Delay in Paying ₹80.26 Cr Price Adjustment Under GST Linked Works Contract: Telangana HC Orders 6% Interest for Late Payment [Read Order]

The Telangana High Court, while dealing with a Goods and Service Tax(GST) linked works contract dispute, directed payment of interest at 6% per annum for delay in releasing ₹80.26 crore towards price adjustment, despite an earlier court order.

Navayuga,petitioner-assessee,approached the High Court seeking release of ₹80.26 crore towards price adjustment for labour and materials under a contract executed for the Sripada Sagar Project, as per Agreement dated 03.04.2005. Clause 13.8 of the contract provided for such price adjustments due to escalation in costs of inputs like labour, cement, steel, fuel, and other materials.

Complete Blueprint for Preparing Project Reports, CLICK HERE

A dispute arose when the Government rejected the claim via a memo, prompting the petitioner to file writ petition which was allowed by the Court on 23.03.2022. The authorities were directed to verify and release the admissible amount within eight weeks.

Despite internal verifications confirming the payable amount, the Finance Department did not process the payment, citing procedural delays and pending submission of a Revised Estimate-II. The respondents admitted the verification of ₹80.26 crore but claimed procedural formalities such as incorporation of Value Added Tax(VAT) and Goods and Service Tax (GST) reimbursements were still pending.

They also denied liability for interest, citing specific contract clauses and claiming the petition was barred by constructive res judicata since interest had not been sought earlier.

Respondents filed an additional counter stating that the claim was reassessed and restricted to ₹67.64 crore after excluding VAT, seigniorage, and overheads. ₹54.11 crore had already been paid, and the remaining ₹13.53 crore was pending final approval. They pointed out that VAT had been reimbursed earlier and audit reports had flagged excess payments.

Crack the Code of GST Disputes with Legal Insights and Interpretation Strategies CLICK HERE

On the issue of GST on electromechanical items, ₹3.75 crore was withheld pending finalisation of embedded tax rates by a state-level committee.

The petitioner filed a contempt petition citing non-compliance with the interim order dated 22.12.2023. During proceedings, it was recorded that ₹54.11 crore was paid on 18.07.2024, and ₹13.67 crore on 27.08.2024, totalling ₹67.79 crore.

The petitioner accepted the payment without prejudice and claimed interest on the delayed payment, citing judicial precedents.

The State argued that delays were procedural and not deliberate. It contended that interest was not automatically payable and that the present petition was not maintainable on procedural grounds.

Read More: Karnataka HC Quashes Rejection of GST Appeal Filed on 90th Day, Finds It Within Limitation

A single member bench of B.Vijaysen Reddy(Justice) observed that while interest is discretionary, it can be awarded depending on the facts of the case. Given that the full amount was not paid within the 15-day period granted by the Court on 22.12.2023, the respondents were held liable for interest at 6% per annum on the admitted amount from 06.01.2024 (i.e., after expiry of the compliance deadline) till the dates of payment.

Know How to Prepare Estimation and Viability for Project Reports? Know more CLICK HERE

Additionally, the Court permitted the petitioner to request constitution of a Disputes Adjudication Board (DAB) under Clause 20 of the contract to adjudicate further claims such as interest on disputed portions, and directed the respondents to constitute the DAB within six weeks of such a request.

In short the writ petition was allowed in part.

To Read the full text of the Order CLICK HERE

Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates