Facts of the Case

The petitioner, M/s Sri Pathy Associates, a civil engineering contractor, sought a writ of mandamus directing the Directorate of Fisheries and the Port and Inland Water Transport Department, Karnataka, to release GST payments due to it along with interest, in respect of government works contracts that spanned the transition from the erstwhile KVAT regime to GST. The petitioner argued that the tax component of contract value is a statutory pass-through, not profit, and that the employer departments were bound to reimburse the differential tax burden arising from works straddling 01.07.2017.

Issues Involved

  1. Whether government departments were obliged to reimburse contractors for the differential GST/KVAT tax burden on works contracts spanning the tax transition.
  2. Whether contractors who had not filed GST returns for the relevant period could be permitted to file belated returns without interest or penalty.

Petitioner's Arguments

  • Two coordinate benches of the same Court (in W.P.No.9721/2019 and W.P.No.2130/2022) had already held in favour of identically placed petitioners on the same issue, and the present petition should be disposed of on the same terms.

Respondent's Arguments

  • The State's counsel admitted the issue stood covered by the coordinate-bench rulings but urged the Court to withhold relief since the State intended to file a writ appeal against those decisions.

Court Order/Findings

  • The Court rejected the State's request to await a yet-to-be-filed writ appeal, holding that an unstayed binding precedent of a coordinate Bench must be followed.
  • Following W.P.No.9721/2019 and W.P.No.2130/2022, the Court directed the respondent departments to calculate the pre-GST and post-GST components of the works, determine the differential GST-inclusive value, and reimburse the differential tax amount to the petitioner where applicable.
  • The petitioner was directed to submit a comprehensive representation within 4 weeks, which the respondents were directed to dispose of within 8 weeks.
  • The petitioner was permitted to file GST returns/amended returns without interest, penalty, or limitation objections, and the GST authorities were directed not to take precipitative action against the petitioner for 6 months.
  • Liberty was reserved to challenge any subsequent order or decision of the respondents.

Important Clarification

  • GST is a statutory pass-through cost, not part of a contractor's profit; where works contracts straddle a tax-regime change, government employers must compute and reimburse the differential tax burden rather than leave it to the contractor, and courts will protect contractors from interest, penalty, or coercive recovery while such reconciliation is pending.

Sections Involved

  • CGST/KGST Act, 2017 – governs the GST liability on works contracts executed on or after 01.07.2017.
  • Karnataka Value Added Tax Act, 2003 – governed the pre-GST portion of the works contracts.

Decision – In Favour of

In favour of the Assessee – disposed of with directions requiring the government departments to compute and reimburse the differential tax and permitting late GST compliance without interest or penalty, following binding coordinate-bench precedent.

Related Case Laws

No directly on-point case notes are currently published on this site.

Case Details

Court: High Court of Karnataka at Bengaluru
Case No.: WP No.13629 of 2021 (GM-RES)
Coram: Justice M. Nagaprasanna
Decision Date: 13-12-2023
Disposal Nature: Disposed of with directions permitting late GST returns without interest/penalty

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