The Madras High Court has held that government contractors are entitled to reimbursement of the additional GST paid due to the transition from the VAT regime to the GST regime, provided the change in tax law occurred after the contracts were awarded.
A Bench of Justice C. Saravanan asked the Greater Chennai Corporation to reimburse the GST burden borne by Sakthi Constructions for the remaining works under government contracts that were given before the inception of GST on 1 July 2017. He stated:
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“There is no doubt that on account of increase in the tax component due to implementation of the respective GST Enactments with effect from 01.07.2017, the respective Petitioners are entitled to reimbursement in terms of the principle akin to Section 64-A of Sale of Goods Act, 1930”.
The Greater Chennai Corporation has given government contracts to Sakthi Constructions when the VAT regime was in force. Post-rollout of the GST on 1 July 2017, the contractor is obligated to pay GST on the remaining works performed under the contracts.
Thereafter, the contractor asked for the reimbursement of the additional GST paid because of the revision in the tax regime.
Although the corporation does not accept the claim and said that the contractor had not sought price adjustment at the time of the execution of the works and had raised the claim merely after the competition of the contracts.
Sakthi Constructions, before the HC, has said that the shift from VAT to GST has surged its tax obligation and that the additional burden had been carried by the corporation under the General Conditions of Contract and the State Government’s G.O.Ms. No.296 dated 9 October 2017.
The Court said that Clause 43.2 of the General Conditions of Contract needs adjustment of the contract price when there was a revision in taxes at the time of the execution period.
The Court observed that the contractual clause incorporates the principle embodied in Section 64A of the Sale of Goods Act, 1930, which allows for the adjustment of contract prices to account for changes in tax rates or the imposition of new taxes.
It then placed reliance on Clause 6 of G.O.Ms. No.296, Finance (Salaries) Department dated 9 October 2017, which provides that after the roll out of the GST, the supplier shall collect GST from the purchaser while raising bills and tax invoices and remit the same to the government, with the tax lastly being carried by the purchaser.
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The Bench said that the corporation could not withhold the retention amount only because audit objections were due. It said that audit objections raised via the Accountant General could not be a reason to refuse the release of the amounts due to the contractors. It mentioned that-
“In my view, the retention amounts are to be refunded unless there are reasons for appropriating the retention amounts on account of the works executed by the respective Petitioners under the contract. Merely because the audit objections were raised by the Audit General would not be a ground for not processing the amount claimed by the respective Petitioners for refund of the aforesaid retention amounts”.
Although the bench did not determine the contractors’ claims pertinent to the price rise, carrying that these claims have involved disputed questions of fact and need to be resolved via the contractual dispute resolution procedure.
Therefore, the HC asked the Greater Chennai Corporation to reimburse the GST element arising from the revision in the tax regime and refund the retention amount with commercial interest, leaving the problem of the increased cost to be pursued separately under the contract.
| Case Title | M/s Sakthi Constructions vs. The Additional Chief Secretary/Commissioner |
| Case No. | W.P.Nos.15786, 15936 and 15940 of 2024 |
| For Petitioner | Mr.V.P.Senguttuvel, and Mr.K.R.Nishanth |
| For Respondent | Mr Pramod Kumar Chopda and Mr E.C.Ramesh |
| Madras High Court | Read Order |
