GST Liability Cannot Be Deferred Due to Non-Reimbursement by Government Department: Madras High Court Allows Installment Relief to Contractor [Read Order]
The Court relied on the 47th GST Council Meeting Minutes revising the rate from 12% to 18%.
The Bench of the Madras High Court has ruled that a registered contractor cannot defer payment of the differential Goods and Services Tax (GST) liability on the ground that the concerned Government department has not reimbursed the revised tax component. However, taking into account the contractor’s financial difficulties, the Court has allowed payment of the outstanding tax dues in installments.
The writ petition was filed by Devaki Constructions, represented by its partner V. Balakrishnan, a registered Government contractor engaged in building and road works. The dispute arose when the GST Council, in its 47th meeting held on 28 and 29 July 2022, revised the GST rate for works contracts supplied to Central or State Governments from 12% to 18%, effective from 18 July 2022. Despite this upward revision, the first respondent, the Director of Rural Development and Panchayat Raj Department, continued to make payments at the old rate of 12%.
Following a tax inspection on 30 August 2024, the petitioner was instructed to pay GST at the revised rate of 18%. Subsequently, on 26 February 2025, the State TaxOfficer directed the petitioner to pay the entire differential 6% GST amounting to ₹4,15,69,890. Contending that this amount was yet to be reimbursed by the first respondent, the petitioner sought a Writ of Mandamus restraining the tax authorities from taking coercive action until reimbursement was received.
Appearing for the Petitioner, N. Lavanya argued that the petitioner, being a Government contractor, had duly executed the works and raised invoices as per the contract terms. It was submitted that since the revision in the GST rate occurred due to a policy change, the liability to pay the differential 6% rested with the first respondent department, which failed to reimburse the same.
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Appearing for the Department C. Harsha Raj, submitted that under the terms of the Government contract, the primary liability to pay GST lies on the contractor. If the contracting department failed to release the differential tax component, the petitioner’s remedy was to initiate recovery proceedings against that department and not to withhold payment to the tax authorities. However, acknowledging the petitioner’s financial hardship and suggested that the Court may consider granting the benefit of installment payments.
The Bench of Justice Krishnan Ramasamy observed that as per the contractual terms, the liability to remit GST lies with the contractor, and any delay or non-payment by the Government department cannot justify withholding of statutory dues. The Court held that the petitioner must discharge the tax liability and pursue recovery of the differential amount separately from the first respondent.
However, considering the financial strain faced by the petitioner and the fact that the first respondent is a State Government department, the Court permitted the petitioner to pay the outstanding sum of ₹4,15,69,890 in eight equal monthly installments.
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Accordingly, the Bench directed the petitioner to pay the first instalment of ₹65,69,980 on or before 30 August 2025, followed by seven instalments of ₹50,00,000 each, payable monthly from September 2025 to March 2026. Subsequently, the respondents were given liberty to initiate recovery proceedings in case of any default in payment.
Therefore, the writ petition was disposed of with no order as to costs.
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