Government Is Bound to Reimburse Contractors for Differential GST Burden on Pre-GST Works Contracts

By | August 11, 2026
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Government Is Bound to Reimburse Contractors for Differential GST Burden on Pre-GST Works Contracts

Issue

Whether a government contractor executing a pre-GST works contract is entitled to reimbursement from the State for the additional tax burden arising from the transition from VAT to GST after July 1, 2017.

Facts

  • Pre-GST Contract Execution: The petitioner, a Class-I registered civil contractor, entered into a pre-GST works contract for the construction of a City Municipal Council office building.
  • Tax Regime Change: During the subsistence of the contract, the GST regime came into force on July 1, 2017, replacing the VAT system and resulting in an additional tax incidence on the works contract.
  • Tax Discharged: The petitioner paid the differential GST amount to the competent tax authority.
  • Reimbursement Claim & Inaction: The petitioner submitted a representation to the respondents (State and Municipal Council) seeking reimbursement for the GST-induced tax differential, but the authority failed to respond, leading to a writ petition.

Decision

  • Recipient Bears Differential Tax: It is well settled that the recipient of a works contract service (the State or its instrumentalities) must bear any increase in tax liability caused by the introduction of the GST regime on pre-GST contracts.
  • Legal Right to Reimbursement: Since the petitioner discharged the differential GST and the respondents benefited from the executed work, the petitioner acquired a clear legal right to reimbursement.
  • Mandamus Issued: A writ of mandamus was issued directing the respondents to consider the petitioner’s representation, verify the actual GST-induced differential tax paid, and reimburse the amount within the framework of the law.

Key Takeaways

  • State Obligation on Pre-GST Works Contracts: The transition burden from VAT to GST on pre-existing contracts falls on the service recipient (Government/State instrumentality), not on the contractor.
  • Verification Mandate: Reimbursement is strictly confined to the actual tax differential resulting from the GST regime change and is subject to verification of proof of tax payment by the contractor.
  • Enforceability via Mandamus: Failure by State authorities to decide or act upon representations for GST reimbursement on pre-GST contracts warrants judicial intervention under Article 226 through a writ of mandamus.
HIGH COURT OF KARNATAKA
Er. Roland S. Fernandes
v.
Government of Karnataka
Sachin Shankar Magadum, J.
WRIT PETITION NO. 105717 OF 2026 (GM-RES)
JULY  30, 2026
Smt. Vidyashri N. Mulimani, Adv. for the Petitioner. Sharad V. Magadum, AGA for the Respondent.
ORDER
1. The petitioner is seeking mandamus directing the respondents to reimburse the differential Goods and Services Tax (for short ‘GST’) amount of Rs.15,49,709/- with interest at the rate of 18% per annum from the date of remittance till realization in terms of representation dated 13.04.2026 as per Annexure-B.
2. Heard learned counsel for the petitioner and learned Additional Government Advocate appearing for respondents-State. Perused the records.
3. The petitioner, a Class-I Registered Civil Contractor, was entrusted with the work of “construction of “Construction of City Municipal Council Office Building at Karwar Taluk, Uttara Kannada District”. It is the specific case of the petitioner that during the subsistence of the contract, the Goods and Services Tax (GST) regime came into force with effect from 01.07.2017, replacing the earlier Value Added Tax (VAT) regime. Consequent upon such introduction of GST, the petitioner was required to bear additional tax liability and, therefore, claims reimbursement of the differential tax amount from the respondents-State.
4. The controversy relating to liability to bear the differential tax consequent upon introduction of GST is no longer res integra. In an identical matter in M.G. Arunkumar v. State of Karnataka (Karnataka)/W.P.No.104908/2023, disposed of on 29.08.2023, this Court has held that the recipient of the works contract service is liable to bear the differential tax liability arising on account of introduction of GST. This Court has further held that the State, its instrumentalities and Departments are under an obligation to reimburse the differential GST amount payable by the contractor.
5. In the present case, the petitioner has already discharged the differential GST liability before the competent authority. Alleging inaction on the part of the respondents in reimbursing the said amount, the present writ petition is instituted. In view of the consistent line of decisions rendered by this Court on the issue, the petitioner has acquired a corresponding legal right to seek reimbursement of the differential GST amount. The respondents, being beneficiaries of the work executed by the petitioner and in view of the law laid down by this Court, are under a bounden duty to reimburse the differential GST amount. Therefore, this Court is of the view that the petitioner has made out a case for issuance of a writ of mandamus.
6. For the foregoing reasons, this Court proceeds to pass the following:
ORDER
(i) The writ petition is allowed.
(ii) The respondents are directed to consider the representation dated 13.04.2026 (Annexure-B) and determine the differential GST amount payable to the petitioner in accordance with law.
(iii) Upon such determination, the respondents shall reimburse the differential GST amount to the petitioner within a period of six weeks from the date of receipt of a certified copy of this order.
(iv) It is made clear that the reimbursement shall be confined only to the differential tax liability attributable to the introduction of the GST regime and shall be subject to verification of records and calculations in accordance with law.