Facts of the Case

The petitioner, Sri O.M. Santhosh Kumar, a PWD works contractor in Kodagu district, challenged a show cause notice dated 26.09.2022, an Order-in-Original dated 18.03.2024 passed under Section 74 of the GST Act, 2017, and a consequential bank attachment dated 17.03.2025 under FORM GST DRC-13, arising from differential GST liability on works contracts spanning the pre-GST and post-GST periods. The petitioner alternatively sought a direction to the various PWD, Rural Development, Panchayat Raj engineering divisions and the Taluk Panchayat to enter into supplementary tender agreements and reimburse the differential CGST/KGST component along with interest and penalty on completed works.

Issues Involved

  1. Whether a works contractor's tax demand arising from the transition of tender rates from the pre-GST VAT regime to GST could be sustained without corresponding reimbursement by the government employer.
  2. Whether government departments engaging works contractors are obligated to reimburse the differential GST liability under Section 13 of the CGST Act.

Petitioner's Arguments

  • The issue was squarely covered by the Karnataka High Court's earlier rulings in Chandrashekaraiah and M.G. Arunkumar, which held government departments liable to reimburse differential GST on works contracts spanning the GST transition.
  • As a registered contractor mandatorily liable to pay GST on services rendered, the petitioner was entitled to reimbursement of the GST component from the government employer under Section 13 of the CGST Act.

Respondent's Arguments

  • No substantive opposition was recorded from the state and departmental respondents to the reimbursement framework laid down in the cited precedents; the matter proceeded largely on the basis of those binding rulings.

Court Order / Findings

  • Following its own binding precedents in Chandrashekaraiah and M.G. Arunkumar, the Court held that government departments engaging works contractors are under a bounden statutory duty to reimburse the differential GST liability arising from the transition from the pre-GST tax regime, and cannot leave the contractor to bear a tax burden generated by post-GST rate changes.
  • The impugned show cause notice, Order-in-Original dated 18.03.2024, and bank attachment dated 17.03.2025 were quashed, with a direction to rectify or withdraw the demand of tax, interest and penalty.
  • The concerned respondents were directed to reimburse the GST and differential tax amount within six weeks and to execute supplementary tender agreements reflecting the revised GST-inclusive work value.

Important Clarification

  • Where a works contract straddles the pre-GST and post-GST periods, the government employer - not the contractor - bears responsibility for reimbursing the differential GST liability generated by the regime change, per Section 13 of the CGST Act.
  • Recovery/demand proceedings against the contractor for such differential tax, including bank attachments, are liable to be quashed until the employer completes the reimbursement and supplementary agreement exercise.

Sections Involved

  • Section 74, CGST Act, 2017 - determination of tax involving fraud or wilful misstatement.
  • Section 13, CGST Act, 2017 - time of supply of services, relevant to reimbursement obligations.
  • Section 79(1)(c), CGST Act, 2017 - recovery by attachment of bank accounts.

Decision – In Favour of

Decided in favour of the assessee; demand, order and bank attachment quashed with reimbursement directions to the government employer.

Case Details

  • Court: High Court of Karnataka at Bengaluru
  • Case No.: WP No. 2743 of 2025 (T-RES)
  • Coram: Justice S.R. Krishna Kumar
  • Date: 8th December, 2025

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