State Entities Are Bound to Reimburse Contractors for Differential GST Burden Arising from GST Transition
State Entities Are Bound to Reimburse Contractors for Differential GST Burden Arising from GST Transition
Issue
Whether contractors who executed public works contracts during the transition from the VAT regime to the GST regime are entitled to reimbursement from the State for the incremental tax liability resulting from the introduction of GST on works contracts.
Facts
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Contractors & Works: The petitioners, Class-I contractors, executed civil works contracts for the State and its entities.
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Tax Transition: During the subsistence of the contracts, the GST regime replaced the earlier VAT regime, resulting in an additional tax incidence on works contract services.
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Discharge of Tax & Demand: The petitioners remitted the differential GST to the competent authority and subsequently submitted representations to the respondents seeking reimbursement of the extra tax paid.
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Writ Jurisdiction: Departmental inaction on the representations compelled the petitioners to file writ petitions seeking a writ of mandamus for reimbursement.
Decision
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Settled Law: The liability to bear differential tax arising from the introduction of GST on ongoing works contracts is no longer res integra and is firmly settled by consistent judicial precedents.
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Obligation of Service Recipient: The State and its entities, as recipients of the works contract services, are under a legal obligation to bear the additional tax burden caused by statutory changes post-contract execution.
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Right to Reimbursement: Having discharged the differential GST liability while delivering the benefits of the executed works to the respondents, the petitioners accrued a clear legal right to be reimbursed.
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Final Order: The writ petitions were allowed, and a mandamus was issued directing the respondents to verify, determine, and expeditiously reimburse the incremental differential GST attributable to the transition.
Key Takeaways
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State Obligation in Statutory Tax Shift: When a statutory tax shift (like the VAT to GST transition) increases the tax burden on pre-existing public works contracts, the State/employer is bound to reimburse the contractor for the differential amount.
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Scope Limited to Incremental Burden: Reimbursement is strictly confined to the net incremental tax liability directly attributable to the transition to GST, subject to factual verification of tax payment.
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Enforceability via Mandamus: Failure or delay by government departments in considering representations for legitimate differential GST reimbursement warrants judicial intervention through a writ of mandamus.
HIGH COURT OF KARNATAKA
Naganath Constructions
v.
Government of Karnataka
Sachin Shankar Magadum, J.
WRIT PETITION NOS. 105663, 105759 & 106110 OF 2026 (GM-RES)
AUGUST 31, 2026
Smt. Vidyashri N. Mulimani, Adv. for the Petitioner. Sharad V. Magadum, AGA for the Respondent.
ORDER
1. The petitioners in all these petitions are seeking mandamus directing the respondents to reimburse the respective differential Goods and Services Tax (for short ‘GST’) amount with interest at the rate of 18% per annum from the date of remittance till realization in terms of representations as per Annexure-A in W.P. No.106110/2026 and Annexure-B in W.P. Nos.105759/2026 & 105663/2026.
2. Heard learned counsel for the petitioners and learned Additional Government Advocate appearing for respondents-State. Perused the records.com
3. The petitioners, a Class-I Contractor, were entrusted with the civil work. It is the specific case of the petitioner that during the currency of the contract, the Goods and Services Tax (GST) regime came into force, replacing the earlier Value Added Tax (VAT) regime. Consequent upon such introduction of GST, the petitioners were 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 petitioners have 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 petitions are instituted. In view of the consistent line of decisions rendered by this Court on the issue, the petitioners have acquired a corresponding legal right to seek reimbursement of the differential GST amount. The respondents, being beneficiaries of the work executed by the petitioners 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 petitions are allowed. |
| (ii) | The respondents are directed to consider the representations as per Annexure-A in W.P. No.106110/2026 and Annexure-B in W.P. Nos.105759/2026 & 105663/2026 and determine the differential GST amount payable to the petitioners in accordance with law. |
| (iii) | Upon such determination, the respondents shall reimburse the differential GST amount to the petitioners 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. |