Madras High Court
Subaya Constructions Company Ltd vs Tamil Nadu Water Supply And ... on 8 March, 2021
1 W.P.(MD)NO.15967 OF 2020
BEFORE THE MADURAI BENCH OF MADRAS HIGH COURT
DATED: 08.03.2021
CORAM
THE HONOURABLE MR.JUSTICE G.R.SWAMINATHAN
W.P.(MD)No.15967 of 2020
Subaya Constructions Company Ltd.,
Rep. by its Director S.Meenakshi,
New No.21(Old No.26),
Soundarapandian Street,
Ashok Nagar,
Chennai – 600 083. ... Petitioner
Vs.
1. Tamil Nadu Water Supply and Drainage Board,
Rep. by its Chief Engineer,
TWAD Board, No.1/1, Sambakulam,
Ganesh Nagar, Opp. Mattuthavani bus stand,
Melur Road,
Madurai – 625 007.
2. Tamil Nadu Water Supply and Drainage Board,
Rep.by its Executive Engineer,
TWAD Board, Sewerage Division,
Karaikudi.
3. The Superintendent of GST,
Vadapalani North Range,
Chennai.
(R-3 is suo motu impleaded vide Order
dated 15.02.2021.) ... Respondents
Prayer: Writ petition is filed under Article 226 of the
Constitution of India, to issue a Writ of Mandamus, directing
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2 W.P.(MD)NO.15967 OF 2020
the respondents to consider the various representations issued
by the petitioner to the respondents and direct the
respondents to pass appropriate orders in terms of
G.O.Ms.No.296 dated 09.10.2017 and in tune with the
Judgment of this Court in W.P.Nos.21196 and 21198 of 2019
dated 01.08.2019 and consequently direct the respondents to
enter into a fresh supplemental agreement for the purposes of
GST within a time frame as fixed by this Court.
For Petitioner : Mr.P.J.Rishikesh,
for Mr.A.Sivaji.
For R-1 & R-2 : Mrs.Porkodi Karnan
For R-3 : Mr.R.Aravindan
***
ORDER
Heard the learned counsel appearing for the writ
petitioner and the learned Standing counsel appearing for
respondents1 and 2 and the learned counsel appearing for the
third respondent.
2. The petitioner entered into a contract with Tamil
Nadu Water Supply and Drainage Board for laying Under
Ground Sewerage works for Karaikudi Municipality,
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3 W.P.(MD)NO.15967 OF 2020
Sivagangai District. An agreement was entered into between
them on 25.01.2016. It is seen from the contract that
quotation given by the petitioner was inclusive of TNVAT and
Excise Duty components.
3. As per Clause 46 of the Contract, deduction at
source towards sales tax shall be made at 2% for civil works
contract and at 5% for all other works contract. With effect
from 01.07.2017, GST Regime came into force. The distinction
between civil works and other works became irrelevant since
all the works contract for construction activities came to be
taxed at 12%. Since the tax regime had undergone a change, it
became necessary to re-work the terms of the contract.
4. The Government of Tamil Nadu considered the
prevalent situation and issued G.O.Ms.No.296 Finance
(Salaries) Department, dated 09.10.2017. The Government
took note of the fact that the price bid to be quoted should be
inclusive of taxes and duties. The supplier, while raising bills
and tax invoice post-GST, will now have to collect GST from
the purchaser at revised rates of notified percentage of value
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4 W.P.(MD)NO.15967 OF 2020
of supply and remit the same to the respective Government.
The entire GST on the supply will have to be finally borne by
the purchaser.
5. Now the question was how to work it out. The
Government came out with a formula as set out in paragraph
No.10 of the said Government Order. It provides for three
modes of calculation. The relevant paragraph No.10 reads as
follows:-
“10. Considering the necessity to provide
for a transparent means of estimating subsumed
tax Government direct that the following
methodology be adopted for estimating the value
of subsumed taxes in the contracted value of work:
a. If the supplier has furnished break up
of taxes within the quoted value (bid value) at the
time of submission of tenders, it shall be taken as
the basis for estimating the value of subsumed tax.
