Supplier Cannot Automatically Recover GST From Recipient Without Contractual Basis: Kerala High Court

The Kerala High Court has held that a supplier's statutory obligation to pay Goods and Services Tax (GST) does not automatically entitle the supplier to recover the tax separately from the recipient of the service.

“The liability of a supplier to discharge the tax payable under the statute and the question as to whether the supplier is entitled to pass on the burden of such tax to the recipient are distinct and separate matters," the court ruled

"However, the right to collect tax from the recipient is governed by the terms and conditions of the contract that the supplier of services enters with the recipient. The supplier of services and the recipient are free to enter into contracts providing for payment of consideration of the taxable services either inclusive or exclusive of tax. The liability to pay tax is statutory whereas the passing over the burden of tax to the recipient is contractual.,” a Division Bench of Justice Raja Vijayaraghavan V and Justice K.V. Jayakumar held.

The Court was hearing a petition filed by V.P. Sugathan, who had secured a tender from the Travancore Devaswom Board to collect fees from artists performing Chendamelam during the Pettathullal at Erumeli during the Mandalam-Makaravilakku season of 1200 ME.

Under the tender conditions, Sugathan was entitled to collect ₹50 per performance from the artists. He paid ₹46,98,117 towards the tender amount and ₹8,40,261 towards GST at 18%.

Sugathan contended that he was entitled to collect an additional ₹9 towards GST per performance, taking the total fee to ₹59. However, the Devaswom Board restricted the collection to ₹50, maintaining that the prescribed rate was inclusive of all taxes and that no additional amount could be charged.

He also sought reimbursement from the Board for the tax component he claimed he had been prevented from collecting from the artists.

Rejecting his arguments, the Court held that the right to recover GST from the recipient depends on the terms governing the transaction and is not an automatic consequence of the supplier's statutory liability to pay the tax.

The Bench noted that Sugathan had obtained the right to collect fees through the tender and was bound by its conditions. The tender prescribed a fee of ₹50 per performance and did not confer any right to collect an additional amount towards GST.

“The contention of the petitioner that the artists are the ultimate recipients of the service and the GST can be passed on to them does not mean that such status would confer upon the petitioner an independent right to recover an additional amount contrary to the terms of the contract,” the Bench observed.

The Court further held that Sugathan had not identified any statutory or contractual provision requiring the Devaswom Board to reimburse him for the tax amount he could not recover from the artists.

The Bench held that he had failed to establish an enforceable legal or contractual right to collect ₹50 plus 18% GST or to claim reimbursement from the Board.

The writ petition was dismissed without any order as to costs.

For the Petitioner: Advocates R. Krishna Raj, R. Pratheesh (Aranmula), E.S. Soni, Sreeraja V. and Laxmi Priyaa N.P.

For the Respondents: Advocate G. Biju, Standing Counsel for the Travancore Devaswom Board; Mohammed Rafiq, Special Government Pleader (Tax); V. Girishkumar, Standing Counsel for the Central Board of Indirect Taxes and Customs; and Vivek A.V.