Government contractors are entitled to GST liability adjustments

Government contractors are entitled to GST liability adjustments and supplementary agreements per established guidelines.

Issue

Whether government contractors executing pre-GST works are entitled to reimbursement/adjustment of additional GST liability through supplementary agreements and guidelines laid down in co-ordinate bench precedents.

Facts

Petitions Filed: Government contractors filed writ petitions seeking directions against respondents to execute supplementary agreements incorporating revised applicable GST rates pursuant to amendments to Notification No. 11/2017-CT (Rate), dated 28-6-2017.
Relief Sought: The petitioners also sought accounting and relief regarding interest and penalties imposed on them under various adjudication orders.
Core Grievance: The central issue related to the reimbursement and adjustment of additional GST liabilities arising from the implementation of the GST Act, 2017 on works initiated under the pre-GST (KVAT) regime.
Reliance on Precedent: Both parties jointly submitted that the issue was squarely covered by the co-ordinate bench decision in Chandrashekaraiah v. State of Karnataka (Karnataka).

Decision

Precedent Followed: The Court allowed the writ petitions in terms of the operative directions issued in the Chandrashekaraiah case.
Process for Calculation & Representation:
- Respondents were directed to calculate works executed pre-GST under the KVAT regime and payments received, and add applicable GST components to those items.
- Petitioners were granted 4 weeks to submit comprehensive representations to their respective employers/respondents.
- Employers/respondents were directed to consider and dispose of these representations within 8 weeks of submission.
Liberty to Challenge: Petitioners were granted liberty to challenge any adverse orders passed by the respondents or to independently assail the underlying assessment orders in appropriate legal proceedings.
Final Verdict: Decided partly in favor of the assessee.

Key Takeaways

GST Adjustment on Transitional Contracts: Government contractors executing contracts spanning the pre-GST and post-GST regimes are entitled to seek supplementary agreements and adjustments for additional GST burdens.
Time-Bound Grievance Redressal: Contractors must submit detailed representations within specified timelines (4 weeks), which competent authorities are required to decide within a set timeframe (8 weeks).
Independent Challenge Preserved: Obtaining contractual or administrative tax adjustments does not preclude contractors from challenging statutory assessment orders, interest, or penalties in appropriate legal forums.

HIGH COURT OF KARNATAKA

Sadashiv S. Bennali

Assistant Commissioner of Commercial Taxes

C.M. Poonacha, J.

WRIT PETITION NOS. 100867 & 100887 OF 2026 (T-RES)

JULY 15, 2026

Sourabh R. Mirje, Adv. for the Petitioner. Smt. Nandini Somapur, AGA for the Respondent.

ORDER

1. The W.P.No.100867/2026 is filed seeking for the following reliefs:

“WHEREFORE, in the light of the above facts and grounds, the Petitioner humbly prays that this Hon’ble Court may be pleased to:

A. Issue a Writ of Mandamus directing the Respondents to consider and dispose of the Petitioner’s representations in terms of the judgment dated 11.04.2023 passed by this Hon’ble Court in Sri Chandrashekharaiah v. State of Karnataka (Annexure K), in a time bound manner and consequently compute and pay the differential GST along with interest and penalty payable in respect of the works executed by the Petitioner.

B. Issue a Writ of Mandamus directing the Respondents to execute an appropriate supplementary agreement incorporating the applicable GST rate component as is set out in the Revision Notification which amended Notification No. 11/2017-Central Tax (Rate), Dated 28-6-2017 (Annexure B) while also accounting for the interest and penalty imposed on the Petitioner under the Adjudication Order – DRC 07 Ref No: ZD2910251137560 dated 30.10.2025 by the Respondent No.1 (digitally signed version is produced as Annexure J); and

C. Grant such other order or direction as this Hon’ble Court may deem fit in the interest of justice and equity. “

2. The W.P.No.100887/2026 is filed seeking for the following reliefs:

“WHEREFORE, in the light of the above facts and grounds, the Petitioner humbly prays that this Hon’ble Court may be pleased to:

B. Issue a Writ of Mandamus directing the Respondents to execute an appropriate supplementary agreement incorporating the applicable GST rate component as is set out in the Revision Notification (Annexure F) which amended Notification No. 11/2017-Central Tax (Rate), Dated 28-6-2017 (Annexure B) while also accounting for the interest and penalty imposed on the Petitioner under the Adjudication Order – DRC 07 Ref No: ZD291025115172T dated 30.10.2025 by the Respondent No.1 (digitally signed version is produced as Annexure J); and

C. Grant such other order or direction as this Hon’ble Court may deem fit in the interest of justice and equity. “

3. It is jointly submitted by the learned counsel for the petitioner and the learned AGA that the question that arises for consideration in the present writ petitions is with regard to the adjustment of Goods and Service Tax [GST] consequent to coming into force of the Central Goods and Service Taxes Act, 2017 [CGST Act]. It is further submitted that a Co-ordinate Bench of this Court in the case of Chandrashekaraiah v. State of Karnataka (Karnataka)/Order dated 11.04.2023 in W.P.No.9721/2019 has disposed of the writ petitions by issuing various guidelines. The operative portion of the said order is as under:

“ORDER

(i)

Petitions are hereby disposed of.

(ii)

The Respondents-State and other Govt agencies/Respondents who have entered into works contract with the Petitioners are issued the following directions/guidelines:-

(a)

Calculate the works executed pre-GST (prior to 1-72017) under KVAT regime and payments received by the Petitioners.

