Government Contractors Entitled to GST Reimbursement for Pre-GST Contracts Affected by Regime Change

By | May 24, 2025

Government Contractors Entitled to GST Reimbursement for Pre-GST Contracts Affected by Regime Change

Issue: Whether government contractors who were awarded contracts prior to the implementation of the GST regime (July 1, 2017) are entitled to reimbursement of the additional GST impact on those contracts, especially when the execution of the work was ongoing when GST was introduced.

Facts:

  • Petitioner-firms were awarded contracts, specifically for projects under the Integrated Power Development Scheme, prior to the GST regime.
  • These firms contended that the GST impact related to these projects was wrongly withheld by the respondent state government department while paying their bills.
  • The core of their argument was that the introduction of GST during the performance of pre-existing contracts led to an additional tax burden which should be reimbursed by the contracting authority.

Decision: The contention of the petitioner-firms was upheld, and the writ petition was allowed. The respondent state government department could not withhold the amount of GST impact, which was determined to be Rs. 19,86,44,336, in respect of the concerned project. The decision was in favor of the assessee (petitioner-firms).

Key Takeaways:

  • GST Impact on Ongoing Contracts: This ruling addresses a significant transitional issue for government contractors where long-term contracts signed under the pre-GST indirect tax regime (e.g., VAT, Service Tax, Excise Duty) continued into the GST era.
  • Protection Against Unforeseen Tax Burden: The decision protects contractors from an unforeseen and substantial increase in their tax liability due to a change in the indirect tax regime that occurred mid-contract.
  • Reliance on Precedent: The court explicitly followed the precedent set in Sri Gopikrishna Infrastructure (P.) Ltd. v. State of Jharkhand, which established that if the nature of work remained the same and execution was in progress when the GST regime was introduced, the benefit of relevant amended clauses (like Clause 10.7 of the General Conditions of Contract – GCC) could not be denied.
  • Reimbursement for Direct and Indirect Transactions: The judgment clarifies that firms awarded contracts before July 1, 2017, are entitled to reimbursement of the GST impact not only on direct transactions but also on indirect transactions where GST was imposed. This is crucial as GST often has a cascading effect on input costs.
  • Fairness in Public Contracts: The essence of the ruling lies in ensuring fairness and equity in public contracts, where the government as the contracting authority should bear the burden of a significant legislative tax change that impacts the cost of ongoing projects, rather than shifting it entirely onto the contractor.
HIGH COURT OF JHARKHAND
Ashoka Buildcon Ltd.
v.
State of Jharkhand
M.S. RAMACHANDRA RAO, CJ.
and Rajesh Shankar, J.
W.P. (T) No. 851 of 2025
MAY  6, 2025
M.S. Mittal, Sr. Adv., Salona Mittal and Ms. Divya Choudhary, Advs. for the Petitioner. Ashok Kr. Yadav, Sr. S.C. for the Respondent.
ORDER
1. Heard both the sides.
2. This writ petition has been filed seeking following reliefs:
“(i)For issuance of an appropriate writ, order or direction, including a writ in the nature of declaration, declaring the action of the Respondent JBVNL in withholding amount of GST impact of Rs. 19,86,44,336/- in respect of the Ranchi and Medininagar Project under the Integrated Power Development Scheme (“IPDS”) while paying bills from the month of November, 2017, is wholly arbitrary, unreasonable in as much as the Respondent JBVNL was bound by the circulars issued by Rural Electrification Corporation, as applicable to projects under IPDS monitored by the Power Finance Corporation, which mandated payment of increase in contract price due to introduction of GST to the contractor for the entire contract, i.e., including bought-out transactions / sales in transit, and further because similar benefit has been extended to other contractors under the same project;
