Deduction of Embedded KVAT and Addition of 18% GST for Works

Deduction of Embedded KVAT and Addition of 18% GST for Works Completed Post-GST Is Valid

Issue

Whether deducting embedded KVAT/Service Tax from pre-GST quoted contract rates and adding 18% GST on the net figure for government contracts completed after 1 July 2017 amounts to impermissible double taxation.

Facts

Nature of Business: The assessee is an ‘A’ Class Government contractor who executed three civil work projects for the respondent Electricity Board.
Transition Period: The contracts were awarded prior to or during the tax transition, but all three works were completed after the GST regime came into force (post 1 July 2017).
Billing Settlement: The respondent authority settled the contractor’s bills by deducting the embedded pre-GST taxes (KVAT/Service Tax) from the original quoted rates and applying GST at the rate of 18% on the net value.
Assessee’s Challenge: The contractor challenged this computation alleging impermissible double taxation and raised disputes regarding the quantification of the final payout.

Decision

Valid Statutory Alignment: The court/authority held that since all works were completed after GST implementation, tax liability must be governed entirely under the GST regime.
Absence of Double Taxation: Because KVAT was abolished, deducting the embedded pre-GST tax element from the total quoted rate and adding 18% GST on the net contract value is legally sound and prevents overlapping taxation.
Factual Quantification: Any dispute regarding the exact arithmetic quantification involves factual determinations and must be pursued before the appropriate civil or administrative forum.
Outcome: The method of calculation followed by the respondent authority was upheld, and the issue was decided in favour of the revenue.

Key Takeaways

Applicability of New Regime: For works executed and completed after July 1, 2017, statutory tax liability is determined exclusively under the CGST/SGST framework.
Neutralizing Embedded Taxes: Deducting legacy pre-GST tax components (KVAT/Service Tax) from older contract quotes before adding current GST rates ensures a clean transition without double taxation.
Scope of Writ Remedies: Disagreements over specific bill calculations or monetary quantifications under government contracts represent factual disputes that cannot be resolved in writ jurisdiction.

HIGH COURT OF KERALA

D.Sureshbabu

Kerala State Electricity Board Ltd.

Mrs. Preeta A.K., J.

WP (C) NO. 23893 OF 2020

JULY 10, 2026

S. Vidyasagar, Adv. for the Petitioner. G. Keerthivas and Riji Rajendran, Advs. for the Respondent.

JUDGMENT

1. Petitioner, an A Class Government contractor, had undertaken three civil works of the 1^st respondent, Electricity Board, evidenced by Exts. P1, P2 and P3. Ext.P1 work order is dated 31.5.2017, Ext.P2 is dated 03.8.2017, and Ext.P3 is dated 30.8.2018. Even though the official date of commencement of work in respect of Ext.P1 is 31.5.2017, going by Ext.P4, the actual date of commencement of work is 25.8.2017. While so, the tax regime in India changed, and the Value Added Tax (for short “VAT”) and Service Tax were replaced by a single tax, namely Goods and Services Tax (for short “GST”), which commenced its operation on 1.7.2017. Therefore, it is the contention of the petitioner that on and from 1.7.2017, all works executed would have to be governed by the provisions of the Goods and Services Tax (GST) Act, 2017, and no tax liability can be effective for realizing the VAT and other State Taxes. It is the contention of the petitioner that, after the works were completed, he submitted the contract bills, and the respondent illegally recovered amounts additionally from the bills of the petitioner corresponding to Kerala Value Added Tax (for short ‘KVAT’) and, in addition thereto, recovered amounts under GST. The petitioner, therefore, challenges Ext.P9 order, which according to him is illegal and arbitrary.

2. When the matter came up for hearing on 22.6.2026, the learned counsel for the respondents sought time to file a counter affidavit in the matter.

3. I have gone through the counter affidavit filed by the respondents. The respondents have taken up a contention that the settlement of bills and release of payments in the said works were carried out in accordance with the statutory provisions contained in the GST regime and that no amounts were recovered towards VAT work contract tax or Service Tax. Relying on Ext.R1(a), the respondents contend that the rates quoted by the petitioner were inclusive of all taxes and duties, as provided under Clause 11.4, and that the tax liability towards work contract tax was 4% and Service Tax was 3%. Since the bills came to be settled after the introduction of the GST regime, the said tax components were not payable separately, and instead, GST @ 18% was released to the petitioner over and above the admissible contract value, as the liability to remit GST vested with the contractor. The respondents, therefore, submit that the petitioner cannot simultaneously claim release of work contract tax and Service Tax, as the GST component has already been added and disbursed to the petitioner.

4. The respondents have drawn my attention to Ext.R1(b) series, which are the bills paid to the petitioner. According to the learned counsel for the respondents, from out of the total bill amount, the amount equal to the tax liability under work contract tax and Service Tax was deducted, and on the amount so arrived at, 18% GST was added, and the total value of the work was thereafter determined. Payments were released after effecting the agreed deductions, and therefore, the contention of the petitioner is unsustainable.

5. I have heard the learned counsel for the petitioner as well as the respondents and perused the materials on record.

6. It is admitted by both parties that, even though one of the three works commenced prior to the GST regime, all the three works were completed after the introduction of the GST regime. Therefore, even going by the admission of the respondents, the tax to be levied is under the GST regime. On going through Ext.R1(b) series, it is seen that the amounts quoted along with the tender towards KVAT liability have been deducted from the contract amount, and thereafter, the GST amount has been added to the contract value. Therefore, the contention of the petitioner that there is double taxation both under the KVAT as well as under the GST is not sustainable.

7. The learned counsel for the petitioner points out that the quantification in Ext.R1(b) series is not correct and that the same has to be reworked. As far as Ext.P9 is concerned, the order which is under challenge, it is seen that Ext.P9 is only a reflection or explanation of the bills that have been generated and produced as Ext.R1(b) series. Ext.P9 specifically states that the tender was submitted by the petitioner by including the tax liability under KVAT and Service Tax. Therefore, as KVAT no longer exists, the amount so quoted has been deducted from the bill amount, and on such amount, GST @ 18% has been added to arrive at the total contract value. The explanation is in consonance with the statutory provisions. Therefore, I find no reason to interfere with Ext.P9 order passed by the respondents.

8. However, after going through Ext.R1(b) series, the learned counsel for the petitioner contends that there is a dispute pertaining to the amounts that have been calculated. As the same is a question of fact which has to be addressed before the appropriate forum, even though I sustain Ext.P9, I direct the respondents to consider the grievance of the petitioner regarding the calculation of the amounts stated in Ext.R1(b) series. Liberty is granted to the petitioner to approach the appropriate jurisdictional authorities in order to resolve the dispute, if any.

9. With the said direction, the Writ Petition is disposed of as above.