GST Reimbursement Tied To Contractual Terms, Cannot Override Statutory Scheme: Karnataka High Court

The Karnataka High Court on 25 June held that disputes concerning reimbursement of additional GST liability arise out of contractual arrangements between contractors and employers and cannot be used to alter or override the statutory framework governing GST levy, assessment and recovery.

A Division Bench of Justices S.G. Pandit and Rajesh Rai K. modified a Single Judge's order that had directed reimbursement of GST amounts to a contractor, which was passed relying on Sri Chandrashekaraiah and Others v. The State of Karnataka. The Court observed:

“In view of the subsequent decisions of the Coordinate Bench of this Court, we are of the considered opinion that the learned Single Judge based on Chandrashekaraiah (supra) could not have directed the concerned respondents therein to reimburse GST amount as indicated in the representation. At the best, the learned Single Judge could have directed to consider the representation in accordance with law.”

The dispute arose after the contractor sought release of GST amounts and contended that GST provisions should not apply to works contracts for services rendered prior to 1 July 2017. The Single Judge had earlier allowed the petition, relying on Sri Chandrashekaraiah and Others v. The State of Karnataka (W.P. No. 9721/2019), and directed reimbursement of GST amounts claimed through representations submitted by the contractor.

Before the Division Bench, the State argued that subsequent coordinate Bench rulings had clarified that any reimbursement obligation lies between the contractor and the employer, and not with the tax authorities, and that statutory GST provisions cannot be bypassed through judicial directions.

Accepting the State's contention, the Court held that issues relating to reimbursement of additional tax burden arise out of contractual obligations, whereas levy, assessment, and recovery of GST are governed strictly by statute. It further held that directions permitting revised GST returns or granting waiver of penalties, interest, or limitation periods contrary to statutory provisions could not be sustained.

Accordingly, the High Court modified the Single Judge's order and confined relief to a direction for consideration of the contractor's representations in accordance with law.

For Appellants: Adithya Vikram Bhat, AGA

For Respondents: Halesha R. Gavimath, Advocate for R1 and Aravind V Chavan, Advocate for R2-R5