If, after negotiation, the contracted value is less
than the bid value, the tax quoted shall be
proportionately reduced to arrive at estimate of
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5 W.P.(MD)NO.15967 OF 2020
the value of subsumed tax. For instance, if the bid
value was Rs.50 lakh and the break up of tax is
Central Excise Duty of Rs.1 lakh and VAT or CGST
of Rs.1 lakh, the corresponding subsumed tax as
per his break up of taxes is Rs.2 lakh and after
negotiation, the contracted value was reduced to
Rs.48 lakh, the subsumed tax shall be taken as
Rs.2 lakh x 48/50 = Rs.1.92 lakh.
b. In case, the break up of taxes was not
obtained or furnished in the bid document, the
supplier may be asked to furnish break up of the
taxes within the contracted amount, giving details
and explanations and based on this estimate of
total subsumed tax shall be arrived. For instance,
if for the contracted amount of Rs.48 lakh in the
example above, the supplier states that the Central
Excise Duty is Rs.1 lakh and VAT or CGST is Rs.1
lakh, after checking the reasonability of his claim,
the subsumed tax may be arrived at Rs.2 lakh.
c. The estimate of subsumed tax should
also be worked out independently from the
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6 W.P.(MD)NO.15967 OF 2020
departmental estimates. Revised Schedule of Rate
(SOR) showing basic price and tax components
separately are being issued by the Public Works
Department. Using the revised SOR, revised
departmental estimates for the work without
subsumed tax shall be arrived as per normal
procedure. The difference between the
departmental estimates arrived using earlier SOR
with taxes would constitute value of subsumed tax
in the value of work. For instance, if the Estimate
arrived at using the revised SOR without
subsumed taxes is Rs.45 lakh and that with earlier
SOR with taxes is Rs.50 lakh, the value of
subsumed taxes in the value of work is Rs.5 lakh.
If the contracted value for this same work of Rs.50
lakh is Rs.55 lakh, i.e. with tender premium of Rs.5
lakh, then the value of subsumed tax may be
proportionately enhanced (or reduced in case of
tender discount or minus tender) as follows: Rs.5
lakh x 55/50 = Rs.5.5 lakh. This method is
considered as a good proxy for the actual value of
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7 W.P.(MD)NO.15967 OF 2020
subsumed tax for the purpose of determining the
value of supply for payment to the supplier along
with taxes under the GST laws.“
6. Now the question that arises for my consideration
is under which category the petitioner's case will fall. The
stand of the respondents is that the petitioner's case will fall
under paragraph No.10(c). The stand of the petitioner is that
the case will fall under paragraph No.10(a). The petitioner had
given a representation in this regard calling upon the
respondent Board to rework the price component of the
contract in terms of paragraph No.10(a). Since the petitioner's
request was not considered, the present writ petition came to
be filed.
7. The respondents have filed a detailed counter
affidavit. The learned Standing counsel took me through its
contents. The learned Standing counsel would also point out
that after GST was introduced, a revised agreement was in
fact entered into between the parties and the petitioner
having signed the same with eyes wide upon, cannot now seek
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8 W.P.(MD)NO.15967 OF 2020
to wriggle out of the consequences flowing therefrom. She
also contended that the issue essentially turns on
interpretation of the contract and therefore, this Court
should be loath to interfere.
In any event, the respondent Board has taken
note of only on the changes effected by the GST Regime and is
settling the writ petitioner's bills accordingly. She called for
dismissal of the writ petition.
8. I carefully considered the rival contentions and
went through the materials on record.
9. The agreement between the parties was entered
into on 25.01.2016. The nature of work was to provide Under
Ground Sewerage Scheme to Karaikudi Municipality in
Sivagangai District including maintenance of the scheme for
five years. The contract price was Rs.102,63,58,582/- only.
There can be no doubt that this contract price included cost
factor, profit margin and tax component(TNVAT and Excise
Duty). There can also be no doubt that during the relevant
time, rate of tax was 2% for civil works contract and 5% for
other works contract. There is again no doubt that it has now
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9 W.P.(MD)NO.15967 OF 2020
been enhanced to 12% under the GST. The Government itself
has taken a policy decision that this additional tax burden will
have to be borne only by the purchaser and not by the
contractor. I went through the bid documents. It can be seen
therefrom that the bill of quantities contains number of items
and for each item, the petitioner had quoted a particular rate.
It will not be difficult to arrive at the exact price for each item
after deducting the tax component. Since the policy that is
manifest from G.O.Ms.No.296 of 2017 dated 09.10.2017 is
that this additional tax burden should be taken care of only by
the purchaser, the reworking has to be done only in terms of
paragraph No.10(a) of the said Government Order and
Paragraph No.10(c) of the said Government Order will be
applicable only if along with the tender notification, the TWAD
Board has also enclosed their schedule of rates. In the case on
hand, no such schedule of rates was enclosed. Hence, I sustain
the contention of the petitioner's counsel that the quotation in
the instant case was on itemwise basis.
