Karnataka HC: Metro Works Contractor’s ₹3.11-Crore ITC Refund Cannot Be Denied On Construction-Service Ground

The respondent, a joint venture, undertook works-contract services for the Bengaluru Metro Rail Corporation Ltd. (BMRCL) to construct elevated structures, including viaducts and stations.

It sought a refund of unutilised input tax credit (ITC) of ₹3,11,86,340 for May 2020, claiming that higher tax rates on its inputs had created an inverted tax structure.

The refund was rejected on the ground that the service fell within Schedule II, Item 5(b), and was therefore covered by Notification No. 15/2017-Central Tax (Rate). The Appellate Authority upheld the rejection. The respondent’s writ petition was allowed, and the State appealed. The appeal was filed 402 days late; the State attributed the delay to the administrative process for obtaining legal advice and authorisation to appeal

Section 54(3) of the Central Goods and Services Tax Act, 2017 permits a registered person to claim a refund of unutilised ITC where credit accumulates because the tax rate on inputs is higher than the rate on output supplies, subject to the statutory exceptions and notified exclusions

Schedule II, Item 5(b) treats specified construction activity as a supply of services, while Item 6(a) treats a works contract, as defined in Section 2(119), as a composite supply treated as a supply of services

Notification No. 15/2017 restricted refunds for specified construction services; the judgment noted that the subsequent Notification No. 15/2023 confined the relevant restriction to construction intended for sale in the real-estate sector

The Court also applied the principle that a delay must be supported by adequate grounds showing why the appeal could not be filed within the prescribed period.

The Court found the delay unexplained: although the certified judgment was available on 5 April 2025, it was not placed before the concerned officer until 5 December 2025, and the subsequent steps in the administrative process did not justify the prolonged delay.

The Court nevertheless considered the merits. The authorities’ orders and the State’s appeal did not dispute that the respondent provided works-contract services; the Appellate Authority had itself recorded that the respondent undertook works-contract services for the construction of metro stations.

Because a works contract is expressly treated as a composite supply under Item 6(a), the Court rejected the contention that the respondent’s services fell within Item 5(b) for purposes of denying the refund.

It also dismissed the appeal on the merits, affirming that the respondent’s works-contract services could not be denied a refund on the ground that they fell under Schedule II, Item 5(b).