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IN THE HIGH COURT OF KERALA AT ERNAKULAM
GOPINATH P., J.
Sreedhanya Construction Company – Appellant
Versus
State of Kerala – Respondent
W.P. (C) Nos.33109 & 33117 of 2024
Decided on : 23-09-2024
(A) Goods and Services Tax - Contractual Agreements - The rates quoted by the contractor shall be deemed inclusive of GST and other taxes as per Clause (43.1) of the agreement. The petitioner claimed entitlement to GST over and above the quoted amount based on government circulars. The court held that the explicit terms of the contract preclude such claims. (Paras 3, 6, 8)
(B) Tender Process - The sanctity of the tender process must be maintained; allowing claims for GST over and above quoted rates undermines competitive bidding. (Paras 5, 8)
Facts of the case:
The petitioner, a registered contractor, entered into agreements with the Kerala Road Fund Board, which specified that rates quoted were inclusive of GST. The petitioner sought reimbursement of GST based on subsequent government circulars.
Findings of Court:
The court found that the petitioner could not claim GST over and above the quoted rates as per the explicit terms of the contract. The circulars did not apply to the case at hand.
Issues: Whether the petitioner is entitled to claim GST over and above the quoted rates in light of the contract terms and government circulars.
Ratio Decidendi: The court ruled that the explicit terms of the contract, stating that rates are inclusive of GST, must be upheld, and the circulars do not alter this contractual obligation.
Result: Writ petitions dismissed.
JUDGMENT :
Can a person who enters into a contract with the Government or its agencies that contains a specific clause that the rate quoted shall be inclusive of ‘GST & other taxes’ turn around and claim that he is entitled to Goods & Services Tax (GST) over and above the rate quoted by him? This is the short question that arises for consideration in these cases.
2. Petitioners are common in these two writ petitions. Since the issues arising for consideration in these two writ petitions are identical, these writ petitions can be conveniently disposed of by a common judgment. The exhibits and the parties referred to in this judgment are they are marked and they appear in W.P.(C.) No.33109 of 2024, unless otherwise indicated.
3. The Petitioner is a partnership firm engaged in undertaking contracts for construction of roads and bridges and is stated to be a registered ‘A class’ Contractor with the Kerala Public Works Department. It entered into agreements with the Kerala Road Fund Board for certain works. The relevant portions of the contract agreement executed between the petitioner and the Kerala Road Fund Board is marked in both these writ petitions as Ext.P1. While the contract agreement, which is subject matter of W.P.(C.) No.33109 of 2024 relates to improvements to Palode- Brimore road, the agreement, which is subject matter of W.P.(C,) No9.33117 of 2024 relates to improvement to Ayoor-Ithikkara road from km7/500 to 18/900. Clause (43.1) of the agreement (in both cases) read as follows:-
“43.1 The rates quoted by the Contractor shall be deemed to be inclusive of the GST and other taxes that the contractor will have to pay for the performance of this Contract. The employer will perform such duties in regard to the deduction of such taxes at source as per applicable law.”
According to the petitioner, though the agreements in question specified as above, there are certain circulars and instructions issued by the Government from time to time, which indicate that the petitioner in these writ petitions are entitled to disbursement of GST at the applicable rate over and above the amount quoted by the petitioner for the work.
4. Sri. A. Kumar, the learned Senior Counsel appearing for the petitioner in these cases on the instructions of Adv. G. Mini has extensively referred to Ext.P2 Circular dated 14.12.2017, Ext.P3 Circular dated 01.03.2019, Ext.P4 letter dated 07.05.2024, Ext.P5 letter dated 02.08.20224 and Ext.P9 letter dated 17.04.2024 in support of the contention that on account of various factors (which are noticed in the Circulars referred to above), the Government had decided that the estimate for a work shall be prepared without factoring GST and GST shall be paid over and above the amounts quoted by the contractor in respect of the work in question. Substantial reliance is placed on the terms of Ext.P4 letter dated 07.05.2024 and to the examples cited therein to indicate that the petitioner was entitled to claim GST over and above the amount quoted by the petitioner in respect of the work. He submits that when the Government has for itself decided that the amount of GST will be paid over and above the amount for which the work was tendered by the petitioner, it does not lie within the jurisdiction of the Court to deny that benefit to the petitioner on any interpretation of the Circulars referred to above. It is submitted that there were substantial uncertainties immediately after the implementation of Goods and Services Tax with effect from 01.06.2017. It is submitted that it is in such circumstances that the Government thought it fit to issue Circulars/instructions from time to time to deal with situations not contemplated at the time of entering into the contract. It is pointed out that if the terms of the Circulars and the letters referred to above are given their full effect and meaning, the petitioner is clearly entitled to the reimbursement of GST over and above the amount for which the work was tendered by the petitione
AI
A contractor cannot claim GST over and above the quoted rate when the contract explicitly states that the rate is inclusive of GST.
Point of law : Since the terms “except goods and service tax” was specified in Clause 3.3.3 of Ext.P1, the petitioner could only have quoted the bid amount, without including the GST.
A contractor is entitled to GST payments on completed works, as tender rates must be exclusive of GST per government circulars.
The court ruled that tender documents clearly required prices quoted to exclude Goods and Services Tax (GST), affirming that ambiguity in contractual terms did not exist.
Contractual agreements dictate that indirect taxes like GST, not included in the bid price, are the employer's responsibility; contractors are entitled to reimbursement.
The last recipient of services under a works contract is solely responsible for paying GST, not the contractor, affirming the principles of the reverse charge mechanism.
Prior tax regime remains applicable for works contracts executed pre-GST, preventing retroactive GST imposition.
The court affirmed the applicability of prior tax assessment rules over new GST regulations for works contracts executed prior to GST implementation, ensuring equitable treatment for contractors rega....
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