Tripura High Court Orders Rs 2.21 Crore GST Reimbursement Under Work Contract Clause With 12% Interest

The High Court of Tripura has directed the State authorities to reimburse Rs. 2.21 crore along with 12% interest to a government contractor, holding that taxes paid under the GST regime must be refunded where the contract expressly provides for such reimbursement.

A Division Bench comprising Chief Justice M.S. Ramachandra Rao and Justice Biswajit Palit was dealing with a writ petition filed by Sri Nimai Kar, a Class-I government contractor, who had undertaken a road construction project pursuant to a tender issued on 20.03.2017 by the Public Works Department (PWD), Government of Tripura.

The petitioner had quoted rates factoring a 6% VAT liability under the erstwhile Tripura Value Added Tax Act, 2004. However, with the introduction of the GST regime from 01.07.2017, the applicable tax rate increased to 12% under the CGST and TSGST Act. The work order was issued on November 16, 2017 and the formal agreement was executed on November 24, 2017 after the GST regime had come into force.

Despite the petitioner's prior communication stating that he would not bear any increase in tax liability, the final agreement did not incorporate such a condition. The department proceeded to deduct tax at the higher rate from current bills.

While a portion of the deducted GST was later reimbursed, the petitioner claimed that he had independently deposited Rs. 2,21,48,746.08 as GST and sought reimbursement of this amount along with interest, relying on Clause 42.1 of the agreement, which provided for reimbursement of taxes paid on proof of payment.

The State resisted the claim, contending that the petitioner was liable to pay GST at applicable rates since the contract was executed after the GST regime came into force, and that deductions were made in accordance with contractual terms. It was further argued that absence of “Part-II of Schedule A” in the agreement rendered the reimbursement clause inoperative.

Rejecting these contentions, the Court held that the incidence of tax was indeed governed by the GST laws since both the work order and agreement were post-GST. Accordingly, the petitioner's claim that he was liable to pay only 6% tax was found untenable.

However, the Court emphasized that Clause 42.1 of the agreement clearly entitled the contractor to reimbursement of taxes paid, and such a contractual obligation could not be defeated merely due to absence of a specific schedule referenced therein.

The bench stated that "Clause 42.1 entitles the petitioner to reimbursement of taxes on completed items of works under the said contract as may be levied and paid by him on proof of such payment."

The court noted that the petitioner had produced GST returns and supporting documents evidencing payment of Rs. 2.21 crore, which remained undisputed by the respondents. Denial of reimbursement in such circumstances was held to be arbitrary, illegal, and violative of Article 14 of the Constitution.

The bench further stated that "No doubt, there is no Part II of Schedule A to the agreement between the parties, but the absence of the same cannot defeat the right of the petitioner to claim reimbursement of the taxes paid by him, provided he proves the payment of the same."

Accordingly, the Court directed the respondents to reimburse Rs. 2,21,48,746.08 to the petitioner, after adjusting any amount already paid, along with interest at 12% per annum from the respective dates of payment. The writ petition was allowed accordingly.

For Petitioner: senior Advocate Somik Deb, Advocates Jishan Samed and Adwitiya Chakraborty

For Respondent: Dipankar Sarma, Addl. G.A.