Large engineering and infrastructure contracts often span several years and go through phases of execution, delays, negotiations, and financial adjustments. Occasionally, disputes arising during the execution of such contracts are resolved through arbitration or settlement, resulting in a revision of the contract value.
When the contract value is revised upward, the supplier is ordinarily required to issue a supplementary invoice or debit note under GST. What may appear to be a routine compliance step can become complicated if the GST registration through which the original supply was made has been cancelled.
The situation becomes even more intriguing when the supplier continues to operate under another GST registration or where the contract was executed through a joint venture. In such circumstances, an important question arises: can the debit note be issued from another GST registration or by one of the joint venture partners?
The Commercial Context - A Major Engineering Contract
Aayra Infrastructure Ltd., a large public sector enterprise engaged in the development of major public infrastructure facilities, awarded a substantial engineering contract in 2015, during the pre-GST regime, to Anish-Harpreet Engineering Consortium, a joint venture formed specifically for the execution of the project. The assignment involved extensive construction and engineering work for a large infrastructure facility.
The project was expected to be completed within thirty-six months. However, as is often the case with large engineering assignments, the execution phase encountered delays and operational challenges. Differences eventually emerged between the contracting parties regarding financial adjustments arising from these delays, and the matter was ultimately referred to arbitration.
After examining the contractual provisions and the parties' claims, the arbitral tribunal allowed certain claims in favour of the contractor. Among these was a claim regarding underpayment of escalation charges, in which the contractor argued that the escalation formula had been applied with an incorrect conversion factor. The tribunal accepted this contention and awarded approximately ₹5.26 crore to the contractor.
From a commercial perspective, the consequence appeared straightforward. Once the contract value was revised upward through arbitration, the contractor would ordinarily be expected to issue a supplementary invoice or debit note reflecting the enhanced amount payable. However, the GST implications of such a revision - particularly in respect of contracts originating in the pre-GST era - can introduce complexities that are not immediately apparent.
The GST Complication - When the Original Registration No Longer Exists
The contractor had originally executed the contract during the pre-GST regime, when indirect taxes were administered through separate laws such as Value Added Tax (VAT) and Service Tax. At that time, the contractor carried out the project through its valid VAT and Service Tax registrations in the State where the project was located (for instance, Delhi). With the introduction of the Goods and Services Tax regime on 1 July 2017, these registrations were migrated into a corresponding GST registration in the same State in accordance with the transitional provisions of the GST law.
However, before the arbitral award was delivered, the contractor voluntarily surrendered this GST registration. Although the contractor continued to hold another GST registration in a different State (for instance, Haryana), the registration through which the original supply under the contract had been made was no longer active.
Since the contract originated in the pre-GST era but its value was revised after the implementation of GST, the situation naturally falls within the scope of the transitional provisions in Section 142(2A) of the CGST Act.
This development created an immediate compliance dilemma for the recipient organisation, Aayra Infrastructure Ltd. Since the arbitration award required the contractor to raise a debit note for the escalation amount, the contractor suggested that the debit note be issued under its other active GST registration. Another possibility considered was whether one of the joint venture's partners might issue the debit note under its individual GST registration.
While these alternatives appeared commercially convenient, the legal validity of such an approach had to be examined in light of the GST framework.
Price Revision After GST - Understanding Section 142(2A)
The starting point for analysing such cases lies in Section 142(2A) of the CGST Act. This provision addresses situations where the price of goods or services supplied under a contract is revised upward.
Where such a revision occurs, the supplier must issue a supplementary invoice or debit note reflecting the increased value. For GST purposes, the document issued following the price revision is treated as an outward supply under the GST regime.
The arbitration award clearly represents an upward revision of the contract value. Therefore, the contractor is required to issue a supplementary invoice or debit note reflecting the revised value.However, the law also raises an important question: who is legally entitled to issue that document?
One Entity, Multiple GST Registrations - Understanding the Concept of "Distinct Persons" under Section 25(4)
Section 25(4) of the CGST Act introduces the concept of "distinct persons." Where a person obtains more than one GST registration, each registration is treated as a separate taxable person for the purposes of GST.
This statutory principle applies even though all such registrations belong to the same legal entity and operate under the same Permanent Account Number (PAN). In effect, GST law recognises each registration as an independent taxable unit , responsible for its own tax compliance.
As a result, transactions between different registrations of the same entity are treated as supplies between distinct persons under GST.
One Entity, Multiple Establishments - The Extended Principle under Section 25(5)
Section 25(5) extends this principle by providing that establishments of the same entity located in different States or Union Territories are also treated as establishments of distinct persons.
