State Is Duty-Bound to Reimburse Differential GST Paid by Works Contractor Following Tax Transition

By | August 12, 2026
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State Is Duty-Bound to Reimburse Differential GST Paid by Works Contractor Following Tax Transition

State Is Duty-Bound to Reimburse Differential GST Paid by Works Contractor Following Tax Transition

Issue

Whether a works contractor who executed a government contract during the transition from the VAT regime to the GST regime and paid the differential GST is legally entitled to seek reimbursement of such differential tax from the respondent State.

Facts

  • Contract Awarded: The petitioner, a Class-I civil contractor, was awarded a works contract for the construction of Government quarters at Karwar, Uttara Kannada.
  • GST Transition: During the subsistence of the contract, the Goods and Services Tax (GST) regime was introduced, replacing the Value Added Tax (VAT) framework and imposing an additional tax burden on the supplies.
  • Payment & Representation: The petitioner paid the differential GST before the competent tax authority and subsequently submitted a representation dated April 13, 2026, seeking reimbursement of the differential amount along with interest from the respondent State.
  • Inaction & Writ Petition: Due to non-action on the representation by the respondents, the petitioner filed a writ petition seeking a writ of mandamus to compel reimbursement.

Decision

  • Entitlement Established: The High Court held that the legal liability to bear the differential tax arising from the introduction of GST under subsisting works contracts stands settled, placing the burden on the recipient of the works contract service.
  • Duty to Reimburse: The petitioner, having deposited the differential GST, acquired a enforceable legal right to claim reimbursement, and the State, as the beneficiary of the executed work, is under a bounden duty to reimburse the amount.
  • Writ Allowed: The Court allowed the writ petition, directing the respondents to consider the representation, verify the details, determine the exact differential tax attributable solely to the GST transition, and reimburse the petitioner within a stipulated timeframe.

Key Takeaways

  • State Liability for GST Transition: State departments receiving works contract services under pre-GST agreements are legally obligated to absorb the differential tax impact resulting from the introduction of GST.
  • Right to Reimbursement: Once a contractor demonstrates actual payment of the differential GST to the tax authorities, they acquire a corresponding legal right to be indemnified by the government department.
  • Verification Prerequisite: Reimbursement is subject to administrative verification to ensure that the claim is strictly restricted to the incremental tax differential arising directly from the transition to the GST regime.
HIGH COURT OF KARNATAKA
Er. Roland S.
v.
Government of Karnataka
Sachin Shankar Magadum, J.
WRIT PETITION NO. 105716 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.9,90,823/- 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 Class Three Government Servant Quarters at Kaikini Road Premises at Karwar in 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.