GST presentation for corporation gst demand

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1. GST ISSUES OF OB & CC LTD. Dt.07.09.2023

2. A. Introduction O.B & C.C. Ltd was incorporated on 01.01.1983 with a share capital of Rs.20Cr by Govt. of Odisha. Usually, critical construction works involving complex designing and workmanship are assigned to the Corporation by different Government Departments. The Corporation, all along, has been functioning as an Implementing Agency of the assigned works. In the year 2012, Works Department formalised the working procedure of all Govt. construction Corporations in Resolution No. 9133 dtd . 06.09.2012. Views of Finance Department communicated by Works Department in Letter No- 10153 dt. 27.07.2022. A clarification has been issued from Works Department to the Commissioner of CT & GST, Odisha vide Works Department Letter no.7479 dt 04.06.2022 ,to the effect that the OB&CC may not be treated as a Contractor. . As per Works Department Resolution No. 9133 of 2012 , the Corporation is required to prepare the plan and estimates as per Govt. Schedule of Rate . As per the said Resolution, the Corporation is authorised to make provision of 8-10% “supervision charges” to be appropriated by the Corporation. There is also mention of “supervision charges” for PSUs in FDOM no.-25217/F,dt-30.07.2018. After Administrative approval by the respective competent authorities, funds are placed by them.

3. Flow of Work Like working Divisions of Govt. Department, the Corporation selects the contractor following e-tender procedure as per Govt. norms for implementation of the projects. Being an Implementing Agency, the Corporation does not sign any agreement with Govt. like a Contractor. Agreement with the contractors are being signed by the Corporation on behalf of Govt. of Odisha, Works Department. Through payment of work bills, funds representing the estimated cost of the project with tax (excluding supervision charge of 8-10%) is paid to the contractor(s). Thus, the Corporation retains and appropriates only 8-10% of the funds placed and disburses the remaining 90-92% to the contractors along with GST. On completion of the work, the Corporation submits UC in the FORM OGFR 7-A. for the amount spent on assigned work and on Supervision Charges. The Corporation does not raise any work bill to the respective Govt. Department.

4. Flow Chart User Department Assignment of Work Placement of Funds Site Survey Administrative Approval Plan & Design Estimate 8-10 % Supervision Charge Tender Notice Evaluation & Selection of Contractor Issue of Work Order & Execution of Agreement with Contractor 90-92% Work Proper Payment of work bills UC

5. OB & CC is entitled to GST exemption for the services rendered in terms of Sl. No. 4 and 5 of Notification no. 12/2017 – Central Tax (Rate) dated. 28.06.2017. In terms of Sl. No. 4 of the Notification, services provided by a “Government Authority” by by way of any activity in relation to any function entrusted to a municipality under article 243 W of the Constitution. In terms of Sl. No. 5 of the Notification, Services by a governmental authority by way of any activity in relation to any function entrusted to a Panchayat under article 243G of the Constitution. Function entrusted to a municipality under article 243 W of the Constitution are listed in the 12 th schedule which includes “Roads and Bridges” at Sl. No. 4 of the schedule. Function entrusted to a Panchayat under article 243G of the Constitution are listed in the 11 th schedule which includes “ Roads, culverts, bridges, ferries, waterways and other means of communication” at Sl. No. 13 of the schedule. In addition to the above Functions, OB & CC also implement other construction activities, Provision of Urban amenities, Promotion of cultural and educational works, Burial grounds, Public Health, Hospitals, Library etc. as listed in the 11 th and 12 th schedule. Services provided by OB & CC exempt from GST

