2024 (4) TMI 611 - HC - GST

Supreme Court Upholds Contractor's Right to GST Reimbursement Under Tender Terms, Mandates Full Compensation

M/s. Green Soul Lifespaces Private Limited Versus Karnataka State Small Industries Development Corporation Limited, Finance Department The State Of Karnataka, Ministry Of Finance, The Goods And Services Tas Council, Principal Commissioner Of Central Tax Bengaluru, Commissioner Of Commercial Taxes Bengaluru.

SC ruled in favor of the petitioner, directing the respondent to reimburse GST amounts paid from 24.05.2019 onwards. The court interpreted contractual ... Seeking reimbursement of GST amount paid by the petitioner - Interpretation of Contract Clause - it is submitted that after having realized its mistake, respondent No. 1 not only informed the petitioner that it would not be liable to reimburse the GST but also deducted the GST already paid in favour of the petitioner and as such there is no merit in the petition and the same is liable to be dismissed - HELD THAT:- A perusal of the material on record, in particular the cumulative effect of the short term tender notification dated 01.02.2019 containing clause C to note No. 1 which stipulates that GST shall be paid to the tendered amount separately as per Rules and applicable Government Orders and notice to the tender notification as well as the work order and other documents will clearly indicate that the rate quoted by the petitioner was exclusive of GST and did not include the same as contended by respondent No. 1. So also, merely because Clause 36 of the scheduled agreement includes sales tax and VAT, in the absence of any material to show that sales tax and VAT include GST also and that the rates quoted by the petitioner include GST, it is opined that respondent No. 1 is liable to reimburse the GST paid in favour of the petitioner. The respondent is hereby directed to reimburse GST amount as indicated in the representation dated 15.04.2023 vide Annexure-E - The respondent/Department shall reimburse the said amount within a period of six weeks from the date of receipt of copy of this order - petition allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether the employer/authority is liable to reimburse GST paid by the contractor where tender notice, work order and related documents indicate rates were quoted exclusive of GST. 2. Whether a contractual clause requiring rates to be 'inclusive of sales tax/VAT' (clause 36) operates to treat GST as included in quoted rates absent any material showing that 'sales tax/VAT' was intended to cover GST or that the contractor's quoted rates included GST. 3. Whether the employer/authority may refuse reimbursement or deduct amounts already reimbursed on the ground that reimbursement would cause a 'huge burden' on the authority. 4. Whether and to what extent the Court should follow or apply the precedent holding that where work was allocated post-GST implementation and contractor paid GST, the department is bound to reimburse GST in terms of statutory scheme. ISSUE-WISE DETAILED ANALYSIS Issue 1: Liability to reimburse GST where tender/work order and related documents show rates exclusive of GST Legal framework: The statutory scheme under the Goods and Services Tax regime requires registered suppliers/contractors to pay GST, and the recipient (department/employer) as service recipient is called upon to reimburse statutory GST where the contract or tender contemplates separate payment of GST. Precedent Treatment: The Court relied on an earlier decision dealing with identical circumstances where reimbursement of GST by the department was directed where the contract was post-GST implementation and rates were treated as exclusive of GST. Interpretation and reasoning: The cumulative documentary record - short term tender notification expressly stating GST shall be paid to the tendered amount separately, the work order showing rate excluding GST, and related notices - demonstrates that rates quoted were exclusive of GST. The Court treats the contractual documents as determinative of parties' intention: where the contract/tender expressly contemplates separate addition of GST, the employer cannot later deny reimbursement. The fact that the authority reimbursed GST for earlier running bills corroborates the contractual understanding and practice. Ratio vs. Obiter: Ratio - Where tender documents and work order expressly or by clear implication treat rates as exclusive of GST, the employer is liable to reimburse GST paid by the contractor. Obiter - None additional on this point. Conclusion: Employer/authority held liable to reimburse GST paid by the contractor on all bills for which GST was payable, subject to particulars in the record. Issue 2: Effect of clause stating rates to be 'inclusive of sales tax/VAT' on GST reimbursement Legal framework: Contract interpretation principles govern whether historical contract language (e.g., 'sales