Article 14 and contractual tax adjustment bar discriminatory denial of GST refund under amended procurement rules.

A State instrumentality remains subject to Article 14 in contractual dealings, and writ jurisdiction is not barred merely because the dispute arises from a contract where the challenge concerns allegedly arbitrary State action. The Rajasthan HC held that Clause 36E, inserted by the 07.01.2021 amendment to the Public Works Financial & Accounts Rules, applied to the government undertaking because its contracts were governed by those rules and no separate regime excluded them. On that basis, denial of refund for the differential GST increase during performance was held discriminatory, as Clause 36E required equitable tax adjustment, and the petitioner was entitled to refund with interest.

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Issues: (i) Whether the writ petition was maintainable despite the contractual nature of the dispute and the availability of the statutory dispute-redressal mechanism under the procurement law; (ii) Whether the order dated 07.01.2021 inserting Clause 36E in the Public Works Financial & Accounts Rules, Part-II applied to the respondent corporation; (iii) Whether denial of refund of the differential 6% GST was arbitrary and discriminatory, and whether the petitioner was entitled to refund with interest.

Issue (i): Whether the writ petition was maintainable despite the contractual nature of the dispute and the availability of the statutory dispute-redressal mechanism under the procurement law?

Analysis: The dispute arose from a government-linked contract, but the relief claimed involved interpretation of a State-issued amendment affecting contractual tax liability. The Court held that writ jurisdiction is not barred merely because the matter arises from contract, especially where the challenge is to State action said to be arbitrary or discriminatory. The Court also held that the internal dispute-redressal mechanism under the procurement framework did not oust writ jurisdiction in the facts of the case.

Conclusion: The writ petition was held to be maintainable.

Issue (ii): Whether the order dated 07.01.2021 inserting Clause 36E in the Public Works Financial & Accounts Rules, Part-II applied to the respondent corporation?

Analysis: The Court found that the respondent corporation was a Government of Rajasthan undertaking under substantial governmental control, that its contracts were governed by the Public Works Financial & Accounts Rules and related governmental circulars, and that no separate contractual regime excluding those rules had been shown. On that basis, the Court concluded that the amendment introducing Clause 36E governed the respondent corporation as well.

Conclusion: The order dated 07.01.2021 and Clause 36E were held applicable to the respondent corporation.

Issue (iii): Whether denial of refund of the differential 6% GST was arbitrary and discriminatory, and whether the petitioner was entitled to refund with interest?

Analysis: The Court held that Clause 45.1 did not deal with tax revision during performance of the contract, whereas Clause 36E expressly provided equitable adjustment where tax rates changed during performance. Since the GST rate increased while the work was ongoing, and similar benefit was being extended in comparable government contracts, refusal to extend the same benefit to the petitioner was held to be discriminatory and contrary to Article 14. The Court also rejected the estoppel objection.

Conclusion: The petitioner was held entitled to refund of the differential 6% GST with interest.

Final Conclusion: The petition succeeded on the footing that the State-issued amendment governing tax escalation applied to the contract, and the refusal to extend the corresponding GST adjustment was unlawful.

Ratio Decidendi: A State instrumentality engaged in contractual dealings remains bound by Article 14, and where a later governmental amendment expressly provides equitable tax adjustment during performance of the contract, denial of that adjustment to similarly situated contractors is arbitrary and unsustainable.

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