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how to address the Change in Law in GST

how to address the issue of Change in law in GST  and claim from the contractees the additional tax burden that may be imposed on contractors/sub-contractors

 Here we will explain the way to address the issue of Change in law in GST and claim from the contractees the additional tax burden that may be imposed on contractors/sub-contractors

– GCC normally contain a clause ( whether the contract is based on “Taxes extra” clause or “fixed price inclusive of all taxes and duties” that stipulates that if the contractors suffers economically by levy of any new tax after the date of bidding, the same shall be indemnified by the contractee.

– GCC may also authorize the Principal Contractor to appoint sub-contractors with the written approval of the Contractees.

– Post GST please draft a letter to the authorized person of the Contractee referring to the particular GCC clauses that you shall suffer the additional tax burden on account of GST regime and offer your computations. Simply because GST is implemented the contractor shall not become entitled to any additional tax on account of “change in law” clause in GCC. Give detailed calculations with reference to the Contractual terms.

– Wait for response of the Contractee (which normally will be they are not liable).

– Once again write a letter staking your claim and if the Contractee does not favourably respond, then in terms of GCC issue a letter for appointment of Arbitrator, if there is an Arbitration Clause.

– Prepare your case with documentary evidence including lawyers opinions and submit to the Arbitrator(s).

– Arbitrator’s decision can be challenged on question of law if their findings are perverse.

– The crux is detailed calculation of additional tax burden and how has that arisen? Contractual conditions must be adhered to.

If Arbitrator award is acceptable to both the parties, then the matter settles and if not further legal proceedings can ensue.

2. The Contractor has to prove that the Contractee was required to reimburse this amount since it was in the nature of necessary and reasonable extra cost arising out of change of law.

3. The big question is if the principal Contractor has appointed sub-contractors in terms of GCC with prior approval of the Contractee; then the sub-contractors shall also lodge claims on the Contractor for indemnification of additional tax burden. The question is whether the Contractor can claim from the Contractee the additional tax that the Contractor reimburses to the sub-contractors?

This is a legal issue. My view is the Contractee must reimburse the money that he Principal Contractor has given to the sub-contractors notwithstanding anything contrary in the Commercial Contracts – that require a liberal interpretation.

Friends, the issue is not as simple as we make it out. The chain can be bigger – sub-contractors may have further sub-assigned the contract to other contractors who will also stake claims. Higher the chain, larger shall be the claim that the Contractee may have to indemnify.

Of course keep in mind the provisions of Section 163 of Model GST Law – take all steps with your suppliers to ensure they pass on the benefit if available to you before such claims are staked. Section 163 will complicate this issue.

The above is procedural only. It is not a legal opinion.

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Profile photo of CA Rashmi Jain CA Rashmi Jain

New Delhi, India

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