Madras High Court: Contractor Bears Higher GST Rate Owing To Invoice Delay

Background of the Dispute

The Madras High Court in SPK And Co. Vs Additional Commissioner dealt with a writ petition arising out of a dispute on who must bear the burden of enhanced Goods and Services Tax (GST) when the GST rate increased from 12% to 18% between the date of completion of work and the date of invoicing/payment.

The petitioner, a contractor executing road-related works for the Government, challenged an order dated 26.04.2024 passed by the third respondent. By that order, the third respondent rejected the petitioner’s request for reimbursement of the differential GST resulting from the escalation in the tax rate from 12% to 18%. The assessee sought a direction to the third respondent to consider its representation dated 22.03.2024 and compensate the higher GST paid.

While the work under the contract was completed on 08.06.2022, the GST rate revision from 12% to 18% came into force with effect from 18.07.2022. The crucial factor was that the invoices were raised only after this date, and the payments were also made thereafter, thereby bringing the transaction within the ambit of the higher GST rate.

Facts in Brief

Contract Execution and GST Rate Change

  • The assessee executed works for the third respondent under an agreement where GST at 12% applied initially.
  • The completion date under the original agreement was 03.07.2020, but due to delays, the time for completion was extended until 20.05.2022.
  • A work completion certificate was eventually issued on 08.06.2022.
  • Subsequently, with effect from 18.07.2022, the GST rate on the relevant supply increased from 12% to 18%.

Timing of Invoice and Payments

  • Even though the work completion certificate was dated 08.06.2022, no invoice was raised for more than 40 days thereafter.
  • The invoice was admittedly issued only after 18.07.2022, i.e., after the revised rate of 18% became effective.
  • Payments by the third respondent to the assessee were also made post 18.07.2022.
  • During the hearing, neither side could produce the exact dates of invoice issuance or payment, but they agreed that both events occurred after the rate hike date.

Because the invoice and payment fell within the period when 18% GST applied, the assessee claimed that it was compelled to discharge GST at the higher rate, even though the physical work had been completed earlier when the rate was 12%. The assessee, therefore, sought reimbursement of the differential 6% GST from the third respondent.

Assessee’s Arguments

Reliance on Section 14(a)(i) of the CGST Act

The assessee’s primary legal plank was Section 14(a)(i) of the Central Goods and Services Tax Act, 2017. Counsel for the assessee contended that:

  • For a change in GST rate, Section 14(a)(i) stipulates that the date of supply shall be considered as:
    • the date of issuance of the invoice, or
    • the date of receipt of payment,
      whichever is earlier.
  • Therefore, in the present case, since both the invoice and payment dates fell after 18.07.2022, the date of supply was necessarily after the rate revision.
  • On that basis, the applicable rate of GST became 18%, and the assessee had correctly paid GST at the higher rate.
  • Having paid GST at 18%, the assessee argued it was contractually and legally entitled to recover the additional burden from the contract principal (third respondent).

Reliance on Circular dated 10.02.2023

The assessee also placed strong reliance on the Circular dated 10.02.2023 bearing Reference No. RW/G-20017/26/2018-W&A issued by the Ministry of Road Transport and Highways (Planning Zone), Government of India.