Basayya Vs Assistant Commissioner of Commercial Taxes (Karnataka High Court)
Summary: The Karnataka High Court allowed the writ petition filed by Basayya concerning adjustment of Goods and Services Tax (GST) following the introduction of the Central Goods and Services Tax Act, 2017 (CGST Act), in terms of specified directions earlier issued in Chandrashekharaiah Vs. State of Karnataka. The petitioner had, among other reliefs, sought a declaration concerning Section 7(3) read with Clause 6 of Schedule II of the GST Act, directions for reimbursement of differential GST allegedly paid by the petitioner in relation to works contracts, a policy or circular concerning GST on works contracts executed under the VAT regime or during the transition to GST, and quashing of an adjudication order bearing No. CTO/LGSTO-310/ORDER-74/50/2024-25/B-5464 dated 04.02.2025 for FY 2017-18 under Section 74(9) of the Act.
The parties jointly submitted that the issue concerned adjustment of GST consequent upon the coming into force of the CGST Act. They relied upon the earlier judgment of a Co-ordinate Bench in Chandrashekharaiah Vs. State of Karnataka, which had issued directions concerning works contracts spanning the pre-GST and post-GST periods. Those directions contemplated calculation of works executed before 01.07.2017 under the KVAT regime, assessment of payments received for such works under the applicable KVAT regime, determination of balance works completed or to be completed after 01.07.2017, calculation of applicable material and KVAT components, deduction of KVAT and applicable service tax, addition of applicable GST, determination and set-off of input credit where applicable, and separate calculation of the tax difference on balance works executed or to be executed after 01.07.2017.
The earlier directions further contemplated that, based on the resulting tax difference on the contract value, the concerned department or authority would determine whether the agreement required alteration. A supplementary agreement could be executed for the revised GST-inclusive value of the balance work and, where that revised value exceeded the original agreement value, the differential tax amount could be paid or reimbursed by the concerned employer. The earlier order also contained directions concerning filing of GST returns without insisting on interest, penalty or limitation and directed GST authorities not to take precipitative action for six months.
However, the judgment in Chandrashekharaiah was subsequently challenged before the Division Bench in Office of Principal Commissioner GST and Central Excise and others Vs R Chandrashekhar S/o. Ramaiah. The Division Bench partly allowed the appeals. It held that liability to pay GST under the CGST Act, State GST Act or Integrated GST Act had to be determined strictly in accordance with the relevant statutory provisions and that contractual arrangements between the works contractors and their employers could not alter the statutory scheme for levy of GST.
The Division Bench further held that directions could not be issued permitting revised returns contrary to statute and that the plenary directions to waive penalty, interest under the GST Acts or limitation for filing returns or revised returns were unsustainable. It also held that the controversy concerning the incremental tax burden arising from the change in the tax regime was essentially between the contractors and their employers. Consequently, no directions could be issued to tax authorities regarding levy, assessment and collection of tax, penalty or interest in that context. The direction concerning reimbursement of differential tax was required to be construed as a direction to the concerned employers and not to the tax authorities. The directions to the tax authorities were accordingly set aside.
In view of the Division Bench judgment, the High Court recorded that operative directions Nos. (v) and (vi) in Chandrashekharaiah had been set aside. The present writ petition was therefore allowed in terms of operative directions Nos. (i), (ii)(a) to (ii)(f), (iii), (iv) and (vii) of the earlier judgment. The retained directions thus included the calculation and adjustment methodology for pre-GST and post-GST works, determination of applicable tax components and differential tax, consideration of revised GST-inclusive work values and corresponding reimbursement by the concerned employer where applicable, submission and consideration of representations, and liberty to challenge subsequent orders or decisions in accordance with law.
The Court also recorded that the petitioner had impugned assessment orders in the present writ petition. It therefore granted liberty to the petitioner to assail those assessment orders in appropriate proceedings. The concerned authorities were directed not to take into account the period spent by the petitioner in prosecuting the present writ petition. Pending interlocutory applications, if any, were disposed of as not surviving for consideration.
The decision therefore did not finally determine the validity of the petitioner’s impugned assessment order or itself adjudicate the precise quantum of differential GST. The relief granted was expressly in terms of the specified surviving directions from Chandrashekharaiah, after accounting for the Division Bench’s subsequent setting aside of operative directions Nos. (v) and (vi), with the assessment challenge left open for appropriate proceedings.
