Karnataka HC curtails relief to contractors in GST reimbursement cases, says courts cannot waive statutory dues

The Karnataka High Court has held that while contractors may pursue claims against government departments for reimbursement of additional tax burdens arising after the introduction of the Goods and Services Tax (GST) regime, courts cannot issue directions overriding the statutory provisions governing GST returns, limitation, interest or penalties..By orders passed on June 10 and June 12, a Division Bench of Chief Justice Vibhu Bakhru and Justice KS Hemalekha partly allowed appeals filed by the State and tax authorities in the matter, and modified a single-judge's directions granting wider relief to contractors. .The appeals arose from disputes involving contractors who had entered into public works contracts around the transition from the Value Added Tax (VAT) regime to GST. They claimed that although contracts had been awarded on pre-GST schedules of rates, they were subsequently required to pay GST, which was not reimbursed by the government employers. The contractors sought reimbursement of the differential tax and protection from GST recovery proceedings. A single-judge had earlier directed the reimbursement. The single-judge also incorporated directions from an earlier judgment in Sri Chandrashekaraiah and others Vs. The State of Karnataka to grant wide reliefs, including permitting contractors to file revised GST returns, relaxing limitation periods and granting relief from interest and penalties.The Division Bench, however, held that such directions could not be sustained because they ran contrary to the statutory GST framework..The Court observed that the issue of reimbursement of incremental GST was "strictly a matter" between the contractor and the employer with whom the contract had been executed. It emphasised that contractual arrangements could not alter the statutory scheme governing GST liability, assessment, recovery and enforcement. Accordingly, the Bench ruled that no court directions could permit filing of revised returns contrary to the GST statutes or waive statutory interest, penalties or limitation periods.Therefore, it set aside the portions of the single-judge's orders that directed or affected the GST authorities and clarified that any direction for reimbursement must be read only as against the concerned employer department, and not against the tax authorities. Senior Advocate SS Naganand appeared for Sudhanva Engineers. .Additional Government Advocate Aditya Vikram Bhat appeared for the State of Karnataka..Separate appeal dismissedIn a separate appeal concerning SKS Karkala Infra Projects Pvt. Ltd., the Division Bench upheld the dismissal of a writ petition seeking the payment of GST by Davanagere Smart City Limited.The Court noted that the contract had been entered into after the GST regime had already come into force and contained clauses stating that quoted rates were inclusive of taxes. The contractor nevertheless contended that the schedule of rates used for the tender pre-dated GST.The Bench held that the dispute raised several contested questions, including whether GST reimbursement was contractually payable, whether the quoted rates already included GST, the quantum of any incremental tax liability, and whether GST had in fact been paid by the contractor.Given these disputed factual issues, the Court found no error in the single-judge declining to exercise writ jurisdiction, leaving the contractor to pursue appropriate remedies. The appeal was accordingly dismissed..[Read Judgment]