Contractual Dispute Over Differential GST Tax Deduction Must Be Resolved via Invoked Arbitration, Not Writ Jurisdiction

By | August 13, 2026
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Contractual Dispute Over Differential GST Tax Deduction Must Be Resolved via Invoked Arbitration, Not Writ Jurisdiction

Issue

Whether a writ petition under Article 226 of the Constitution is maintainable to challenge a municipal authority’s withholding of differential tax following the transition to the GST regime when the underlying contract contains an arbitration clause that the contractor has already invoked.

Facts

  • The petitioner was awarded a work order for the construction of a grade separator at Shivananda Circle, Bengaluru, under the pre-GST (VAT/Service Tax) regime.
  • During the execution of the contract, the Goods and Services Tax (GST) regime came into force on 1 July 2017.
  • The municipal authority withheld differential tax from the petitioner through a letter/order.
  • The petitioner filed a writ petition seeking to quash the withholding order, arguing that GST was not payable for work executed prior to 1 July 2017 and was not factored into the original tender stage.
  • The underlying contract contained an arbitration clause, and the petitioner had already invoked arbitration proceedings covering this specific claim for differential tax.
  • The Single Judge had entertained the matter, leading to a Writ Appeal challenging the Single Judge’s decision.

Decision

  • Writ Jurisdiction Not Maintainable [Matter remanded/In favour of revenue]: The Division Bench held that the dispute pertains to a private contractual monetary claim, rendering a writ petition under Article 226 of the Constitution non-maintainable.
  • Arbitral Forum Appropriate: Since arbitration proceedings had already been invoked by the contractor covering the differential tax deduction claim, the proper remedy lies before the arbitrator.
  • Single Judge Order Set Aside: Without expressing any opinion on the merits or statutory entitlement, the Division Bench allowed the Writ Appeal and set aside the order of the Single Judge.

Key Takeaways

  • Contractual Claims Excluded from Article 226: Monetary disputes and differential tax reimbursement claims arising out of public works contracts cannot be adjudicated via writ jurisdiction under Article 226.
  • Precedence of Alternative Remedies: Where an arbitration clause exists and has already been invoked by the contractor, courts will relegate the parties to the arbitral tribunal rather than determining the matter in writ proceedings.
  • Transition Work Claims subject to Contractual Terms: Issues regarding tax liabilities for works executed across the VAT-to-GST transition period are governed by contractual terms and resolved through designated dispute resolution forums.
HIGH COURT OF KARNATAKA
Executive Engineer
v.
M. Venkata Rao Infra Projects (P.) Ltd.
D.K. Singh and T.M. NADAF, JJ.
WRIT APPEAL NO. 1947 OF 2025 (LB-BMP)
JULY  29, 2026
Prashanth S.H., Adv. for the Appellant. Nishanth A.V., Adv. for the Respondent.
JUDGMENT
D K Singh, J.- The present intra Court appeal has been filed impugning the judgment and order dated 25.07.2025 passed by the M. Venkata Rao Infra Projects (P.) Ltd. v. Executive Engineer [WP. No. 2788/2025 (LB-BMP), dated 25.07.2025] filed by the respondent for quashing the letter/order dated 03.01.2025 issued by the Executive Engineer (Projects Central-4), Bruhat Bengaluru Mahanagara Palike, Bengaluru.
2. The parties are referred to as per their ranking before the writ Court, for the sake of convenience.
3. The petitioner who is a registered contractor was awarded a contract for construction of a grade separator at Shivananda Circle, Bengaluru for which work order dated 30.06.2017 was issued in favour of the petitioner. The cost estimate for the said contract was prepared under the then prevailing Value Added Tax (VAT) and Service Tax regime. However, during the execution of the contract, the Goods and Services Tax (GST) regime came into force with effect from 01.07.2017. After the execution of the work and on payment of the bills raised by the petitioner, the BBMP had withheld the payment of the bills raised for the differential tax component.
4. Aggrieved by this action, the petitioner had filed a writ petition as the petitioner was of the opinion that the differential tax rate was not to be paid by him for the work completed inasmuch as the project was executed prior to 01.07.2017. The taxes payable under the new GST regime were not taken into consideration while finalizing the tender/work order.
5. It is not in dispute that the agreement executed between the parties contains an arbitration clause. The petitioner has already invoked the arbitration clause for adjudication of his claims arising out of the contract which would include the differential tax component deducted by the BBMP.
6. Having heard the learned counsel appearing for the parties and upon consideration of the material on record, we are of the considered view that the dispute falls within the realm of private law and a public law remedy under Article 226 of the Constitution of India would not be available to the petitioner to raise a contractual dispute for money claim. Since the petitioner has already invoked the arbitration clause, any claim regarding the differential tax deducted may be raised in those proceedings.
7. We make it clear that we have not expressed opinion on the merits of the petitioner’s claim or on the entitlement to the differential tax amount as deducted by the BBMP. It is for the arbitrator to examine and decide the issue on merits in the arbitration proceedings.
8. However, we are of the considered view that the invocation of public liability is not available for money claim under a contract. Consequently, the writ appeal is allowed. The impugned judgment and order dated 25.07.2025 is hereby set aside in the aforesaid terms.