6. OB & CC having been established primarily for implementing bridge construction projects which is a function entrusted to both Panchayat and Municipality very much qualifies as a “ Government Authority as defined in clause ( zf ) of para-2 of the Notification no. 12/2017 – Central Tax (Rate) dated. 28.06.2017. clause ( zf ) of para-2 reads as follows: “ “ Government A uthority” means a n authority or a board or any other body, ( i ) Setup by an Act of Parliament or State Legislature or (ii) e stablished by any Government with 90% or more participation by way of equity or control, to c arry out any function entrusted to a Municipality under article 243 W of the Constitution or to a Panchayat under article 243 G of the Constitution.” OB & CC having been established with full capital support by Government of O disha with the soul objective of implementing bridge construction projects fits into criteria (ii) and qualify as a “Government A uthority” entitled for exemption from GST on the services rendered. Accordingly OB & CC filed GST returns as per actual turnover (Work expenditure + Supervision charges) as exempt from GST. A fter discussion at Government level, the Supervision charges as a percentage of work expenditure has been notionally determined as taxable turnover and GST @ 18% with interest has been paid. Amount received through WAMIS are mere deposits and not the business turnover of OB & CC. Amount received through WAMIS are also not against any work bill raised by OB & CC or also not against any works contract signed with the respective Division.

7. GST Implications Contractors pay GST on 90-92% of estimated value. In spite of being entitled to GST exemption as a Government Authority, O.B.C.C. is paying GST on the balance 8-10% i.e. on supervision charges as per discussion at Government level. Payment of GST by the contractors is ensured by O.B.& C.C. by regularly monitoring GST compliance of the respective contractors through the GST Portal. Thus, revenue towards GST is fully complied by the contractor on 90-92% of the value and by O.B.& CC. on the remaining 8-10%. O.B.C.C. is following the same business model right since its inception from 1983 without any change in the GST regime. O.B.C.C was never ever treated or assessed like a contractor in the pre-GST regime. Both in the VAT regime and also in the GST regime, O.B.C.C has been deducting and depositing the TDS amount as per applicable rates and filing the TDS returns as per law without any fail.

8. New Approach Of Tax Administration In GST Regime With a paradigm shift in approach, the State GST Administration issued Demand Show Cause Notice for the period from dt. 01.07.2017 to dt. 31.03.2022 ( 5 years) treating OB&CC like a contractor. GST Demand of Rs. 38.28 Crore has been raised on OB&CC on account of tax, interest and penalty for the year 2017-18 & 2019-20 (2 Years). Show Cause Notices have been issued for 2018-19, 2020-21 & 2021-122 are pending for adjudication. A fresh Show Cause Notice has been received for the year 2017-18 even when demand has been raised for that year earlier. Demand raised for 2019-20 has been confirmed by Joint Commissioner of State GST, Appeal, Bhubaneswar . Second appeal would lie before the GST Tribunal, which is yet to be constituted.

9. REPERCUSSIONS If the demand of O.B.C.C is not neutralised , there will be double imposition of GST again on O.B.C.C. Funds placed with O.B.C.C has been fully exhausted after payment of final bills to the contractor. O.B.C.C will have to shift the GST burden to the respective Government Department. Even if additional funds are made available and GST demand is paid, State cannot appropriate the entire demand.

10. STATUTORY REMEDY AVAILABLE The assessment orders and show cause notices may be considered for rectification U/s 161 of the OGST Act, which reads as below: Section 161 . Rectification of errors apparent on the face of record. Without prejudice to the provisions of section 160 , and notwithstanding anything contained in any other provisions of this Act, any authority, who has passed or issued any decision or order or notice or certificate or any other document, may rectify any error which is apparent on the face of record in such decision or order or notice or certificate or any other document, either on its own motion or where such error is brought to its notice by any officer appointed under this Act or an officer appointed under the State Goods and Services Tax Act or an officer appointed under the Union Territory Goods and Services Tax Act or by the affected person within a period of three months from the date of issue of such decision or order or notice or certificate or any other document, as the case may be : PROVIDED that no such rectification shall be done after a period of six months from the date of issue of such decision or order or notice or certificate or any other document: PROVIDED FURTHER that the said period of six months shall not apply in such cases where the rectification is purely in the nature of correction of a clerical or arithmetical error, arising from any accidental slip or commission: . PROVIDED ALSO that where such rectification adversely affects any person, the principles of natural justice shall be followed by the authority carrying out such rectification.

