Facts of the Case

Tomco Engineering (P) Ltd., a contractor, was awarded certain works by the Kerala Water Authority. At the time the tender was floated and the work order was issued, the applicable indirect tax considered in the contract was Value Added Tax (VAT) at 5% under the Kerala Value Added Tax Act. Service Tax was fully exempt since the work was executed for a Government entity.

After the implementation of the Goods and Services Tax (GST) regime with effect from 01.07.2017, the exemption was withdrawn, and GST became payable at 12% on the execution of the contract. The petitioner contended that the Kerala Water Authority had itself issued Ext.P2 Circular providing for reimbursement of GST in such circumstances. However, despite the circular, the petitioner's claim for reimbursement was not considered, compelling the filing of the writ petition.

 

Issues Involved

  1. Whether the contractor was entitled to reimbursement of GST payable after the introduction of GST where the original tender had considered only VAT.
  2. Whether the Kerala Water Authority was required to consider the reimbursement claim in accordance with its own GST Circular (Ext.P2).

 

Petitioner’s Arguments

  • The tender conditions and contract value were based only on VAT at 5%, as applicable under the pre-GST regime.
  • Service Tax was exempt because the work related to a Government entity.
  • After the implementation of GST, the petitioner became liable to pay GST at 12%, resulting in an additional tax burden.
  • The Kerala Water Authority had issued Ext.P2 Circular, which specifically contemplated reimbursement of GST in such situations.
  • Despite the circular, the respondents failed to process or decide the reimbursement claim, making judicial intervention necessary.

 

Respondent’s Arguments

The Kerala Water Authority submitted that it had no objection to considering the petitioner's claim for GST reimbursement in accordance with Ext.P2 Circular. The Authority requested that an appropriate direction be issued permitting consideration of the claim under the said circular.

 

Court Order / Findings

The Kerala High Court observed that, in view of the stand taken by the Kerala Water Authority, the petitioner's claim deserved consideration under Ext.P2 Circular.

Accordingly, the Court directed the Kerala Water Authority to:

  • Consider the petitioner's claim for reimbursement of GST strictly in accordance with Ext.P2 Circular.
  • Provide the petitioner with an opportunity of being heard before taking a decision.
  • Pass appropriate orders within two months from the date of receipt of a certified copy of the judgment.

The writ petition was disposed of with the above directions.

 

Important Clarification

  • Introduction of GST after execution of a Government contract may give rise to a legitimate claim for reimbursement where the original contract price was based on the pre-GST tax structure.
  • Government departments and public authorities must consider reimbursement claims in accordance with their applicable circulars or policy decisions.
  • The judgment does not automatically grant reimbursement but mandates fair consideration of the claim after providing an opportunity of hearing.
  • Administrative authorities are expected to decide such claims within the time prescribed by the Court.

Sections / Legal Provisions Involved

  • Goods and Services Tax (GST) Act, 2017
  • Kerala Water Authority GST Circular (Ext.P2)
  • Article 226 of the Constitution of India
  • Principles relating to reimbursement of GST on Government contracts executed after implementation of GST


Link to download the order -

https://www.mytaxexpert.co.in/uploads/1784625969_1634compressed.pdf

 

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