Facts of the Case

Shri Prabhakar S/o. Rajendra Rao Kulkarni, a Class-I contractor, sought a writ of mandamus directing the Bagalkot Town Development Authority to pay him Rs. 5,62,073.08/- towards GST payable by the respondents on a works contract, along with 18% interest. The dispute arose from the transition from the pre-GST regime (where works contracts with government agencies were taxed under the Karnataka VAT Act at 4-12%, with service tax exempted for government works) to the GST regime from 01.07.2017, which imposed GST at 18% (later 12%) on works contracts treated as 'deemed service', creating a differential tax burden on contractors who had entered into agreements during the pre-GST regime.

Issues Involved

  1. Whether a class-I contractor who executed works contracts with a government agency under pre-GST arrangements is entitled to have the differential GST burden, arising from the change in tax regime from 01.07.2017, absorbed and paid by the government employer.

Petitioner's Arguments

  • Counsel for the petitioner submitted the issue was squarely covered by the Coordinate Bench ruling dated 11.04.2023 in Sri Chandrashekariah and others vs. The State of Karnataka and others (WP No.9721/2019 and connected matters), which dealt with an identical grievance of class-I contractors regarding the GST differential burden on pre-GST works contracts, referencing State Government Circulars dated 03.01.2020 and 14.12.2020 that lay down a methodology for computing tax separately for the pre-GST and post-GST portions of such contracts.
  • It was submitted that other States (Maharashtra, Odisha, Andhra Pradesh, Telangana) had ordered the differential amount to be paid to similarly placed contractors, and parity should be extended.

Respondent's Arguments

  • The State and connected respondents had, in the earlier Chandrashekariah batch matters, taken the position that GST applies only to the portion of works executed after 01.07.2017, while the pre-GST portion remains taxable under the erstwhile KVAT Act, with representations of the contractors stated to be under consideration.

Court Order / Findings

  • The Court reproduced at length its earlier Coordinate Bench ruling in Chandrashekariah, which examined the Government Circulars dated 03.01.2020 and 14.12.2020 laying down a detailed methodology for bifurcating and computing tax liability for the pre-GST and post-GST portions of a works contract, including transitional ITC rebate for unconsumed stock.
  • Holding that 'the issue standing covered by the judgment passed by the Co-ordinate Bench... on all its fours and on the same reasons', the Court disposed of the present petition in the same terms as the Chandrashekariah ruling, directing that the petitioner's claim for the GST differential be examined and given effect to per the methodology set out in the Government Circulars.

Important Clarification

  • For works contracts with government agencies spanning the VAT-to-GST transition on 01.07.2017, the applicable Karnataka Government Circulars (dated 03.01.2020 and 14.12.2020) require the pre-GST portion of the contract value to be taxed under the erstwhile KVAT Act and only the post-GST portion under the GST Act, with the differential GST burden on the post-GST portion to be examined against this bifurcation methodology rather than being borne entirely by the contractor.

Sections Involved

  • Section 15, Karnataka VAT Act, 2003 — composition scheme applicable to certain works contracts in the pre-GST regime.
  • Schedule II, Clause 6 read with Section 7(3), CGST Act, 2017 — treatment of works contracts as a deemed supply of service under GST.

Decision – In Favour of

The writ petition was disposed of in part in favour of the Assessee/contractor, applying the Coordinate Bench's ruling and the Government Circulars' bifurcation methodology, rather than granting an outright direction to pay the specific sum claimed.

Case Details

Court: High Court of Karnataka at Dharwad
Case No.: Writ Petition No. 109559 of 2025 (GM-RES)
Coram: Hon'ble Mr. Justice M. Nagaprasanna
Date of Order: 15.12.2025

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