Karnataka High Court Directs Authorities to Decide Contractor's ₹2.99 Crore GST Claim

Karnataka High Court Directs Authorities to Decide Contractor's ₹2.99 Crore GST Claim

The Karnataka High Court has directed government authorities to consider and decide a civil contractor's representation seeking payment of Goods and Services Tax (GST) amounting to nearly ₹2.99 crore for road construction and improvement works executed between 2018-19 and 2022-23. Justice Sachin Shankar Magadum, presiding over a single bench, held that keeping such representations pending without decision would leave the contractor without an efficacious remedy.

Contractor Seeks ₹2.99 Crore GST Payment

Shri Jinaraj and Co., a Class-I civil contractor registered as a partnership firm, was awarded multiple contracts by the Public Works Department and the Project Division (PMGSY), Karwar, for improvement and construction of roads. The contractor claimed that although the tender rates initially included all duties and taxes, GST was subsequently levied at 12%, creating an additional financial burden. In August 2024, the firm submitted three separate representations to the respondent authorities demanding a total of approximately ₹2.99 crore—₹2.61 crore to the PMGSY division, ₹25.18 lakh to the PWD Sirsi, and ₹12.44 lakh to the PWD Udupi—towards the GST component. When the authorities failed to act on these representations, the contractor approached the High Court.

PWD Argues Tender Inclusive of All Taxes

The respondents, represented by Additional Government Advocate Sharad V. Magadum, opposed the claim, contending that the contractor had quoted rates inclusive of all taxes and duties. They argued that the final bills had been scrutinised and paid after accounting for the applicable 12% GST, and that no further amount was payable. According to the government, the contractor could not raise additional bills over and above the tendered and accepted rates.

However, the petitioner’s counsel, Advocate Sangram S. Kulkarni, countered that under the GST statutory scheme, the tax component must ultimately be borne by the recipient of the taxable service—in this case, the government authorities. He argued that despite raising invoices incorporating the 12% GST, the respondents had not reimbursed the tax amount.

Court: Service Recipient Must Bear GST

Justice Magadum observed that the liability towards payment of GST on taxable services is well-settled. The Court noted that the service recipient is required to discharge the GST liability once the service provider raises an invoice incorporating the applicable tax, irrespective of the initial statutory obligation on the contractor to deposit the tax with the GST department.

“The issue as to the liability towards payment of GST in respect of taxable services is no longer res integra,” the judge remarked. The Court further held that if the authorities maintained that the final bills already included 12% GST, they must demonstrate this through a proper breakup of the amounts paid, identifying the component attributable to GST. Since the contractor’s representations, accompanied by relevant bills and supporting documents, had remained undecided, the Court found that the petitioner had a legitimate grievance.

‘Keep Representations Pending Leaves Contractor Remedy-less’

In a critical observation, the Court stated: “Merely keeping the representations pending without taking a decision thereon would leave the petitioner without an efficacious remedy in respect of the claim asserted by him.” The judge emphasised that the determination of actual entitlement, including whether the amounts already paid included the GST component, required a thorough examination of the tender conditions, invoices, and payment records by the competent authorities.

High Court Orders Decision Within Six Weeks

The writ petition was partly allowed. The Court directed each of the three respondent authorities—the Executive Engineers of the PMGSY division Karwar, PWD Sirsi, and PWD Udupi—to independently consider the respective representations submitted by the petitioner and pass reasoned, speaking orders within six weeks from the date of receipt of a certified copy of the order. The Court clarified that it had not expressed any opinion on the merits of the claim, leaving the authorities to decide the matter strictly in accordance with law.

The decision underscores the principle that government departments cannot evade their GST obligations on works contracts by simply asserting that tender rates were inclusive of all taxes, especially when the tax component has not been clearly substantiated in payment records.