Calcutta High Court, in the case of Pinki Construction v. Executive Engineer, North Bengal Development Department, recently ruled that Goods and Services Tax (GST) is reimbursable to contractors for work executed on government contracts post-July 1, 2017. Pinki Construction, a firm that paid GST from its own funds on works contract services provided between July 2017 and March 2019, sought reimbursement, which the Executive Engineer denied citing Paragraph 3(iv) of Notification No. 5050-F(Y). The Court clarified that Paragraph 3(iv) applies only to pre-GST contracts, while Paragraph 4 of the same notification mandates GST reimbursement for contracts executed after July 1, 2017, even if under prior estimates. The Court deemed the denial of reimbursement based on an incorrect interpretation as arbitrary and discriminatory, violating Article 14. It directed the Public Works Department to reconsider the claim under Paragraph 4, grant a fair hearing, and issue a reasoned order within six weeks. This decision reinforces the need for clear administrative guidelines and proper interpretation of GST laws by government authorities.
Facts:
Pinki Construction (“the Petitioner”), a partnership firm registered under pre and post GST regimes and provided works contract services for the North Bengal Development Department from July 1, 2017 to March 31, 2019.
Having paid GST on the gross contract value out of its own funds, the Petitioner sought reimbursement, however the Executive Engineer (“the Respondent”), relying on Paragraph 3(iv) of Notification No. 5050-F(Y) dated August 16, 2017, denied reimbursement.
The Petitioner thus approaches the Court contending that Paragraph 3(iv) applies only to pre-GST contracts, whereas all contracts executed after 1 July 2017 fall within Paragraph 4, which expressly mandates GST reimbursement and that the denial of reimbursement was arbitrary, discriminatory, and violated the equality principle under Article 14.
Issues:
- Whether Paragraph 3(iv) of Notification No. 5050-F(Y) pertains to contracts awarded after 1 July 2017?
- Whether Paragraph 4 of the same notification mandates GST reimbursement for contracts executed during the period 1 July 2017 to 31 March 2019?
- Whether denial of GST reimbursement under Paragraph 3(iv) constitutes arbitrary or discriminatory action violating Article 14?
Held:
- Observed that a plain reading of Paragraph 4 of Notification No. 5050-F(Y) clearly states that contracts awarded post-1 July 2017, even if under earlier estimates, it has the explicit obligation that WBGST and CGST be levied and reimbursed. Consequently, Paragraph 3(iv) is confined to pre-GST contracts and cannot prejudice reimbursement rights for post-implementation contracts.
- Held that the Respondent’s reliance on Paragraph 3(iv) to deny reimbursement for contracts executed after 1 July 2017 was improper and legally untenable.
- The Court further noted that such narrow interpretation amounted to arbitrary and discriminatory action, infringing upon the fundamental principle of equality before law under Article 14.
- Observed that the Petitioner had in good faith paid GST on the contractual value during 2017 to 2019 and thus, was entitled to reimbursement.
- The Court directed the Secretary, Public Works Department, to reconsider the reimbursement claim under Paragraph 4 of the notification, provide the Petitioner a fair hearing, and pass a detailed reasoned order within six weeks of communication of this judgment.
Our Comments:
By affirming that Paragraph 4 governs contracts awarded after the introduction of GST, the Court reinforces the necessity of administrative fairness and prevents revenue misappropriation due to misinterpretation of the law. The decision underscores the constitutional principle of non-arbitrariness, reminding State authorities of the legal limits on denying taxpayer claims.
However, a practical gap persists: many government departments do not update tender documents or issue timely circulars to align with such judicial mandates. This leads to confusion and inconsistent implementation on the ground. A formal Circular from the Finance Department clarifying the exact applicability period of the notification would greatly improve compliance and reduce disputes. While the Court’s ruling is a strong precedent, it also highlights the need for further administrative reform in policy communication.
Relevant Extract of the Notification:
Notification No. 5050-F(Y), Finance Department (Audit Branch), Government of West Bengal, dated 16 August 2017:
Paragraph 3(iv):
“When invoices/bills are to be raised by the contractor/supplier, the value of the bill together with the applicable tax under GST (i.e. WBGST + CGST in case of local purchase from within the State) should not exceed the value that such contractor/supplier would have billed for prior to 1st July, 2017 inclusive of VAT and Service Tax, if any.”
Paragraph 4:
“With regard to post-GST contracts or ongoing project where estimates have been approved before 1st of July 2017 then in those work order can be given for supply of goods or service or both work contract, GST rates will be applicable. In other words the suppliers of goods/services or both has to pay WBGST and CGST on all taxable goods/services.”
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