Cases Discussed
- Chandrashekharaiah Vs. State of Karnataka, Order dated 11.04.2023 in W.P.No.9721/2019 — the Co-ordinate Bench decision whose directions concerning adjustment of GST on pre-GST and post-GST works contracts were applied, subject to the modifications resulting from the subsequent Division Bench judgment.
- Office of Principal Commissioner GST and Central Excise and others Vs R Chandrashekhar S/o. Ramaiah, Judgment dated 10.06.2026 in W.P.No.1587/2023 C/w W.A.No.1599/2023, W.A.No.1638/2023, W.A.No.1647/2023 & W.A.No.25/2024 : NC:2026 KHC:28975-DB — relied upon for the effect of the Division Bench’s partial allowance of the appeals, including setting aside directions to tax authorities concerning revised returns, waiver of statutory liabilities and tax administration, while construing differential-tax reimbursement as a matter between the contractor and employer.
FULL TEXT OF THE JUDGMENT/ORDER OF KARNATAKA HIGH COURT
The present writ petition is filed seeking for the following reliefs:
“(a) Declare that the provisions of Section 7 (3) read with clause 6 of Schedule II of the GST Act is ultra- vires Article 366 (12A), (26A) (29A) (b) & (f) of the Constitution in view of and settled principles of law laid down by the Hon’ble Supreme Court regarding “works contract”.
(b) Issue a writ or such other order in the nature of Mandamus directing the Respondent No.2 to consider the reimburse the differential GST amount (being the difference between GST rate 12% or 18% and VAT rate) paid by the Petitioner without collecting it from Respondent No.2 for each of the works executed by the Petitioner, as per the sample work order dtd: 23/05/2017 to 15/06/2017 is produced at Annexures-
C.
(c) Issue a writ or such other order directing the Respondent No.5 State Government to issue a circular/policy to address the issue of payment of GST on works contract which are executed under VAT regime or subsequent to introduction of GST but bills are raised after introduction of GST wherein, GST is not paid by the Respondents No.2 but is levied and paid by the Petitioner to the GST department till today.
(d) Declare that, GST being an Indirect tax is based on the concept of collect and pay, and the liability to pay is on the taxable person after collecting it from recipient of goods or services i.e., from the employer of works contract (Respondent No.2); AND hence direct Respondent No.2 to pay / refund / reimburse the tax amounts to the Petitioner who has already paid GST without collecting it from Respondents No.2 for contracts executed till today.
(e) Issue Writ of Certiorari or in the like nature of Certiorari quashing the an impugned adjudication order bearing No. CTO/LGSTO-310/ORDER-74/50/2024- 25/B-5464, dtd: 04/02/2025 for the tax period F.Y. 2017-18, under Section 74 (9) of the Act, passed by Respondent No.1 vide Annexure-D, to the petition.
(f) Pass such other orders as may be deemed appropriate under the circumstances of the case, in the ends of justice.”
2. It is jointly submitted by the learned counsel for the petitioner and the learned AGA that the question that arises for consideration in the present writ petition is with regard to the adjustment of Goods and Service Tax [GST] consequent to coming into force of the Central Goods and Service Taxes Act, 2017 [CGST Act]. It is further submitted that a Co-ordinate Bench of this Court in the case of Chandrashekharaiah Vs. 1 State of Karnataka has disposed of the writ petitions by issuing various guidelines. The operative portion of the said order is as under:
“ORDER
(i) Petitions are hereby disposed of.
(ii) The Respondents-State and other Govt agencies/Respondents who have entered into works contract with the Petitioners are issued the following directions/guidelines:-
(a) Calculate the works executed pre-GST (prior to 1-7- 2017) under KVAT regime and payments received by the Petitioners.
(b) The payments received by the Petitioners pre-GST for such of the works executed before 1-7-2017 are to be assessed under KVAT tax regime – either under COT or VAT scheme as applicable.
(c) Calculate the balance works to be completed or completed after 1-7-2017, in the original contract.
(d) Derive the rate of materials, KVAT items required or used to complete the balance works.
(e) Deduct the “KVAT” amount from those materials and the service tax, if applicable.
(f) Add the applicable “GST” on those items.
(g) Input Credit on the materials is to be arrived at and be set off as against the output GST, for those assessed under regular VAT.
(h) Further, the “tax difference” should be calculated on such balance works executed or to be executed after 1- 7-2017 separately.
(i) Based on the result obtained on calculation of the tax difference on the contract value, concerned department/authority has to decide whether agreement needs to be changed or not.
