The burden of GST is to be borne by Railway, not the contractors, who are service providers
Hardships due to the imposition of GST and service tax on works contracts on Indian Railways
“Sarfaroshi ki tamanna ab hamare dil mein hai, dekhna hai jor kitna baju-e-katil mein hai”
Contractors are given a Memorandum to railway administration to withdraw GST on works contract
New Delhi: With the implementation of the new GST regime w.e.f. 1st July 2017 @18% has been imposed on the works contract, service of construction, erection and commissioning etc provided to the Indian Railway Projects, contrary to the service tax regime wherein full exemption was provided to the projects related to the Railways vide entry No. 14 of the Notification No. 25 of 2012, the said activities/services provided by the contractors have been made taxable and earlier exemptions have been withdrawn.
That the Indian Railways intends to shift the burden of the GST on the contractors by treating the rates of ongoing contracts as inclusive of all taxes. The said treatment of taxes and rates are unjustified because of the fact that the Railway is Service receiver and thus the burden of GST is to be borne by Railway, not the contractors, who are service providers. Nonpayment of GST over and above, the contract rates is prejudicial to the interest of contractors and against natural justice.
Imposition of the taxes is government’s prerogative as it is mostly for the common good of the people but any tax to be paid to the government, which has to be borne by the Government, is meaningless as it will only increase the paper work. In the case of Railway contracts, assets created are for the consumption of public and not for further sales like real estate, this tax will only add to the cost of the contracts by more than 18% as we will take into account the same while bidding in future. Therefore for a future contract, contractors are not worried, but they are only informing about its implication, the government can take a call as deemed fit.
After the imposition of GST on works contracts, which were hitherto exempted from service tax, Railway Board has issued instructions to the Zonal Railways to modify the tender conditions of contract which clearly demonstrate that the tax recovery is not within the scope of the existing contracts but still Railway wants to take unlawful shelter of the ‘all inclusive rates’. Moreover, in any case, GST on service is to be borne by the service receiver and not by the service provider as contractors are the service providers.
But contractors are very concerned and worried about the fate of the following contracts which they may not be able to the fulfil due to the sheer financial burden of this unjustified tax being heaped on us in violation of the contract and the principles of natural justice:-
1. Contract in operation before the imposition of GST
2. Tenders dropped or awarded before the imposition of GST
3. Works completed but not finalised where the final bills are yet to be made
All the above three categories of contracts/tenders were signed based on earlier tax costing. In this competitive business where the contracts are bagged in an intense competitive spirit, every penny is taken into account including taxes and input of taxes which were available earlier. Therefore to accommodate any big jump in tax or a tax which was hitherto not in existence, is unimaginable. Contractors have been even coping with great difficulty the new surcharges of swachchh Bharat or Kisan Kalyan cess but they accepted the keeping in view of the national development spirit of the prime minister. However, this new tax is just not possible to afford for him.
Contractors said in their memorandum that they know since ages that railway contracts are totally one sided in which employer’s obligations are hardly defined while contractor’s obligations have been mentioned multiple time in a very harsh language but they have kept on working with railways because they always believe that both stand together for the common cause. “We have taken the one sided agreement as a parental harshness for the good of us but this single stroke particularly in the garb of ‘all tax inclusive’ is not a parental nudge but an act of a terrorist who is coining out with a mission to destroy this industry and our business created by generations with their toil blood and Sweat.
In his memorandum, contractors said, It is grossly against the principles of natural justice that we are loaded with a financial burden in the form of a tax which hitherto was nowhere on the horizon. Our margins of profits are very low and there is no possibility to tolerate this tax. Now, as soon as we will submit the running or final bills in old format to railways with our new GSTN no. and railway pays the bill information will be passed on to the GST department and we will become liable to pay 18% tax on the received amount. This is not acceptable therefore we had planned not to raise the bill till such time.
He said, Either railway accepts the bill with 18% of GST or railway restore the position of exemption of service tax on the ongoing contracts.
However, contractors have yet not decided to stop the work and therefore to keep the progress they will be raising the running bills in the old format reserving their right to raise the bill for the extra tax liabilities for which they will receive notice from the GST department if the matter is not finally resolved by railway.
‘We don’t want to threaten an organisation to which we are associated for ages and dependent on revenue our companies but the situation is so alarming that we may have to put down our tool in too distant future’, said the contractors. He further says, ‘It is not the question of more than 1000 contractors of Railways but it is the question of more than one million families which get their bread and butter from the direct and indirect employment which our business activities generate. We are sure no law of the land can gain the common man and the people in the lower rung of the society.’
He told ‘Railway Samachar’ that we are sure railway administration is aware that railway contracts are the only contracts where this new tax is being thrust upon us while the similar contract in DFCC, RVNL, Metro rails fixed under FIDIC conditions clearly provide for reimbursement of such post contact taxes and that is why big infrastructure is not in direct contact with Railway but are working through these PSUs or SPVs, have not joined hands with us.
They said we request railway administration kindly take justified stand on this burning problem and get rid of this unjust tax immediately so that we continue to work without interruption for the good of Railway and industrial peace is maintained.
13 points action plan and the same strictly follow for next few days decided by the core committee
1. Register all the possible contractors in the Divisions and Zones under the banner of new outfit so that our fight may go in a constructive way
2. Don’t take any payment from the department till the direction is given by the central body
3. Give representation to the concerned authorities on the subject which will be sent from the central body, for which a draft memorandum will be sent to all positively by tomorrow
4. Be ready to stop the work if need arises
5. Bid in new tenders indicate rates with GST and without GST. This will show the impact of GST (costing should take into account tax proper and the cost of accounting and processing the same so that railway understand the impact of the GST).
6. In regard of above para 5, it is suggested that everybody should quote/give the following condition in all the new tenders that 25% (twenty-five percent) extra will be charged for GST on our all the quoted rates.
7. Everyone is free for all type of competition but this will be a must for everyone to quote this condition in each and every tenders.
8. This is the responsibility of all the members of association and particularly of it’s office bearers like vice presidents secretaries and executive members that include each and every contractor with our association and send the registration forms duly filled into the Head Quarter Delhi as soon as possible, and ensure that no contractor is left and condition for GST must be incorporated in all the future tenders otherwise our fight may weak.
9. Each and every contractor is requested to send their list of works in their hand (including CA no. and value/amount of work) on email given to all so that we may go to the MR, FM, & PMO with some authentic position.
10. In case anyone is quoting the tender without GST condition, all the contractors of that area must go to that person with a bunch of flowers (adopting Gandhigiri ) and request him to withdraw his tender and he must not do this mistake in another tender, we must need this support from each n every contractor because we want sure shot exemption from GST like earlier service tax not less than it. Sarfaroshi ki tamanna ab hamare dil mein hai, dekhna hai jor kitna baju-e-katil mein hai.
11. A separate memorandum is under preparation to meet FM and we are in the process of meeting with MR, FM, PMO as well as GST council members of some states with our this exemption strategy but needs nos. of you all contractors and details of you all demanded by us, be fast so that we may work quickly.
12. Formation of association is in the process, the core committee starts its work in a professional way, some other steps are also taken by the committee, we only and just want your full support by adding entire contractors in our list because we can’t win the fight without it.
13. The decision of boycott of tenders is withdrawn and now maximum participation in tenders is requested with the GST condition as explained above.
If things do not happen in right course then the position will be reviewed after a few days.