The Kerala High Court has ruled that a supplier’s statutory obligation to pay Goods and Services Tax does not automatically entitle it to recover the tax separately from the recipient of the service. The decision, delivered by a Division Bench, reinforces the primacy of contractual terms in determining how tax burdens are shared between parties.

The ruling came in a petition filed by V.P. Sugathan, who had secured a tender from the Travancore Devaswom Board to collect fees from artists performing Chendamelam during the Pettathullal at Erumeli in the Mandalam-Makaravilakku season of 1200 ME. Under the tender conditions, Sugathan was entitled to collect ₹50 per performance from the artists. He paid ₹46,98,117 as the tender amount and an additional ₹8,40,261 towards GST at 18 percent.

Sugathan argued that since he was statutorily liable to pay GST on the tender consideration, he should be allowed to collect an additional ₹9 per performance—raising the total fee to ₹59—to cover the tax component. However, the Devaswom Board restricted the collection to ₹50 per performance, maintaining that the prescribed fee was inclusive of all taxes and that no extra amount could be charged from the artists.

The court’s distinction between statutory liability and contractual recovery

The Division Bench, comprising Justice Raja Vijayaraghavan V and Justice K.V. Jayakumar, drew a clear line between a supplier’s duty to discharge tax under the law and its ability to pass that burden on to the recipient.

“The liability of a supplier to discharge the tax payable under the statute and the question as to whether the supplier is entitled to pass on the burden of such tax to the recipient are distinct and separate matters,” the court observed.

The Bench noted that the right to collect tax from the recipient is governed entirely by the terms and conditions of the contract between the supplier and the recipient. Suppliers and recipients are free to agree on whether the consideration is inclusive or exclusive of tax. The statutory liability to pay GST remains with the supplier, but the ability to recover that amount from the customer depends on what the contract says.

Applying this principle, the court found that Sugathan had obtained the right to collect fees through a tender, which prescribed a fixed fee of ₹50 per performance. The tender conditions did not confer any right to collect an additional amount towards GST.

“The contention of the petitioner that the artists are the ultimate recipients of the service and the GST can be passed on to them does not mean that such status would confer upon the petitioner an independent right to recover an additional amount contrary to the terms of the contract,” the Bench held.

No enforceable right to reimbursement from the board

Sugathan also sought reimbursement from the Devaswom Board for the tax component he claimed he had been prevented from collecting from the artists. The court rejected this argument as well, pointing out that Sugathan had failed to identify any statutory or contractual provision requiring the Board to compensate him for the uncollected tax.

The Bench observed that the petitioner had entered into the tender agreement with full knowledge of the ₹50‑per‑performance cap. Having accepted those conditions, he could not later demand that the Board either allow a higher collection or refund the GST component.

“The right to collect tax from the recipient is governed by the terms and conditions of the contract that the supplier of services enters with the recipient,” the court reiterated. Since the tender did not provide for a separate GST charge, Sugathan had no enforceable legal or contractual right to collect ₹50 plus 18 percent GST.

Implications for suppliers and tender participants

The judgment serves as a warning for suppliers and contractors who assume that GST can always be passed on to the end recipient regardless of the underlying agreement. The High Court’s reasoning makes it clear that while the tax liability is statutory, the economic incidence of that tax is a matter of contract.

For businesses bidding on tenders, the decision underscores the importance of carefully reviewing tender conditions to determine whether the quoted price is inclusive or exclusive of tax. If the tender specifies a fixed fee, the supplier bears the risk of any tax liability that cannot be recovered from the third‑party recipients.

The court also rejected any suggestion that the Devaswom Board, as the entity that awarded the tender, had an obligation to reimburse Sugathan for the GST he paid on the tender amount. The Bench noted that the Board had acted within its rights by enforcing the tender conditions as agreed.

Case background and legal representation

Sugathan was represented by advocates R. Krishna Raj, R. Pratheesh (Aranmula), E.S. Soni, Sreeraja V., and Laxmi Priyaa N.P. The Travancore Devaswom Board was represented by standing counsel G. Biju. The state tax department was represented by Special Government Pleader (Tax) Mohammed Rafiq, while the Central Board of Indirect Taxes and Customs was represented by standing counsel V. Girishkumar, and Vivek A.V. appeared for the central government.

The writ petition was dismissed without any order as to costs.

What happens next

The immediate practical consequence of the ruling is that Sugathan cannot collect any additional amount from the artists or seek reimbursement from the Devaswom Board. For the broader legal community, the judgment provides a clear precedent: the right to recover GST from a recipient is fundamentally contractual, not derivative of the statutory obligation.

Suppliers and contractors across sectors should reassess their agreements to ensure that tax recovery mechanisms are explicitly stated. Where contracts are silent or specify an all‑inclusive price, the supplier bears the full cost of GST—even if the tax is ultimately payable to the government. The Kerala High Court’s decision reinforces that commercial clarity, not statutory compulsion, governs who ultimately bears the tax burden.