11. SUBMISSION OF OB & CC OBCC submits to exercise the option of seeking a rectification under Section 161 of the OGST Act in view of the prima facie error in treatment of O.B.C.C as a contractor and request for relief from the following: Rectification of demand orders & Show Cause notices considering only the supervision charges as taxable turnover, excluding the turnover passed on to the Contractor ab-initio. Refund of Rs. 2.56 Cr. deposited towards interests on the admitted tax liability of 5.46Crs. on supervision charges for the period from 2017-18 to 2020-21 to avail the relief against a demand raised. The state GST administration may be advised not to initiate any coercive action till disposal. O.B.C.C has already deposited Rs. 1.56 crores on account of the demand raised and further amount of Rs. 8.02 Crores ( Tax – Rs. 5.46 Crore & Interest Rs.2.56 Crore) on account of admitted liability on 8% supervision charges during the entire period from dt. 01.07.2017 to dt. 31.03.2021 retained and appropriated by the Corporation. (Enclosed)

12. Issues relating to double imposition of GST by TPCODL

13. O.B & C.C. Ltd is engaging TPCODL for the work of shifting of existing Electrical infrastructure as per requirement and to execute required infrastructure for extending power supply to the Project . The value of work is determined as per the estimate prepared by TPCODL. While preparing the estimate TPCODL is charging GST amount paid on procurement to determine the Landed cost (Value + GST) and not taking input tax credit (ITC)against the GST paid on purchase . Again, TPCODL charging GST on gross bill value which includes the above Landed cost (already included GST) and Supervision charges plus Storage, Insurance, Transportation etc. Thus, double taxation is charged in above estimate. (Enclosed) If considered necessary direction may be given to TPCODL to revise the Estimates. Pending any decision in this regard, TPCODL may be directed to execute the works.

14. Estimate of TPCODL Specification As per the Estimate given by TPCODL 1. Cost of Materials   3547112.44 2. Applicable Taxes to make it Landed cost GST @18%   (GST) 6,38,480.24    A(1+2) 4185592.68 3. Add :Storage & Insurance @ 3% on A   125567.78   B(1+2+3) 4311160.46 4. Add: T & P Charges (2% of B)   86223.21 5. Add: T & P Charges(3% of B) 129334.81 6. Add: Transportation (7.5% of B)   323337.03 7. Add: Erection Charges(10% of B)   431116.05    C(B+4+5+6+7) 5281171.56 8. Add: Overhead & Supervision Charges(3% of C)   316870.29   C+8 5598041.86 9. GST @ 18%   (GST) 10,07,647.53 10. Less : ITC Availed   0.00 11. Cess @ 1%   55980.42 12. Inspection   2000.00 13. TOTAL ESTIMATED COST   6663669.81

15. Effect of GST under various circumstance/ comparative statement Specification As per the Estimate given by TPCODL OPTION - 1 OPTION- 2 Specification As per the Estimate given by TPCODL For Taxable outward supply of goods & services in case benefit of the ITC is availed In case supply of goods and services are GST exempt for Transmission & Distribution of Electricity (benefit of ITC not Availed) 1. Cost of Materials   3547112.44 3547112.44 3547112.44 2. Applicable Taxes to make it Landed cost GST @18%   638480.24 GST on purchase 638480.24 638480.24   A(1+2) 4185592.68 4185592.68 4185592.68 3. Add :Storage & Insurance @ 3% on A   125567.78 125567.78 125567.78   B(1+2+3) 4311160.46 4311160.46 4311160.46 4. Add: T & P Charges (2% of B)   86223.21 86223.21 86223.21 5. Add: T & P Charges(3% of B)   129334.81 129334.81 129334.81 6. Add: Transportation (7.5% of B)   323337.03 323337.03 323337.03 7. Add: Erection Charges(10% of B)   431116.05 431116.05 431116.05   C(B+4+5+6+7) 5281171.56 5281171.56 5281171.56 8. Add: Overhead & Supervision Charges(3% of C)   316870.29 316870.29 316870.29    C+8 5598041.86 5598041.86 5598041.86 9. GST @ 18% on C+8   1007647.53 1007647.53 NIL 10. Less : ITC Availed   0.00 (ITC sl.2) ( - ) 638480.24 0.00 11. Cess @ 1%   55980.42 55980.42 55980.42 12. Inspection   2000.00 2000.00 2000.00  13. TOTAL ESTIMATED COST   66,63,669.81 60,25,189.57 56,56,022.28

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