tax/VAT') extends to subsequent tax regimes (GST) and whether that language overrides express tender provisions; objective documentary evidence controls. Precedent Treatment: The Court distinguished the contractual clause from any automatic incorporation of GST into quoted rates where there is no material showing that 'sales tax/VAT' was intended to include GST or that the contractor's quoted rates already included GST. Interpretation and reasoning: Clause 36's reference to 'sales tax/VAT' does not, by linguistic or evidentiary necessity, encompass GST post-implementation. Absent express material showing that the contractor priced GST into the quoted rates, the mere presence of an inclusive-sales-tax clause is insufficient to impute inclusion of GST. The Court emphasizes the primacy of the specific tender notice and work order language stating GST would be paid separately; thus, the inclusive-sales-tax clause cannot be read to negate those express provisions without supporting material. Ratio vs. Obiter: Ratio - A clause referring to 'sales tax/VAT' will not be construed to include GST and to negate an express provision for separate GST payment unless there is material showing the parties intended GST to be included in the quoted rates. Obiter - Observations on the term being a 'misnomer' are descriptive but not necessary to the holding. Conclusion: Clause referring to sales tax/VAT does not defeat contractor's entitlement to GST reimbursement where tender/work order and other documents show rates exclusive of GST and there is no evidence that GST was included in quoted rates. Issue 3: Whether financial inconvenience or 'huge burden' on the authority justifies refusal to reimburse GST Legal framework: Public authorities cannot avoid contractual or statutory liabilities on the ground of administrative inconvenience or financial burden; compliance with statutory tax obligations and contractual terms governs liability. Precedent Treatment: The Court treated the authority's contention of 'huge burden' as legally untenable, citing the authority's prior act of reimbursing GST on earlier bills and the absence of a lawful basis to refuse further reimbursement. Interpretation and reasoning: The Court held that potential financial burden cannot be a valid legal justification to refuse reimbursement of statutory tax components properly payable under the contractual/tender terms. The authority's earlier reimbursement of GST on some bills undermines any claim of inability or impracticality; selective reimbursement followed by later denial is impermissible absent lawful grounds. Ratio vs. Obiter: Ratio - Administrative or financial inconvenience does not excuse non-payment of contractual/statutory obligations to reimburse GST. Obiter - None material. Conclusion: The authority's asserted 'huge burden' is not a sustainable legal ground to refuse reimbursement; reimbursement must be made where the contractual and documentary matrix establishes liability. Issue 4: Application of precedent regarding reimbursement where work was awarded post-GST implementation Legal framework: Where contracts are awarded and works performed after the coming into force of GST, the statutory incidence and the contractual allocation of tax liability determine reimbursement obligations; prior decisions interpreting similar facts are persuasive. Precedent Treatment: The Court followed an earlier decision addressing identical circumstances (post-GST contracts; contractor paid GST; department liable to reimburse), treating that decision as applicable authority supportive of mandamus to direct reimbursement within a time frame. Interpretation and reasoning: The Court found the factual matrix of the present case analogous to the cited precedent - tender and allocation post-GST, contractor a registered service provider who discharged GST liability, and department having an obligation to reimburse statutory GST - and thus adopted the earlier Court's approach of issuing a direction for reimbursement within a stipulated period. Ratio vs. Obiter: Ratio - In cases with analogous facts (post-GST contract, documentary indication of rates exclusive of GST, contractor paid GST), a writ directing reimbursement is appropriate. Obiter - Procedural timelines for reimbursement may be set by the Court as equitable relief. Conclusion: The precedent was followed; the Court directed reimbursement of GST particulars within a fixed period as appropriate relief where documentary and factual parity exists. Remedial Outcome (Court's Conclusion) The writ petition was allowed and the employer/authority was directed to reimburse the GST amounts detailed in the bill particulars within a stipulated period, reflecting the Court's conclusion that documentary evidence shows rates were exclusive of GST, clause referring to sales tax/VAT did not negate that position absent contrary material, and financial burden is not a defense to reimbursement.