Naganath Constructions Vs Government of Karnataka (Karnataka High Court)
Summary: The petitioners sought reimbursement of differential GST arising when the GST regime replaced VAT during their civil works contracts. They stated that they had discharged the additional tax liability and asked the State to reimburse it, with interest at 18% per annum. The Karnataka High Court referred to its decision in W.P. No.104908/2023, dated 29.08.2023, which held that the recipient of works contract services must bear the differential tax arising from the introduction of GST and that the State and its instrumentalities must reimburse the contractor. The Court allowed the writ petitions and directed the respondents to consider the specified representations, determine the differential GST payable in accordance with law, and reimburse the determined amount within six weeks of receiving a certified copy of the order. Reimbursement is confined to tax attributable to the GST transition and remains subject to verification of records and calculations. The operative order does not award the interest sought by the petitioners.
Cases Discussed
- M.G. Arunkumar Vs State of Karnataka (Karnataka High Court, Dharwad Bench), W.P. No.104908/2023, decided on 29.08.2023 — relied upon for the obligation of the recipient department to reimburse GST paid by a civil contractor. The cited decision concerned a contract awarded after GST came into force.
FULL TEXT OF THE JUDGMENT/ORDER OF KARNATAKA HIGH COURT
1. The petitioners in all these petitions are seeking mandamus directing the respondents to reimburse the respective differential Goods and Services Tax (for short ‘GST’) amount with interest at the rate of 18% per annum from the date of remittance till realization in terms of representations as per Annexure-A in W.P. No.106110/2026 and Annexure-B in W.P. Nos.105759/2026 & 105663/2026.
2. Heard learned counsel for the petitioners and learned Additional Government Advocate appearing for respondents-State. Perused the records.com
3. The petitioners, a Class-I Contractor, were entrusted with the civil work. It is the specific case of the petitioner that during the currency of the contract, the Goods and Services Tax (GST) regime came into force, replacing the earlier Value Added Tax (VAT) regime. Consequent upon such introduction of GST, the petitioners were required to bear additional tax liability and, therefore, claims reimbursement of the differential tax amount from the respondents-State.
4. The controversy relating to liability to bear the differential tax consequent upon introduction of GST is no longer res integra. In an identical matter in W.P.No.104908/2023, disposed of on 29.08.2023, this Court has held that the recipient of the works contract service is liable to bear the differential tax liability arising on account of introduction of GST. This Court has further held that the State, its instrumentalities and Departments are under an obligation to reimburse the differential GST amount payable by the contractor.
5. In the present case, the petitioners have already discharged the differential GST liability before the competent authority. Alleging inaction on the part of the respondents in reimbursing the said amount, the present writ petitions are instituted. In view of the consistent line of decisions rendered by this Court on the issue, the petitioners have acquired a corresponding legal right to seek reimbursement of the differential GST amount. The respondents, being beneficiaries of the work executed by the petitioners and in view of the law laid down by this Court, are under a bounden duty to reimburse the differential GST amount. Therefore, this Court is of the view that the petitioner has made out a case for issuance of a writ of mandamus.
6. For the foregoing reasons, this Court proceeds to pass the following:
ORDER
(i) The writ petitions are allowed.
(ii) The respondents are directed to consider the representations as per Annexure-A in W.P. No.106110/2026 and Annexure-B in W.P. Nos.105759/2026 & 105663/2026 and determine the differential GST amount payable to the petitioners in accordance with law.
(iii) Upon such determination, the respondents shall reimburse the differential GST amount to the petitioners within a period of six weeks from the date of receipt of a certified copy of this order.
(iv) It is made clear that the reimbursement shall be confined only to the differential tax liability attributable to the introduction of the GST regime and shall be subject to verification of records and calculations in accordance with law.
