition No. 49) under which the rates quoted by a contractor were inclusive of taxes directly related to the contract value as prevailing on the last date fixed for receipt of tenders; any decrease in the applicable tax rate after that date was to be refunded by the contractor, and any increase was to be reimbursed by the respondents. The petitioners contended that the prevailing rate of service tax on their contract value, at the time bids were submitted, was 12%, and sought reimbursement of the differential when the rate effectively rose to 18% under the GST regime. These batch petitions were disposed of together with a lead judgment delivered the same day in WP(C) No. 170/2021, whose operative findings were applied to all connected matters, including the present one.

Issues Involved

  1. Whether the petitioners were entitled to reimbursement of the differential tax amount arising from the transition in applicable tax rate on their MES contracts.
  2. Whether such entitlement, if any, was governed by the express tax-variation clause in the contract or could be claimed independently of it.

Petitioner's Arguments

  • The rate of service tax prevailing on the last date fixed for receipt of tenders, which the petitioners had factored into their bid, was 12%.
  • Since the applicable rate later rose to 18% under GST, the petitioners were entitled to reimbursement of the differential amount from the respondents under the contract's tax-variation clause.

Respondent's Arguments

  • Any entitlement to reimbursement or refund on account of a change in tax rate was governed strictly by the terms and conditions of the contract, in particular special condition No. 49, and not by an independent statutory right.
  • The rates quoted by the petitioners were, per the contract, inclusive of taxes as prevailing on the last due date for receipt of tenders, and consequences of any rate change were to be determined with reference to that date.

Court Order/Findings

  • The Court held that under Article 265 of the Constitution, tax can be levied or collected only by authority of law — meaning a statute or subordinate legislation — and that a decision of the GST Council by itself does not constitute a tax levied or collected under authority of law.
  • The conduct of the parties, including their entitlement to reimbursement or refund on account of tax-rate change, was governed by the terms of the contract; the quoted terms of special condition No. 49 clearly bound both sides to the consequences of rate variation as measured against the last date for receipt of tenders.
  • Despite persuasion, learned counsel for the petitioners could not demonstrate that the prevailing rate on the relevant date was in fact 12%, as claimed; this failure of proof was fatal to the claim, irrespective of whether the petitioner was misled by the GST Council's decisions.
  • Finding no merit in the lead petition, the Court dismissed it, and these batch petitions — including WP(C) No. 932/2021 — were accordingly dismissed in terms of the same judgment, with any interim directions vacated.

Important Clarification

  • A contractor's entitlement to reimbursement of a tax-rate differential (such as the transition from service tax to GST) on a government works contract is governed by the express tax-variation clause of the contract itself, not by the GST law independently of the contract.
  • A contractor asserting such a claim bears the burden of affirmatively proving what the applicable tax rate actually was on the contractually specified reference date (typically the last date for receipt of tenders); a bare assertion of a lower rate, without proof, will not sustain the claim.

Sections Involved

  • Article 265, Constitution of India — provides that no tax shall be levied or collected except by authority of law, meaning a statute or legislation-backed subordinate law.

Decision – In Favour of

In favour of the Department/Respondents. The batch writ petitions, including WP(C) No. 932/2021, were dismissed, following the reasoning in the lead judgment that the petitioners failed to establish the factual basis for their claimed tax-rate differential.

Related Case Laws

No directly on-point case notes are currently published on this site.

Case Details

  • Court: High Court of Jammu & Kashmir and Ladakh at Jammu
  • Case No.: WP(C) No. 932/2021 (with connected WP(C) Nos. 933/2021, 934/2021, 1379/2021, 1656/2021, 1818/2021, 1819/2021, 1820/2021, 494/2022, 1274/2023 and 1041/2021)
  • Coram: Justice Sanjeev Kumar and Justice Mohan Lal
  • Decision Date: 03.11.2023
  • Disposal Nature: Dismissed

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