10. The petitioner's counsel draws my attention to the
order dated 01.08.2019 passed by the Principal Seat in
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10 W.P.(MD)NO.15967 OF 2020
W.P.Nos.21196 and 21198 of 2019. The writ petitioner herein
was the writ petitioner in those cases. The petitioner had
entered into a contract with Salem City Municipal
Corporation. After analysing the terms of the contract, the
writ petitions were disposed of by holding that the parties will
be covered by paragraph Nos.10(a) and 12 of G.O.Ms.No.296,
Finance(Salaries) Department, dated 09.10.2017. The case on
hand is of no different.
11. For the sake of clarity, let me visualise a
hypothetical situation. If for laying a pipeline, the cost factor
and the profit margin of the contractor is Rs.100/-, and the tax
is Rs.2.00/-, the contract price will be Rs.102.00/-. Since GST
has enhanced the rate of tax from 2% to 12%, the contract
price will have to be re-worked to Rs.112.00/-. Regarding the
cost factor and profit margin of the contract, there cannot be a
contest. As a result of GST, there will be an additional tax
liability of 10%. The policy decision of the Government is that
this additional tax burden will have to be borne by the Board.
In other words, instead of paying Rs.102/- as contract price,
they must pay Rs.112.00/-.
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11 W.P.(MD)NO.15967 OF 2020
12. It appears that the petitioner had already entered
into a revised agreement. The petitioner's counsel submitted
that the petitioner was under compulsion to sign the revised
agreement. The officials of TWAD Board had stated that unless
the petitioner signed the revised agreement, the Board cannot
release the funds. Of course, the learned Standing counsel
would strongly deny this allegation.
13. There may not have been any physical coercion or
compulsion. I can however easily visualise the situation in
which the contractor was placed. The petitioner was obviously
faced with liquidity crunch and therefore, he signed the
revised agreement. But then, we are concerned with the rights
of the parties. The question is how the agreement should be
reworked. The following order was passed in W.P.(MD)Nos.
21196 and 21198 of 2019:-
“21. Therefore, the parties will now
stand governed by paragraph 10(a) and
paragraph 12 of aforesaid G.O.Ms. No.296,
Finance (Salaries) Department, dated
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12 W.P.(MD)NO.15967 OF 2020
09.10.2017.
22. The exercise of quantification qua
para 10(a) shall be completed by both the parties
as expeditiously as possible within 12 weeks
from the date of receipt of a copy of this order.
Though obvious it is made clear that work under
the aforesaid contract shall continue without
being impeded by this exercise.”
14. Since the case on hand is similar, I direct
respondent Board to calculate the tax component in the
contract price and rework the same in terms of paragraph No.
10(a) of G.O.Ms.No.296, Finance(Salaries) Department, dated
09.10.2017.
15. At this stage, the learned Standing counsel would
draw my attention to paragraph No.11 of the G.O.Ms.No.296,
Finance(Salaries) Department, dated 09.10.2017 and
submitted that the respondents would undertake the exercise
of calculating tax component by applying all the three
formulas and the value of the subsumed tax can be arrived at
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13 W.P.(MD)NO.15967 OF 2020
values estimated in (a) or (b) or (c ), whichever is higher. The
petitioner's counsel made it clear that the petitioner should
not be saddled with tax liability. When the petitioner entered
into an agreement with the respondent Board, the contract
price comprised three components, namely, cost factor, profit
margin and tax component. There cannot be any contest
regarding the cost factor and profit margin. The tax liability
will have to be borne by the respondent Board. The
respondents are directed to rework the terms of the contract
and enter into a revised agreement with the petitioner. The
entire exercise shall be concluded within a period of eight
weeks from the date of receipt of a copy of this order.
16. This writ petition stands allowed on these terms.
No costs.
08.03.2021
Index : Yes / No
Internet : Yes/ No
PMU
Note:In view of the present lock down owing to
COVID-19 pandemic, a web copy of the order may be
utilized for official purposes, but, ensuring that the
copy of the order that is presented is the correct
copy, shall be the responsibility of the
advocate/litigant concerned.
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14 W.P.(MD)NO.15967 OF 2020
G.R.SWAMINATHAN,J.
PMU
To:
1. Tamil Nadu Water Supply and Drainage Board,
Rep. by its Chief Engineer,
TWAD Board, No.1/1, Sambakulam,
Ganesh Nagar, Opp. Mattuthavani bus stand,
Melur Road, Madurai – 625 007.
2. Tamil Nadu Water Supply and Drainage Board,
Rep.by its Executive Engineer,
TWAD Board, Sewerage Division, Karaikudi.
3. The Superintendent of GST,
Vadapalani North Range, Chennai.
W.P.(MD)No.15967 of 2020
08.03.2021
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