STRICT LIABILITY OF STATE TO REIMBURSE GST UNDER CONTRACTUAL CLAUSES DESPITE ABSENCE OF SCHEDULED DETAILS

In brief

The question

1. Whether the Petitioner is liable to pay tax at the GST rate of 12% even if the tender originated under the VAT regime.

The court held

The court allowed the Writ Petition, holding that the Petitioner is entitled to reimbursement of the GST paid under Clause 42.1

It also directed

The Court directed the Respondents to pay Rs. 2,21,48,746.08 (less any prior reimbursements) along with interest at 12% per annum, citing the commercial nature of the contract and Clause 89 of the agreement which allowed the state to charge similar interest on contractor defaults

The payment must be made within three months

01Facts

The Petitioner, a Class-I Government Contractor, was awarded a works contract for road improvement via a tender notice dated 20.03.2017

p. 2

At the time of the bid, the tax liability was 6% under the Tripura Value Added Tax (TVAT) Act

p. 2

Before the work order was issued, the TVAT Act was repealed and replaced by the CGST/TSGST Acts on 01.07.2017, increasing the tax rate to 12%

p. 3

The Petitioner notified the department that he would not bear the increased tax liability, and the PWD Department's Advisory Board allegedly approved this

p. 3

However, the formal agreement signed on 24.11.2017 did not explicitly cap the tax at 6% but included Clause 42.1, stating that any Central/State taxes paid by the contractor would be reimbursed on proof of payment

p. 4

The Petitioner sought reimbursement of Rs. 2,21,48,746.08 representing the GST paid, which the state refused to refund, citing Section 142(10) of the GST Act

pp. 8-9

02Issues

i.1. Whether the Petitioner is liable to pay tax at the GST rate of 12% even if the tender originated under the VAT regime.

pp. 11 / para. 48-49

ii.2. Whether the Petitioner is entitled to reimbursement of the paid GST under Clause 42.1 of the agreement, despite the absence of "Part-II of Schedule A" mentioned therein.

pp. 12 / para. 51-53

iii.3. Whether the High Court can exercise its writ jurisdiction under Article 226 in a matter arising out of a commercial contract.

pp. 14 / para. 57-59

03Law Applied

The court applied Section 9 of the CGST/TSGST Acts regarding the levy of tax

p. 11

Section 142(10) of the TSGST Act, which mandates GST liability for supplies made after the appointed day (01.07.2017) even for prior contracts

p. 11

Regarding reimbursement, the court relied on the contractual principle of Clause 42.1

p. 12

The precedent in State of Tripura v. Sri Arun Kumar Dey (affirmed by the Supreme Court), which held that the absence of a specific schedule does not defeat a contractor's right to reimbursement if proof of payment is provided

pp. 12-13

On jurisdiction, the court followed ABL International Ltd. v. Export Credit Guarantee Corp. and Unitech Ltd. v. TSIIC, establishing that writ jurisdiction is maintainable against arbitrary state action in contractual matters

p. 15

Provisions in the judgment · 6 · Linked ones open on LawLens

TRIPURA VALUE ADDED TAX ACT, 2004 Section 4

Tripura State Goods and Services Tax Act, 2017 Section 9 Section 142

Central Goods and Services Tax Act, 2017 Section 9 Section 142

Arbitration and Conciliation Act, 1996 Section 34

04Reasoning

The court reasoned that since the contract was signed after 01.07.2017, the incidence of tax was governed strictly by the GST regime, negating the Petitioner’s claim to pay only 6% VAT

¶ 48-49

the court found the State’s refusal to reimburse the tax paid as "patently arbitrary"

¶ 55

It held that Clause 42.1 explicitly promised reimbursement of "other taxes" (which includes GST) upon proof of payment

¶ 50

The court dismissed the State’s technical defense regarding the missing "Schedule A," noting that the PWD department drafted the agreement and cannot benefit from its own drafting omissions

¶ 52-53

By reviewing the GSTR-1 and GSTR-3B filings, the court confirmed the Petitioner had proven the payment of Rs. 2.21 Crores, creating a duty on the State to fulfill its contractual obligation of reimbursement

¶ 54-56