The Karnataka High Court has ruled that contractors, whose projects fell between the VAT and GST regimes, need pay the applicable tax rate prevalent during that regime, giving them a relief from having to pay a steep tax under the GST regime. The court also directed the government bodies that awarded the contract to bear the differential tax burden that arose after the GST regime kicked in on the grounds that taxes were not part of a contractor’s profit. The dispute between contractors and government arose due to the entering of works contract before July 1, 2017, when the GST replaced the VAT regime. There were also situations where work was completed during VAT regime, but payments were made during the GST regime; contracts were entered during VAT regime but executed both during both VAT and GST regimes or bids were invited during the VAT regime but were finalised during the GST regime. The court also directed the GST authorities not to take precipitative action against the petitioners (contractors) for a period of six months from the date of the order.

Source: Economic Times June 02, 2023 04:44 UTC