GST on Pre-GST Works Contracts Is Reimburseable Based on GST-VAT Differential for Post-December 2017 Supplies

By | October 15, 2026
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GST on Pre-GST Works Contracts Is Reimburseable Based on GST-VAT Differential for Post-December 2017 Supplies

Issue

Whether a contractor executing a pre-GST works contract is entitled to reimbursement of GST incurred post-July 1, 2017, and how such reimbursement should be calculated considering the tax transition from VAT to GST.

Facts

  • Pre-GST Contract: The contractor was awarded a pre-GST works contract for the construction of a hospital block at Palakkad Medical College.
  • GST Implementation: On July 1, 2017, the GST regime commenced. The contractor paid GST on the ongoing execution of the project and sought reimbursement from the owner/department.
  • Initial Approvals: Both the project owner and the Public Works Department (PWD) accepted the contractor’s GST liability, and authorities recommended reimbursement.
  • Single Judge Ruling: A Single Judge allowed the contractor’s petition seeking full reimbursement of GST.
  • State’s Appeal: The State appealed against the Single Judge’s order.
  • Notification & Agreement: A Kerala State notification dated December 14, 2017, mandated that bids/works be recalculated on a GST-excluded basis. During the proceedings, the parties agreed that VAT was already factored in, and reimbursement should be limited to the GST-VAT tax differential for supplies made after December 14, 2017.

Decision

  • Nature of GST: GST is an indirect tax under Section 15 of the CGST/KGST Act that could not have been factored into the original bid since the tax was non-existent at the time of tender.
  • Accrual of Liability: The statutory liability for GST on execution of the works contract arose with effect from July 1, 2017.
  • Differential Reimbursement: In terms of the State notification dated December 14, 2017, and the consensus reached between the parties, reimbursement is to be confined strictly to the differential amount between GST and the pre-existing VAT liability for supplies executed after December 14, 2017.
  • Disposal of Appeal: The appeal was disposed of with directions to the authorities to recalculate and release the reimbursement accordingly. (Partly in favour of assessee)

