Facts of the Case

The petitioner, M/s Tharun Construction and Co, a construction company in Namakkal District, was awarded a tender in 2020 for construction, renovation and modernisation of irrigation infrastructure along the Valappar river and other rivers, and entered into a works-contract agreement with the Water Resources Department, Government of Tamil Nadu.

Until 18.07.2022, the applicable GST rate on composite supply of works contracts to government/local authorities was 12%, under Notification No. 11/2017-Central Tax (Rate) read with Notification No. 20/2017-Central Tax (Rate). This rate was subsequently increased to 18% by Notification No. 3/2022-Central Tax (Rate) dated 13.07.2022, which amended Notification No. 11/2017 — and this increase took effect while the petitioner's agreement (originally priced at the 12% rate) was still subsisting.

The petitioner claimed to have actually remitted GST at 18% on its turnover from the contract but had been reimbursed by the department only at the 12% rate, and accordingly submitted a representation dated 27.12.2022 seeking payment of the differential GST, referencing the three notifications above.

Issues Involved

  1. Whether the petitioner was entitled to reimbursement of the differential GST (18% minus 12%) on works executed after the rate increase, under an agreement priced at the earlier 12% rate.
  2. What relief was appropriate given that the petitioner's representation on this exact point remained pending before the department.

Petitioner's Arguments

  • The GST rate on the composite supply of works contracts to government departments increased from 12% to 18% with effect from 18.07.2022 by virtue of Notification No. 3/2022-Central Tax (Rate), while the agreement (priced at 12%) was still subsisting.
  • Since the petitioner had actually remitted GST at 18% but was reimbursed only at 12%, it was entitled to payment of the differential rate on all invoices and bills, per the relevant notifications.

Respondent's Arguments

  • The learned Special Government Pleader for the respondent acceded to the position that the petitioner's representation dated 27.12.2022 had been received and would be considered.

Court Order / Findings

  • Since the respondent's counsel accepted that the representation was pending and would be considered, the Court directed the respondent to consider the petitioner's representation for payment of the differential rate of GST, taking into account the relevant notifications, within six weeks from receipt of the order.
  • The Court directed that a personal hearing be granted to the petitioner if needed.
  • The Court did not itself decide whether the petitioner was entitled to the differential GST amount — that determination was left to the department, to be made after considering the notifications cited by the petitioner.

Important Clarification

This order highlights a real and recurring issue for government works contractors: when the GST rate on works contracts changes mid-contract (as it did from 12% to 18% via Notification No. 3/2022-Central Tax (Rate) with effect from 18.07.2022), the contractor may end up bearing the differential unless the awarding department agrees to reimburse it. The Court has not decided the entitlement question here — it has only directed the department to actually examine and decide the pending representation within six weeks.

Sections Involved

  • Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017 (rate on works contract services)
  • Notification No. 20/2017-Central Tax (Rate) dated 22.08.2017
  • Notification No. 3/2022-Central Tax (Rate) dated 13.07.2022 (rate increase to 18% on government works contracts)

Decision – In Favour of

Disposed of without a decision on merits — the department was directed to consider the petitioner's differential-GST representation within six weeks, with the entitlement itself left open.

Case Details

Court: Madurai Bench of the Madras High Court
Case No.: W.P.(MD) No. 17310 of 2023
Coram: Hon'ble Mrs. Justice S. Srimathy
Date of Order: 19.07.2023

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