(ii)For issuance of an appropriate writ, order or direction, including a writ in the nature of declaration, declaring that in view of introduction of GST during the continuance of the ongoing Contract, the liability to pay GST shall be that of the Respondents Employer in as much under the GST regime, the liability of payment is on ‘supply’ of goods, i.e., when the Petitioner supplied the goods to the Respondent JBVNL.
(iii)For issuance of an appropriate writ, order or direction, including a writ in the nature of mandamus, directing the Respondent JBVNL to make payment of Rs. 19,86,44,336/- in respect of the Ranchi and Medininagar Project under the Integrated Power Development Scheme, paid by the Petitioner due to introduction of GST and which has been illegally withheld by the Respondents from November 2017 onwards.”
3. There is no dispute that the letters of award were issued to the petitioner prior to coming into force of the G.S.T. regime on 01.07.2017 and the petitioner is seeking relief against the respondents for wrongly withholding of the amount of G.S.T. impact of Rs.19,86,44,336/- in respect of Ranchi and Medininagar projects under the Integrated Power Development Scheme while paying bills from the month of November, 2017.
4. This issue fell for consideration before this Court in the case of S Sri Gopikrishna Infrastructure (P.) Ltd. v. State of Jharkhand[W.P. (T) No. 6712 of 2023]/ (Jharkhand) and other analogous cases, which were allowed by learned Division Bench vide judgment dated 09.04.2024. In paragraph nos. 27 & 28 of the said judgement, the Division Bench also referred to the cases where N.I.T. was floated prior to coming into force of the G.S.T. regime and held at paragraph nos. 30 & 31 as under:
“27. Next, the learned Advocate General endeavored to classify the writ petitions in two categories; one set of writ petitions pertains to the N.I.T. floated in the year 2015 where amended clause 10.7 of the GCC was not incorporated in the Agreement. The stand of the JBVNL is that such petitioner-Firms cannot claim reimbursement of GST component over procurement of raw materials, intermediary components and bought-out items. According to the JBVNL, there is a set of seven writ petitions vide W.P (T) Nos.5720 of 2023, 5721 of 2023 and W.P(T) No.5722 of 2023 (filed by M/s Anvil Cables Private Limited); W.P(T) Nos.6712 of 2023, 7060 of 2023 and W.P(T) No.7066 of 2023 (filed by Sri Gopikrishna Infrastructure Private Limited) and; W.P(T) Nos. 160 of 2024 filed by East India Udyog Limited where the unamended clause 10.7 of the GCC shall apply.
28. M/s Anvil Cables Private Limited was given the Letter of Award on 5th February 2016 and 5th June 2016 for the districts of Giridih, Bokaro and Dhanbad. Similarly, Sri Gopikrishna Infrastructure Private Limited was awarded the contract for the districts of Koderma and Bokaro and issued LOA on 9th March 2016 for the district of Koderma and LOAs both dated 16th August 2016 for the district of Bokaro and for the district of Deoghar the LOA was issued on 14th February 2016. W.P(T) No.160 of 2024 filed by the East India Udyog Limited pertains to the NIT No.487/pR/JBVNL/15-16 pursuant to which the East India Udyog Limited was given LOA dated 13th December 2015 for the district of Singhbhum
30. This is a settled law that the State and its instrumentalities are required to demonstrate fair play in action. In “ABL International Ltd. and Another”17 the Hon’ble Supreme Court observed that even in contractual matters, the State and its instrumentalities are required to follow the equality clause under Article 14 of the Constitution of India. The petitioner-Firms were agitating for their right to refund/reimbursement for long. They have brought on record the copies of their representations made to the JBVNL, and the response thereto by the JBVNL was that the matter is pending litigation. On the point of similarity of facts with M/s Techno Electric and Engineering Company Limited, suffice it would be to record that the NITs, GCCs, LOAs, and the GST clause introduced in the LOAs are the same. A pre-bid clarification letter dated 30th June 2016 was issued to all the Implementing Agencies for clarification on the statutory tax valuations upon the introduction of the GST. Now only because the NITs were floated on different dates or the LOAs or the Agreements were executed pre-GST regime, the benefit of GST reimbursement on indirect transactions under the amended clause 10.7 of the GST cannot be denied