State of Kerala Vs Mary Matha Infrastructure Private Limited (Kerala High Court)
Summary: The Kerala High Court, comprising Chief Justice Soumen Sen and Justice Syam Kumar V.M., considered whether a contractor executing a government construction project was entitled to reimbursement of GST arising after the introduction of the Goods and Services Tax regime. The dispute concerned a contract awarded to Mary Matha Infrastructure Private Limited for construction of a hospital block at the Institute of Integrated Medical Sciences, Palakkad Medical College. The tender and formal agreement were executed on 30 January 2017, before GST came into force on 1 July 2017. The contractor subsequently claimed reimbursement of GST paid during execution of the works, which the State Finance Department disputed.
The State relied on contractual clauses requiring quoted rates to include duties, taxes, VAT, works contract tax and other levies, and providing that the quoted prices would remain fixed throughout the contract. The contractor maintained that GST could not have been included in its original bid because the tax regime had not yet commenced. The Court examined the tender conditions, the position of the project authorities and the recommendations of government officials. It noted that the project authorities, Public Works Department and several senior officials had acknowledged the validity of the contractor’s claim for GST reimbursement.
The Division Bench observed that GST, being an indirect tax, could not have been factored into a tender submitted before its introduction. It also referred to the Kerala Government notification dated 14 December 2017, which required subsequent tender amounts to exclude GST. However, the Court recognised that VAT was already applicable under the original contract. Accordingly, the reimbursement calculation had to account for the differential between applicable VAT and GST in respect of goods supplied after 14 December 2017.
The High Court disposed of the State’s writ appeal by clarifying the Single Judge’s direction rather than rejecting the contractor’s entitlement altogether. It directed the Additional Chief Secretary to the Government to recalculate the amount payable in accordance with its judgment within eight weeks. The decision highlights the importance of examining pre-GST tender conditions, the timing of tax changes and existing contractual tax obligations when determining GST reimbursement under government works contracts.
FULL TEXT OF THE ORIGINAL JUDGMENT/ORDER
Heard Mr. Rinoy Vincent, learned Government Pleader appearing for the appellants and Mr. Santhosh Mathew, learned Senior Advocate appearing for the respondent.
2. The State is aggrieved by the judgment dated 17th March 2026 in W. P. (C) No. 38282 of 2023. The learned Single Judge, in a writ petition preferred by the contractor alleging non-payment of the full contractual amount due to the petitioner, allowed the said writ petition and directed the appellants to take effective and immediate steps to reimburse the GST amount paid by the petitioner in terms of the observations made in the said judgment. Being aggrieved, the State has preferred this appeal.
3. The appellants, for the purpose of construction of a hospital block (consisting of a Ward, OP and OPD) at the Institute of Integrated Medical Sciences, Palakkad Medical College, invited tender in which the writ petitioner participated as a successful bidder. The bid was accepted at four percent below the estimated rate and the formal tender agreement was executed between the writ appellant, the writ petitioner and the Superintending Engineer, PWD, on 30th January 2017. The dispute arises with regard to the GST payable to the petitioner on the BoQ that was executed by the writ petitioner. It is not in dispute that the contract has been successfully executed.
4. The tender document and the formal agreement dated 30th January 2017 are all prior to the coming into force of the Goods and Services Tax. The said Act was notified by the Government of India with effect from 1st July 2017. However, prior to the coming into force of the appropriate rules, the tender and the agreement were executed by the parties. In the light of the aforesaid, Clauses 3.10.3 and 3.10.4 are required to be considered. The said Clauses are reproduced below:-
“3.10.3. All duties, taxes, transportation, loading, unloading, octroi payable by the Contractor under the Contract, or for any other cause shall be included in the rates, prices and the total Bid Price submitted by the Bidder. All incidentals, overheads, leads, lifts, carriages etc. as may be attendant upon for execution and completion of items, shall also be included in the rates, prices and total Bid Price submitted by the bidder.
3.10.4. The rates and prices quoted by the Bidder shall be fixed for the entire duration of the contract and shall not be subject to variations on any account except to the extent of variations allowed as per the conditions of the contract indicated in the bidding document.”
5. We referred to the said Clauses in view of the submission made on behalf of the writ appellant that irrespective of the GST regime, it has been clearly understood that all future taxes in the form of GST or otherwise would be applicable wherever an issue might arise with regard to reimbursement or refund of the tax paid. The learned counsel also referred to Clause 4.4.1 to show that an item rate contract should also include all the applicable taxes including Work Contract Tax, Value Added Tax, duties, octroi, levies etc. as may be applicable to the said contract.
6. The writ petition was filed as the Finance Department raised objections with regard to the claim for refund of the GST paid during the execution of the contract. In the writ petition, the learned Single Judge has referred to the stand of the owner of the project, i.e. the 2nd respondent, as also the PWD with regard to the liability to pay GST under the contract. All the authorities have agreed that the writ petitioner is entitled to refund of GST. Moreover, the minutes of the meeting held by the Minister of SC/ST Development Department reflect the recommendations of the Chief Engineer and Executing Engineer regarding the reimbursement of GST to the petitioner. Similarly, the consequential decisions involving the Additional Chief Secretary, the Secretary of the Public Works Department, the Special Officer of the Government Medical College, Palakkad, the Director of SC/ST Department and the Chief Engineer, PWD Buildings, all acknowledge and admit the validity of the contractor’s request for GST reimbursement. It is clear from Section 15 of the Central Goods and Services Tax Act, 2017, that it is in the nature of an indirect tax. Admittedly, the petitioner could not have factored its price taking into consideration the GST, which was admittedly non-existent. The liability of GST arises only after it is notified by the Government of India with effect from 1st July 2017.
7. Pursuant to the said notification, the State of Kerala issued a notification dated 14th December 2017 where it was made incumbent that in the tenders to be submitted by the contractors, the tender amount should exclude GST. However, prior thereto, there was no such clause, nor could there be any pertaining to GST. However, as rightly pointed out and submitted by the learned counsel for the appellants and also agreed to by the learned Senior Advocate appearing for the writ petitioner, the applicable VAT was to be paid under the contract and the differential amount between the VAT and the GST, as may be applicable to the goods supplied after 14th December 2017, shall be taken into consideration for the purpose of refund of GST.
8. In view thereof, we dispose of the writ appeal by directing the 1st appellant, Additional Chief Secretary to the Government, to recalculate the amount required to be disbursed in terms of this judgment within eight weeks from date. The judgment of the learned Single Judge is clarified to the aforesaid extent.