(b)

The payments received by the Petitioners pre-GST for such of the works executed before 1-7-2017 are to be assessed under KVAT tax regime – either under COT or VAT scheme as applicable.

(c)

Calculate the balance works to be completed or completed after 1-7-2017, in the original contract.

(d)

Derive the rate of materials, KVAT items required or used to complete the balance works.

(e)

Deduct the “KVAT” amount from those materials and the service tax, if applicable.

(f)

Add the applicable “GST” on those items.

(g)

Input Credit on the materials is to be arrived at and be set off as against the output GST, for those assessed under regular VAT.

(h)

Further, the “tax difference” should be calculated on such balance works executed or to be executed after 17-2017 separately.

(i)

Based on the result obtained on calculation of the tax difference on the contract value, concerned department/authority has to decide whether agreement needs to be changed or not.

(j)

A supplementary agreement may be signed with the Petitioners for the revised GST-inclusive work value for the Balance Work completed or to be completed as determined above and in case the revised GST-inclusive work value for the Balance Work, completed or to be completed after 1-7-2017, is more than the original agreement work value, the Petitioners are to be paid/reimbursed, as the case may be, the differential tax amount by the concerned employer; so also, in case payments for works completed pre-GST are made post GST, the concerned employer has to pay or reimburse, as the case may be, the differential tax amount, to the Petitioners.

(iii)

Petitioners are directed to submit comprehensive representations to the respective employers/Respondents within a period of 4 weeks from the date of receipt of a copy of this order, irrespective of whether they have completed the works pre-GST or post-GST or payments were received or yet to be received post-GST.

(iv)

If such representations are submitted, the respective employers/Respondents are directed to consider and dispose of the same in the light of the aforesaid directions/guidelines as expeditiously as possible and at any rate within a period of 8 weeks from the date of submission of the representations.

(v)

In view of the interim orders passed by this Court in the present petitions, such of the petitioners who had not filed their GST returns during the period after 1-72017 are permitted to file their returns/amended returns, pursuant to the calculation of the differential tax as per procedure above under GST regime, without insisting on interest or penalty or limitation.

(vi)

The GST authorities are also directed not to take precipitative action against the Petitioners for a period of 6 months from the date of receipt of a copy of this order.

(vii)

Liberty is reserved in favour of the petitioners to challenge any order/decision passed/taken by the respondents or the authorities, subsequent to this order and also take recourse to such remedies as available in law.”

4. It is further jointly submitted that the judgment of the Co-ordinate Bench of the Court in the case of Chandrasekharaiah (supra) was the subject matter of challenge before the Division Bench of this Court in the case of Office of Principal Commissioner GST and Central Excise v. R. Chandrashekar 116 GST 656 (Karnataka)/Judgment dated 10.06.2026 in W.P.No.1587/2023 C/w W.A.No.1599/ 2023, W.A.No.1638/2023, W.A.No.1647/2023 & W.A.No.25/2024 : NC:2026 KHC:28975-DB. The Division Bench has partly allowed the said appeals. The operative portion of the order of the Division Bench is as under:

“8 . The dispute as to whether the writ petitioners would be entitled to reimbursement of the incremental tax paid or payable by them on account of the levy of GST is strictly a matter between the writ petitioners and the Employers with whom they had entered into the contracts. The contracts between the writ petitioners and the Employers would not alter the statutory scheme for the levy of GST. Thus, the liability of the writ petitioners to pay Goods and Services Tax (whether under the Central Goods and Services Tax Act, 2017, the State Goods and Services Tax Act, 2017 or the Integrated Goods and Services Tax Act, 2017) is required to be determined strictly in accordance with the provisions of the relevant statute. The question of the levy of GST, assessment, recovery, and enforcement is a matter of statutory prescription.

9. In view of the above, no directions could be issued permitting the filing of any revised returns contrary to the provisions of the statute. The plenary directions to waive the penalty, interest under the GST Acts or the limitation for filing returns/revised returns are also unsustainable.

10. The controversy as to the incremental tax burden arising on account of the change in the tax regime is, in essence, one between the writ petitioners and the Employers. In the context of such a dispute, no directions could be issued to the tax authorities regarding the levy, assessment, and collection of tax, penalty, or interest.

11. In the aforesaid view, the direction issued to the respondents to reimburse the differential tax is required to be construed as a direction only to the concerned Employers and not to the tax authorities.

12. Accordingly, the impugned order, to the extent it issues directions to the tax authorities, is set aside. The appeal is disposed of in the aforesaid terms.”

5. In view of the judgment of the Division Bench, as referred above, the operative direction Nos.(v) and (vi) as ordered in case of Chandrashekharaiah (supra) have been set aside.

6. In view of the aforementioned, the present writ petitions are allowed in terms of the operative direction Nos.(i), (ii)(a) to (ii)(f), (iii), (iv) and (vii) as held in the case of Chandrashekharaiah¹ as noted above.

7. Since the petitioner has also impugned the assessment orders in the present writ petitions, the petitioner is at liberty to assail the same in appropriate proceedings. The concerned authorities shall not take into account time period spent by the petitioner in prosecuting the present petitions.

8. In view of disposal of the writ petitions, pending interlocutory applications, if any, do not survive for consideration and are disposed of.