Contractors can claim increased GST during Work, even after Bills were paid before Rate Increase: Kerala HC rules against KWA [Read Order]
It was observed that if the contractor is liable to pay the higher GST rate, it cannot be denied reimbursement, regardless of when the bills were initially paid
Contractors
Contractors
The Kerala High Court has permitted contractors to claim reimbursement for increased GST rates incurred during a project's execution, even if the related bills were paid prior to the rate hike, and has directed the Kerala Water Authority (KWA) to reconsider the release of the contractor's security deposit. The court held that the contract unambiguously stipulates that the authority must bear any increase in taxes during the contract period.
The writ petition was filed by M/S. Shree Contractor against the State of Kerala and the Kerala Water Authority (KWA), seeking payment of the differential GST amount of Rs. 65,58,361 and the release of its security deposit of Rs. 1,71,42,000 for a water supply project completed on 31.03.2023.
The Counsel for the petitioner argued that as per Clause 8.15.2 of the agreement, any excess in taxes and duties during the contract period must be borne by the authority. They contended that despite having been paid for work before the GST rate increased from 12% to 18%, they were now liable to pay the higher rate to the government and were therefore entitled to reimbursement.
The Counsel for the respondents submitted that the GST rate was only revised to 18% for work completed after 18.07.2022, and since the petitioner's major bills were generated and paid before this date, no differential amount was due. They further argued that the security deposit could not be released as the pipeline work, a major component of the project, was not considered "completed" as per the specific terms of the contract.
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A single bench comprising Justice Ziyad Rahman A.A. analyzed the contractual provisions, particularly Clause 8.15.2 regarding tax liability and Clause 8.14.1 defining the "completion" of pipeline work. The court held that the contract unambiguously stipulates that the authority must bear any increase in taxes during the contract period.
It was observed that if the contractor is liable to pay the higher GST rate, it cannot be denied reimbursement, regardless of when the bills were initially paid. Regarding the security deposit, the court noted that the contract defines completion of pipeline work differently, and determining if this stage has been reached is a matter for the competent authority to examine.
Finding that the contractor was entitled to claim the tax differential, the court disposed of the petition with specific directions. It directed the respondents to release the differential GST amount to the petitioner within three months, provided the contractor furnishes evidence of having paid the higher tax rate. The court also ordered the 2nd respondent to consider the petitioner's representation for the release of the security deposit and pass appropriate orders within three months, after examining if the contractual conditions for completion have been met.
The court held that the contract unambiguously stipulates that the authority must bear any increase in taxes during the contract period.
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