Govt Liable to Reimburse Additional GST from Tax Neutrality Mechanism: Allahabad HC [Read Order]

The Allahabad High Court has held that the Government may be liable to reimburse additional GST ( Goods and Services Tax ) arising under the tax neutrality mechanism.

The Court said that authorities must examine such claims in accordance with the Joint Procedure Order (JPO) governing GST neutrality rather than rejecting them on technical grounds.

A writ petition was filed by M/s Nutech Jetting Equipment India Pvt. Ltd., a contractor engaged in sanitation work at various sites under the Railways.

The petitioner challenged an order dated 29 December 2023 by which the authorities rejected its claim for reimbursement of GST collected under certain contractual arrangements governed by earlier service tax notifications.

The contractor sought refund of the GST realized from it along with interest and damages, contending that under the contractual tax neutrality framework, any additional tax burden arising after the implementation of GST was liable to be compensated by the Government.

The authorities rejected the contractor’s claim primarily on the ground that the contractor had accepted full payment of the contract amount without raising any objection at the relevant time.

According to the department, once payment had been accepted without protest, the contractor was barred from raising any further claim for reimbursement of GST.

The petitioner, however, disputed this reasoning and argued that it had repeatedly accepted payments subject to its GST reimbursement claims, which was also reflected in correspondence issued to the department.

The High Court looked at Clause 5 of the Joint Procedure Order from January 21, 2018. This clause explains how to make sure that contracts are tax-neutral during the switch from the pre-GST regime to the GST regime.

As per the order, “the tax liability of the contractor, before implementation of the GST, is to be assessed irrespective of the fact whether the taxes prevalent have been actually paid or not by the contractor. The net effect of GST neutrally, after assessment of the tax liabilities in the pre-GST and post-GST regimes, may involve either reimbursement to the contractor or recovery from the contractor.”

Hence, the bench of Justice Vivek Saran and Justice Shekhar B. Saraf said that the Government's own tax neutrality mechanism implies that the contractor could get their money back. Therefore, the department couldn't turn down the contractor's claim just because the payments had already been made.

Once the Joint Procedure Order provides for adjustment of tax liabilities arising from the GST transition, the Government is obligated to consider such claims as per prescribed mechanism, said the court.

Accordingly, the impugned order was set aside. The bench directed the authority to reconsider the matter afresh after granting the petitioner an opportunity of hearing.

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