Since GST is administered on a State-wise basis, each establishment operating in a different State is recognised as a separate taxable presence. Consequently, the identity of the supplier under GST is determined by the specific registration from which the supply is made, rather than by the legal entity as a whole.
In the present context, the original supply was made under a GST registration that has since been cancelled. Another registration of the same entity in a different State, therefore, cannot automatically assume the role of the supplier for issuing a debit note.
The Identity Rule for Debit Notes - Why Only the Original Supplier Can Issue Them (Section 34(3))
Section 34(3) of the CGST Act governs the issuance of debit notes. It provides that where the taxable value or tax charged on an invoice is found to be less than the amount actually payable, the registered person who supplied the goods or services must issue a debit note.The provision, therefore, links the issuance of the debit note directly to the registered person who made the original supply.
When read together with the concept of distinct persons under Section 25, the implication becomes clear. Even if the same legal entity holds multiple GST registrations, each registration is treated as a separate taxable person. Consequently, another GST registration of the same entity cannot issue a debit note for supplies originally made from a different registration. This requirement ensures consistency across the invoice trail, GST returns, and the linkage of input tax credit within the GST system.
When the Supply Is Made by a Joint Venture - Why an Individual Partner Cannot Issue the Debit Note
A similar issue arises where the project is executed through a joint venture or consortium. In such arrangements, the services are supplied by the joint venture entity itself, not by the individual partners acting independently.
Accordingly, the supplier recorded in the GST system is the joint venture entity that issued the original invoices. Even though they participate in the project, individual partners cannot issue debit notes under their own GST registrations for supplies made by the joint venture.
Allowing such a substitution would break the linkage between the original invoices, GST returns, and the recipient's input tax credit
The Only Legally Viable Route - Re-Obtaining Registration to Issue the Debit Note
In light of the statutory framework discussed above, the contractor can issue a valid debit note only if it once again obtains a GST registration in the State from which the original supply was made. Since the earlier registration through which the contract was executed has been cancelled, the contractor must re-register in that State to issue the required tax documentation in accordance with the law.
This can be achieved either by obtaining a regular GST registration or by seeking registration as a Casual Taxable Person under Section 27 of the CGST Act.
Although registration as a Casual Taxable Person may appear administratively convenient in such circumstances, it carries an important financial implication. Under this mechanism, the taxpayer is required to deposit an advance tax equivalent to the estimated tax liability for the period of registration. Consequently, where the debit note relates to a substantial amount arising from an arbitration award or a price revision, the requirement to pay advance tax may involve a significant financial outlay.
When the Law Remembers the Supplier
Commercial disputes may ultimately be resolved through arbitration, settlement, or renegotiation, but the associated tax obligations often persist long after the contractual dust has settled. The GST framework places enduring emphasis on the identity of the supplier who originally made the taxable supply , and this identity remains relevant even when commercial realities change and the contract value is revised.
An arbitral award or contractual settlement may modify the financial terms of an agreement, but it does not alter the statutory discipline embedded in the GST law. The responsibility for issuing the appropriate tax documentation continues to rest with the same registered person who made the original supply , thereby preserving the integrity and continuity of the tax trail maintained within the GST system.
This principle reflects a broader design of the GST framework. The system relies on accurate documentation, clear supplier identification, and consistent linkage between invoices, returns, and input tax credit claims . Allowing tax documents to be issued by a different registration or by another entity would disrupt this carefully structured trail and create uncertainty for both taxpayers and tax administrators.
In certain situations, therefore, a supplier may need to briefly return to the GST system - sometimes even after the project has ended - simply to ensure that the revised contractual position is properly reflected through the required tax documentation. While such a step may appear procedural, it serves an important purpose: maintaining the integrity and reliability of the GST compliance framework.
Perhaps this quiet principle of taxation can be captured in a simple reflection:
" कानूनकीअपनीस्मृतिहोतीहै ,
वहहरलेन - देनकोयादरखताहै।
समझदारीइसीमेंहैकि
हमभीअपनेदस्तावेज़उसीसटीकतासेरखें। "
["The law has a memory of its own;it remembers every transaction.
Wisdom lies in ensuring that our documentation reflects the same precision."]
In the evolving landscape of GST, contracts may be concluded, projects may reach completion, and disputes may be resolved. Yet the law gently reminds us that every transaction must ultimately find its correct place within the tax framework, and that the discipline of proper documentation remains the foundation of sound tax compliance. Through such discipline, businesses not only comply with the law but also contribute to the transparency and stability that the GST system seeks to achieve.
And perhaps that is the quiet message of GST: while contracts may change and disputes may fade, the identity of the supplier and the integrity of the tax trail must always remain intact.
By CA Raj Jaggi & Adv Kirti Jaggi
CAclubindia