to such petitioner-Firms. The stand taken by the JBVNL that the pre-bid clarification which resulted in amendment in clause 10.7 and subsequent incorporation of clause 28 in the GCC shall not be available to the petitioner-Firms violates the basic norm of justice, equity and fair play. It is not disputed that the nature of the work awarded to the petitioner-Firms in both phases is the same and the execution of the work under the previous contracts was in progress when the amendment in clause 10.7 of the GCC was made. We think that no distinction can be drawn on the basis of the date of execution of the Agreement and the benefit of the amended clause 10.7 of the GCC cannot be denied to the petitioner-Firms if the GST regime was brought into force in the course of the performance of the contract. We therefore hold that the petitioner-Firms referred to in paragraph no.27 and other similarly situated Contractors are entitled to reimbursement of the GST impact also on the indirect transactions on which the GST was imposed.
31. In the result, the writ petitions are allowed to the extent that the JBVNL shall calculate and reimburse the petitioner-Firms the GST component paid by them and it shall release the withheld amount from the bills of the petitioner-Firms, if any. As held by coordinate Bench, the petitioner-Firms are entitled for reimbursement of the GST along with statutory interest in terms of the GST Act, 2017 read with the Rules framed thereunder. The entire exercise shall be completed as early as possible and not beyond six weeks. As the delay shall incur further liability towards statutory interest, the responsibility shall be fixed and recovery may be ordered from the erring authority.”
5. Thus, this Court has rejected the stand taken by the respondents and has held that the nature of the work awarded to the petitioner-Firm in both phases is the same and the execution of the work under the previous contracts was in progress when the amendment in Clause 10.7 of the GCC was made and the benefit of the amended Clause 10.7 of the GCC cannot be denied to the petitioner-Firms, if the G.S.T. regime was brought into force in the course of the performance of the contract. It was held that the Firms who have been awarded contracts prior to 01.07.2017, are entitled to reimbursement of the GST impact also on the indirect transactions on which the G.S.T. was imposed.
6. It is not in dispute that the JBVNL has challenged the order in Jharkhand Bijli Vitran Nigam Ltd. v. Sri Gopikrishna Infrastructure (P.) Ltd. [SLP. No. 11658 of 2024, dated 12-8-2024], the Hon’ble Supreme Court has passed the following order:
“1. Delay in re-filing condoned.
2. Leave granted.
3. In the meanwhile, the appellant(s) shall deposit 50% of the amount before this Court within a period of eight weeks from today. The amount so deposited shall be invested in an interest bearing Fixed Deposit, in a nationalised bank, on auto-renewal basis.
4. Let the matters be shown in the final hearing list in the month of March, 2025.
5. In order to facilitate the submissions before the Bench, Ms. Tulika Mukherjee and Mr. Aman Vachher are appointed as the nodal counsel for the appellants and respondents respectively. They will coordinate with each other and will be responsible for preparing, compiling and filing the common compilation in terms of the Circular dated 22nd August, 2023 (https://main.sci.gov.in/pdf/cir/22082023 084047.pdf) issued for regulating the course of submissions.”
7. The said matter appears to be pending before the Hon’ble Supreme Court.
8. Though in the counter affidavit filed by the respondents, the applicability of the judgement rendered in the case of Sri Gopikrishna Infrastructure Pvt. Ltd. (supra) to the writ petitioner is questioned, having perused the facts of the case and the judgment rendered in the case of Sri Gopikrishna Infrastructure Pvt. Ltd. (supra), we are of the considered opinion that the said judgment also applies in the present case and the objection raised by learned counsel for the respondents has no basis.
9. Therefore, for the reasons as stated in the judgment rendered in the case of Sri Gopikrishna Infrastructure Pvt. Ltd. (supra), this writ petition is also allowed with cost of Rs.50,000/- (Fifty Thousand) to be paid by the respondents to the petitioner.