Government Must Reimburse GST Paid Under Contractual Tax-Reimbursement Clauses

The petitioner sought reimbursement of CGST and SGST paid in connection with contracts entered into with the respondents.

The contracts contained Clause 42.1, providing for reimbursement of specified taxes upon proof of payment.

The petitioner filed GSTR-3B documents supporting the claimed amounts, which the respondents did not dispute in their counter-affidavit.

The petitioner did not press the claim for Labour Cess and sought liberty to pursue it separately; the Court granted that liberty.

Whether Clause 42.1 entitled the petitioner to reimbursement of CGST and SGST paid in relation to the contracts, upon proof of payment.

Whether the respondents’ refusal to reimburse those taxes was arbitrary and contrary to Article 14 of the Constitution.

Clause 42.1 of the contracts provided for reimbursement by the department of specified Central or State taxes levied and paid by the contractor, on proof of payment.

In State of Tripura v. Sri Arun Kumar Dey, Contractor (judgment dated 31 January 2024 in Arb.A. No. 11 of 2022), the High Court held that the department remained liable under an identical clause even where the referenced Part II of Schedule A was absent, as the omission was attributable to the department; the Supreme Court upheld that judgment in SLP(C) No. 677/2025 on 19 January 2026.

The Court also relied on Sri Nimai Kar v. State of Tripura, WP(C) No. 167 of 2024 (24 April 2026), which reiterated that approach and awarded interest at 12% per annum from the dates of tax payment.

The State must act fairly and not arbitrarily in its contractual dealings, consistent with Article 14 of the Constitution.

Clause 42.1 applied to the contracts, and the petitioner produced GSTR-3B documents evidencing payment of CGST and SGST.

Because the respondents did not dispute those documents, the contractual basis for reimbursement was established.

Applying Arun Kumar Dey, the Court treated the department as bound to reimburse taxes paid on proof of payment, notwithstanding the issue concerning Part II of Schedule A.

The refusal to reimburse taxes that the respondents had agreed to reimburse was therefore arbitrary and illegal, violating Article 14.

Following Nimai Kar, the Court also directed payment of interest at 12% per annum from the respective dates of tax payment.

The amount was to be paid within three months of receipt of the judgment.

The petitioner was granted liberty to pursue the Labour Cess claim in separate proceedings, and no costs were ordered.