Key Takeaways

  • Pre-GST Contract Relief: Contractors executing legacy works contracts transitioning into the GST regime are entitled to relief for additional tax burdens that were unpredictable at the time of bidding.
  • GST-VAT Differential Principle: Reimbursement for pre-GST contracts is not granted on the full gross GST amount; it is calculated after deducting the embedded VAT component already factored into the original contract price.
  • Cut-Off Date Adherence: State notifications governing GST transition for public works contracts (such as the December 14, 2017 notification in Kerala) strictly define the timeline and calculation methodology for re-evaluating tax reimbursements.
HIGH COURT OF KERALA
State of Kerala
v.
Mary Matha Infrastructure (P.) Ltd.
Soumen Sen, CJ.
and Syam Kumar V.M., J.
WA NO. 1845 OF 2026
OCTOBER  5, 2026
Rinoy Vincent, GP for the Appellant. Santhosh Mathew, Sr. Adv., Shinto Mathew Abraham, Smt. Veena Raveendran, Anil Sebastian Pulickel, Mathew Nevin Thomas, Smt. Leah Rachel Ninan, Karthik Rajagopal, Smt. Aparnna S., Noel Ninan Ninan, Adeen Nazar, Rohan Mathew and Smt. Saira Susan Jojoe, Advs. for the Respondent.
JUDGMENT
Soumen Sen, C.J. – Heard Mr. Rinoy Vincent, learned Government Pleader appearing for the appellants and Mr. Santhosh Mathew, learned Senior Advocate appearing for the respondent.
2. The State is aggrieved by the judgment in Mary Matha Infrastructure (P.) Ltd. v. State of Kerala W. P. (C) No. 38282 of 2023, dated 17th March 2026. The learned Single Judge, in a writ petition preferred by the contractor alleging non-payment of the full contractual amount due to the petitioner, allowed the said writ petition and directed the appellants to take effective and immediate steps to reimburse the GST amount paid by the petitioner in terms of the observations made in the said judgment. Being aggrieved, the State has preferred this appeal.
3. The appellants, for the purpose of construction of a hospital block (consisting of a Ward, OP and OPD) at the Institute of Integrated Medical Sciences, Palakkad Medical College, invited tender in which the writ petitioner participated as a successful bidder. The bid was accepted at four percent below the estimated rate and the formal tender agreement was executed between the writ appellant, the writ petitioner and the Superintending Engineer, PWD, on 30th January 2017. The dispute arises with regard to the GST payable to the petitioner on the BoQ that was executed by the writ petitioner. It is not in dispute that the contract has been successfully executed. .
4. The tender document and the formal agreement dated 30th January 2017 are all prior to the coming into force of the Goods and Services Tax. The said Act was notified by the Government of India with effect from 1st July 2017. However, prior to the coming into force of the appropriate rules, the tender and the agreement were executed by the parties. In the light of the aforesaid, Clauses 3.10.3 and 3.10.4 are required to be considered. The said Clauses are reproduced below:-
“3.10.3. All duties, taxes, transportation, loading, unloading, octroi payable by the Contractor under the Contract, or for any other cause shall be included in the rates, prices and the total Bid Price submitted by the Bidder. All incidentals, overheads, leads, lifts, carriages etc. as may be attendant upon for execution and completion of items, shall also be included in the rates, prices and total Bid Price submitted by the bidder.
3.10.4. The rates and prices quoted by the Bidder shall be fixed for the entire duration of the contract and shall not be subject to variations on any account except to the extent of variations allowed as per the conditions of the contract indicated in the bidding document.”
5. We referred to the said Clauses in view of the submission made on behalf of the writ appellant that irrespective of the GST regime, it has been clearly understood that all future taxes in the form of GST or otherwise would be applicable wherever an issue might arise with regard to reimbursement or refund of the tax paid. The learned counsel also referred to Clause 4.4.1 to show that an item rate contract should also include all the applicable taxes including Work Contract Tax, Value Added Tax, duties, octroi, levies etc. as may be applicable to the said contract.
6. The writ petition was filed as the Finance Department raised objections with regard to the claim for refund of the GST paid during the execution of the contract. In the writ petition, the learned Single Judge has referred to the stand of the owner of the project, i.e. the 2nd respondent, as also the PWD with regard to the liability to pay GST under the contract. All the authorities have agreed that the writ petitioner is entitled to refund of GST. Moreover, the minutes of the meeting held by the Minister of SC/ST Development Department reflect the recommendations of the Chief Engineer and Executing Engineer regarding the reimbursement of GST to the petitioner. Similarly, the consequential decisions involving the Additional Chief Secretary, the Secretary of the Public Works Department, the Special Officer of the Government Medical College, Palakkad, the Director of SC/ST Department and the Chief Engineer, PWD Buildings, all acknowledge and admit the validity of the contractor’s request for GST reimbursement. It is clear from Section 15 of the Central Goods and Services Tax Act, 2017, that it is in the nature of an indirect tax. Admittedly, the petitioner could not have factored its price taking into consideration the GST, which was admittedly non-existent. The liability of GST arises only after it is notified by the Government of India with effect from 1st July 2017.
7. Pursuant to the said notification, the State of Kerala issued a notification dated 14th December 2017 where it was made incumbent that in the tenders to be submitted by the contractors, the tender amount should exclude GST. However, prior thereto, there was no such clause, nor could there be any pertaining to GST. However, as rightly pointed out and submitted by the learned counsel for the appellants and also agreed to by the learned Senior Advocate appearing for the writ petitioner, the applicable VAT was to be paid under the contract and the differential amount between the VAT and the GST, as may be applicable to the goods supplied after 14th December 2017, shall be taken into consideration for the purpose of refund of GST.
8. In view thereof, we dispose of the writ appeal by directing the 1st appellant, Additional Chief Secretary to the Government, to recalculate the amount required to be disbursed in terms of this judgment within eight weeks from date. The judgment of the learned Single Judge is clarified to the aforesaid extent.