### State Cannot Arbitrarily Withhold Reimbursement of Contractual Taxes Even in Contractual Matters Under Article 226

The petitioner was awarded a contract in 2010 for the construction of an Indoor Gymnasium Hall at Agartala for a total value of ₹32.74 crores.

The work was completed on January 9, 2018.

Clause 37.2 of the agreement stipulated reimbursement of taxes/levies imposed after the tender receipt, provided delays were not attributable to the contractor.

In 2022, a Single Judge dismissed a previous writ petition on the grounds of disputed facts, directing the parties to arbitration.

In subsequent Section 11 proceedings (Arbitration Petition No. 06/2023), the High Court held that claims regarding tax reimbursement are not arbitrable based on the principle in Vidya Drolia v. Durga Trading Corporation.

Consequently, the petitioner filed the present writ petition seeking recovery of ₹4.14 crores (including GST and WCT reimbursements) with 18% interest.

1. Whether a writ petition under Article 226 is maintainable for the recovery of dues arising out of a contractual tax reimbursement clause when the State's denial is alleged to be arbitrary.

2. Whether the respondents are liable to reimburse the petitioner for GST and Work Contract Tax (WCT) under Clause 37.2 of the Agreement.

3. Whether the petitioner is entitled to interest on the delayed reimbursement, and if so, at what rate.

The Court applied the principle from Vidya Drolia Others v. Durga Trading Corporation, establishing that certain subject matters, such as specific tax-related disputes, may not be arbitrable.

The Court relied on the constitutional mandates of Article 14 (equality/non-arbitrariness) and Article 226 (writ jurisdiction).

The Court further applied precedents from Sri Ratan Sarkar v. The State of Tripura and Sri Nimai Kar v. The State of Tripura, which hold that writ jurisdiction is not ousted in contractual matters if the State acts unfairly or arbitrarily, as the State has a duty to act fairly even in its business dealings.

The Court reasoned that while contractual disputes often involve disputed facts, the present case rested on an admitted liability.

The respondents’ counter-affidavit did not dispute the applicability of Clause 37.2 for reimbursement nor did it challenge the specific quantum of the claim (₹4.14 crores).

Since the High Court had previously ruled in Arbitration Petition No. 06/2023 that tax reimbursement issues are not subject to arbitration, the petitioner was left without an alternative remedy other than a civil suit or writ.

The Court determined that for the State to withhold admitted dues under a clear reimbursement clause constitutes "patently arbitrary" and "illegal" conduct, violating Article 14.

Regarding interest, the Court rejected the 18% claim but, citing the commercial nature of the contract, found 12% per annum to be just and consistent with its own recent precedents.

The petition was allowed with a direction to the respondents to pay the principal amount plus simple interest @12% per annum from the respective dates of tax deduction/payment until the date of actual payment.

The payment must be cleared within three months.