Facts of the Case

M/s Sadguru Infratech Pvt Ltd, a GST-registered sub-contractor (formerly under KVAT), executed works as part of a joint venture engaged by the Karnataka Neeravari Nigam Limited (KNNL) for a lift irrigation scheme, under a works contract dated 24.06.2017 entered into before the GST rollout, at rates quoted under the pre-GST Schedule of Rates. Since GST at 18% (later 12%) became payable on this contract from 01.07.2017, the sub-contractor's tax liability rose, and it filed its returns for 2017-18 to 2019-20 belatedly. The tax authorities issued a notice in Form GST ASMT-10 demanding interest under Section 50 for delayed payment on as many as twenty-six occasions, followed by a Form GST DRC-13 recovery notice to the sub-contractor's banker. The sub-contractor's writ petition (W.P.No.10163/2020) was allowed by a Single Judge as part of a batch (Chandrashekaraiah and others), which directed GST authorities to permit revised return filing and waived interest, penalty and limitation pending a reconciliation of pre-GST and post-GST tax liability between contracting parties. The tax authorities appealed this common order to the Division Bench.

Issues Involved

  1. Whether a Single Judge could direct GST authorities to waive mandatory interest under Section 50, penalty, and limitation for filing/amending returns, where the underlying dispute concerned reimbursement of incremental tax burden between a contractor and sub-contractor.
  2. Whether the dispute over who bears the increased tax burden from the pre-GST to post-GST transition is a matter between the tax authorities and the assessee, or purely an inter-party contractual dispute.

Petitioner's Arguments

  • [As appellants-GST Authorities] The levy of interest under Section 50 of the CGST Act is mandatory and admits of no discretion to waive or reduce, and there is no statutory provision enabling filing or amendment of returns in the manner directed by the Single Judge.
  • [As appellants-GST Authorities] The directions waiving interest, penalty and limitation, and restraining precipitative recovery action, were contrary to the statutory scheme of the CGST/SGST/IGST Acts.

Respondent's Arguments

  • [As original writ petitioner/respondent in appeal] The dispute as to taxability of works contracts entered into prior to 01.07.2017 was pending consideration before the High Court, and pending its resolution, the sub-contractor should not be subjected to recovery of interest given the confusion over the transitional tax liability.

Court Order / Findings

  • The Division Bench held that the liability to pay GST, whether Central, State or Integrated, is a matter of statutory prescription and cannot be altered by any contract between the contracting parties, and the dispute over who ultimately bears the incremental tax burden is essentially inter-party, between the sub-contractor and the main contractor, not one the tax authorities can be directed to resolve.
  • Citing Pratibha Processors v. Union of India (1996) 11 SCC 101, the Court held that interest on delayed payment of tax under a fiscal statute arises by operation of law and cannot be waived or reduced by a court absent a statutory provision, so the Single Judge's blanket directions waiving interest, penalty and limitation, and permitting non-statutory filing/amendment of returns, were unsustainable and set aside.
  • The direction to 'reimburse' the tax was reinterpreted as binding only the contracting party (main contractor/employer), not the tax authorities, and the impugned order was set aside insofar as it related to the sub-contractor's writ petition (W.P.No.10163/2020), with the appeal disposed of accordingly.

Important Clarification

  • Courts cannot direct GST authorities to waive interest under Section 50, penalty, or limitation for filing/revising returns, since these arise by operation of a fiscal statute and admit no judicial discretion absent an enabling provision — following Pratibha Processors v. Union of India.
  • A dispute over which contracting party bears the incremental GST burden arising from a pre-GST works contract transitioning into the GST regime is a private, inter-party matter to be resolved between the contractor and sub-contractor, not something a writ court can resolve by directing the tax department.

Sections Involved

  • Section 50, CGST Act, 2017 – mandates interest on delayed payment of self-assessed tax, held non-waivable by judicial direction absent statutory basis.
  • Section 79(1)(c), CGST Act, 2017 – recovery mechanism (Form GST DRC-13) used against the sub-contractor's banker.
  • Form GST ASMT-10 – scrutiny notice under the CGST Rules through which the interest demand was first raised.

Decision – In Favour of

The Division Bench allowed the departmental appeal to the extent of setting aside the interest/penalty/limitation waiver directions, disposing the matter largely in favour of the GST authorities on the legal question, while leaving the reimbursement dispute to be resolved between the sub-contractor and main contractor.

Case Details

Court: High Court of Karnataka at Bengaluru. Case No.: Writ Appeal No. 1076 of 2023 (T-RES), arising from W.P.No.10163/2020. Neutral Citation: 2026:KHC:28973-DB. Coram: Hon'ble Chief Justice Vibhu Bakhru and Hon'ble Mrs. Justice K.S. Hemalekha. Date of Order: 10th June, 2026.

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