Works Contractor Entitled To Tax Reimbursement For Work

Works Contractor Entitled To Tax Reimbursement For Work Executed Pre-GST But Billed Under GST Regime

Issue

Whether a works contractor is entitled to tax reimbursement or adjustment for pre-GST executed work billed under the GST regime in accordance with transitional guidelines.

Facts

Assessment Period: The dispute pertains to Financial Year 2017–18 involving transitional works contracts.
Transitional Contracts: The petitioner, a works contractor, executed contracts spanning both the Karnataka Value Added Tax (KVAT) and GST regimes for Respondent No. 2.
Tax Payment: Portions of work were completed during the pre-GST era but billed post-GST; the petitioner paid GST on these amounts without recovering the differential tax from the employer.
Representation & Order: The petitioner sought reimbursement/adjustment for the differential tax vis-à-vis KVAT and challenged an adjudication order passed for FY 2017–18 in a writ petition.

Decision

Transitional Benefit Allowed: In favor of Assessee. The writ petition was allowed in line with Chandrashekaraiah v. State of Karnataka, permitting the bifurcation and adjustment of pre- and post-GST components under the transitional framework.
Liberty to Appeal Assessment: Partly in favor of Assessee. Liberty was granted to the petitioner to challenge the 2017–18 assessment order through appropriate statutory proceedings.

Key Takeaways

Bifurcation of Transitional Contracts: Works completed prior to GST implementation but invoiced post-GST qualify for pre- and post-GST tax component adjustments to prevent unfair tax burdens on contractors.
Reimbursement Relief for Unrecovered Tax: Contractors who paid GST out-of-pocket without collecting it from employers are entitled to seek tax reconciliation and reimbursement under state transitional policies.
Preservation of Appellate Rights: The grant of transitional tax relief does not preclude taxpayers from separately challenging underlying assessment orders before statutory forums.

HIGH COURT OF KARNATAKA

Basayya

Assistant Commissioner of Commercial Taxes

C.M. Poonacha, J.

WRIT PETITION NO.102192 OF 2026 (T-RES)

AUGUST 6, 2026

H.R. Kambiyavar, Adv. for the Petitioner. Smt. Nandini Somapur, AGA and G.S. Hulmani, Adv. for the Respondent.

ORDER

1. The present writ petition is filed seeking for the following reliefs:

“(a) Declare that the provisions of Section 7 (3) read with clause 6 of Schedule II of the GST Act is ultravires Article 366 (12A), (26A) (29A) (b) & (f) of the Constitution in view of and settled principles of law laid down by the Hon’ble Supreme Court regarding “works contract”.

(b) Issue a writ or such other order in the nature of Mandamus directing the Respondent No.2 to consider the reimburse the differential GST amount (being the difference between GST rate 12% or 18% and VAT rate) paid by the Petitioner without collecting it from Respondent No.2 for each of the works executed by the Petitioner, as per the sample work order dtd: 23/05/2017 to 15/06/2017 is produced at Annexures-C.

(c) Issue a writ or such other order directing the Respondent No.5 State Government to issue a circular/policy to address the issue of payment of GST on works contract which are executed under VAT regime or subsequent to introduction of GST but bills are raised after introduction of GST wherein, GST is not paid by the Respondents No.2 but is levied and paid by the Petitioner to the GST department till today.

(d) Declare that, GST being an Indirect tax is based on the concept of collect and pay, and the liability to pay is on the taxable person after collecting it from recipient of goods or services i.e., from the employer of works contract (Respondent No.2); AND hence direct Respondent No.2 to pay / refund / reimburse the tax amounts to the Petitioner who has already paid GST without collecting it from Respondents No.2 for contracts executed till today.

(e) Issue Writ of Certiorari or in the like nature of Certiorari quashing the an impugned adjudication order bearing No. CTO/LGSTO-310/ORDER-74/50/2024-25/B-5464, dtd: 04/02/2025 for the tax period F.Y. 2017-18, under Section 74 (9) of the Act, passed by Respondent No. 1 vide Annexure-D, to the petition.

(f) Pass such other orders as may be deemed appropriate under the circumstances of the case, in the ends of justice. “

2. 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 petition 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 [2024] (Kar)/NC:2023:KHC:15431/in W.P.No.9721/2019,Order dated 11.04.2023 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.”

3. 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 Principal Commissioner GST and Central Excise v. R. Chandrashekar [2026] 116 GST 656 (Kar)/NC:2026 KHC:28975-DB/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 Judgment dated 10.06.2026 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.”

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

5. In view of the aforementioned, the present writ petition is allowed in terms of the operative direction Nos.(i), (ii)(a) to (ii)(f), (iii), (iv) and (vii) as held in the case of Chandrashekaraiah (Supra) as noted above.

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

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