(j) A supplementary agreement may be signed with the Petitioners for the revised GST-inclusive work value for the Balance Work completed or to be completed as determined above and in case the revised GST-inclusive work value for the Balance Work, completed or to be completed after 1-7-2017, is more than the original agreement work value, the Petitioners are to be paid/reimbursed, as the case may be, the differential tax amount by the concerned employer; so also, in case payments for works completed pre-GST are made post- GST, the concerned employer has to pay or reimburse, as the case may be, the differential tax amount, to the Petitioners.
(iii) Petitioners are directed to submit comprehensive representations to the respective employers/Respondents within a period of 4 weeks from the date of receipt of a copy of this order, irrespective of whether they have completed the works pre-GST or post-GST or payments were received or yet to be received post-GST.
(iv) If such representations are submitted, the respective employers/Respondents are directed to consider and dispose of the same in the light of the aforesaid directions/guidelines as expeditiously as possible and at any rate within a period of 8 weeks from the date of submission of the representations.
(v) In view of the interim orders passed by this Court in the present petitions, such of the petitioners who had not filed their GST returns during the period after 1-7- 2017 are permitted to file their returns/amended returns, pursuant to the calculation of the differential tax as per procedure above under GST regime, without insisting on interest or penalty or limitation.
(vi) The GST authorities are also directed not to take precipitative action against the Petitioners for a period of 6 months from the date of receipt of a copy of this order.
(vii) Liberty is reserved in favour of the petitioners to challenge any order/decision passed/taken by the respondents or the authorities, subsequent to this order and also take recourse to such remedies as available in law.”
3. It is further jointly submitted that the judgment of the Co-ordinate Bench of the Court in the case of Chandrasekharaiah (supra) was the subject matter of challenge before the Division Bench of this Court in the case of Office of Principal Commissioner GST and Central Excise 2 and others Vs R Chandrashekhar S/o. Ramaiah. The Division Bench has partly allowed the said appeals. The operative portion of the order of the Division Bench is as under:
“8. The dispute as to whether the writ petitioners would be entitled to reimbursement of the incremental tax paid or payable by them on account of the levy of GST is strictly a matter between the writ petitioners and the Employers with whom they had entered into the contracts. The contracts between the writ petitioners and the Employers would not alter the statutory scheme for the levy of GST. Thus, the liability of the writ petitioners to pay Goods and Services Tax (whether under the Central Goods and Services Tax Act, 2017, the State Goods and Services Tax Act, 2017 or the Integrated Goods and Services Tax Act, 2017) is required to be determined strictly in accordance with the provisions of the relevant statute. The question of the levy of GST, assessment, recovery, and enforcement is a matter of statutory prescription.
9. In view of the above, no directions could be issued permitting the filing of any revised returns contrary to the provisions of the statute. The plenary directions to waive the penalty, interest under the GST Acts or the limitation for filing returns/revised returns are also unsustainable.
10. The controversy as to the incremental tax burden arising on account of the change in the tax regime is, in essence, one between the writ petitioners and the Employers. In the context of such a dispute, no directions could be issued to the tax authorities regarding the levy, assessment, and collection of tax, penalty, or interest.
11. In the aforesaid view, the direction issued to the respondents to reimburse the differential tax is required to be construed as a direction only to the concerned Employers and not to the tax authorities.
12. Accordingly, the impugned order, to the extent it issues directions to the tax authorities, is set aside. The appeal is disposed of in the aforesaid terms.”
4. In view of the judgment of the Division Bench, as referred above, the operative direction Nos.(v) and (vi) as 1 ordered in case of Chandrashekharaiah have been set aside.
5. In view of the aforementioned, the present writ petition is allowed in terms of the operative direction Nos.(i), (ii)(a) to (ii)(f), (iii), (iv) and (vii) as held in the case of 1 Chandrashekharaiah as noted above.
6. Since the petitioner has also impugned the assessment orders in the present writ petition, the petitioner is at liberty to assail the same in appropriate proceedings. The concerned authorities shall not take into account the time period spent by the petitioner in prosecuting the present petition.
7. In view of disposal of the writ petition, pending interlocutory applications, if any, do not survive for consideration and are disposed of.
Notes:-
1 Order dated 11.04.2023 in W.P.No.9721/2019, NC:2023:KHC:15431
2 Judgment dated 10.06.2026 in W.P.No.1587/2023 C/w W.A.No.1599/ 2023, W.A.No.1638/2023, W.A.No.1647/2023 & W.A.No.25/2024, NC:2026 KHC:28975-DB
