Facts of the Case

The petitioner, M/s Ratna Khanij Udyog, was awarded contracts by the respondents for construction and widening of roads under the pre-GST tax regime. At the time of bidding and execution of the contracts, no GST or service tax liability was applicable on the quoted contract value. However, after the implementation of the Goods and Services Tax (GST) with effect from 01.07.2017, the petitioner became liable to pay GST on the services rendered during the execution of the ongoing contracts. Consequently, the petitioner sought reimbursement of the additional GST burden incurred on contracts falling under Categories C1, C2 and C3.

Issues Involved

  1. Whether a contractor executing contracts awarded before the implementation of GST is entitled to reimbursement of the additional GST liability incurred after 01.07.2017.
  2. Whether the State Government is obligated to reimburse the differential tax burden arising due to the introduction of GST.
  3. Whether the contractor is required to furnish documentary evidence establishing the additional GST burden before claiming reimbursement.

Petitioner’s Arguments

  • The contracts were awarded under the pre-GST tax regime and the quoted contract price did not include any GST liability.
  • After the introduction of GST, the petitioner was compelled to discharge additional tax liability on the services provided during execution of the contracts.
  • Since the additional tax burden arose solely because of the implementation of GST, the respondents were liable to reimburse the same.
  • The petitioner sought directions from the Court for reimbursement of the GST paid on the eligible contracts.

Respondent’s Arguments

  • The State Government did not dispute the legal position regarding reimbursement of GST on contracts finalized before 01.07.2017 but continuing thereafter.
  • It was submitted that reimbursement would be granted after verification of the actual additional tax burden suffered by the petitioner.
  • The petitioner was required to furnish complete particulars, including:
    • Taxes paid under the pre-GST regime.
    • GST paid after 01.07.2017.
    • Calculation of the differential tax burden.
  • The respondents contended that the petitioner had approached the High Court without first submitting the necessary documents before the competent authority for verification and processing of the claim.

Court Order / Findings

The High Court observed that the respondents had categorically accepted the principle of reimbursing the additional GST burden on contracts awarded prior to the introduction of GST, subject to verification of the actual liability.

The Court held that:

  • The petitioner shall submit a fresh claim before the competent authorities along with all supporting documents establishing the additional GST liability incurred.
  • Upon receipt of the claim, the respondent authorities shall scrutinize and verify the documents.
  • The competent authority shall take an appropriate decision regarding reimbursement strictly in accordance with the applicable policy.
  • The entire exercise shall be completed within 90 days from the date of receipt of the fresh claim.

Accordingly, the writ petition was disposed of with the above directions.

Important Clarification

  • Reimbursement of GST on pre-GST contracts is not automatic merely because GST has been paid.
  • The contractor must establish the actual additional tax burden through documentary evidence.
  • The State Government acknowledged its obligation to reimburse the differential GST burden where contracts were finalized before 01.07.2017 and continued under the GST regime.
  • Verification of tax calculations and supporting documents is a mandatory prerequisite before reimbursement is sanctioned.

Sections Involved

  • Goods and Services Tax regime introduced with effect from 01.07.2017
  • Government Policy relating to reimbursement of additional GST burden on pre-GST works contracts
  • Article 226 of the Constitution of India (Writ Jurisdiction)

Link to download the order - https://mytaxexpert.co.in/uploads/1782889454_204compressed.pdf

Disclaimer

This content is shared strictly for general information and knowledge purposes only. Readers should independently verify the information from reliable sources. It is not intended to provide legal, professional, or advisory guidance. The author and the organisation disclaim all liability arising from the use of this content. The material has been prepared with the assistance of AI tools.