Rajasthan HC Directs Refund of Additional 6% GST to Contractor, Holds Denial by State Corp Arbitrary & Discriminatory [Read Order]

N.G. Gadhiya, the petitioner, filed a writ petition challenging the letter dated 08.06.2022 issued by the Rajasthan State Road Development and Construction Corporation Ltd. (RSRDCC) whereby its claim for refund of the differential 6% GST was rejected. The petitioner also sought a direction to refund the amount along with interest in view of the Government order dated 07.01.2021.

The petitioner had been awarded a contract for construction work, and at the time of issuance of the work order, the applicable GST rate was 12%. During execution of the work, the GST rate was increased to 18%, resulting in an additional burden of 6% on the petitioner.

The petitioner argued that as per the Government order dated 07.01.2021, which introduced Clause 36E in the Public Works Financial & Accounts Rules, any increase in tax rates during execution of a contract requires adjustment of the contract price. It was argued that RSRDCC, being a government undertaking, is bound by such rules and cannot deny the benefit.

The petitioner further argued that other government bodies such as the Public Works Department and Rajasthan Housing Board were granting similar benefits, and denial of the same to the petitioner amounts to discrimination and violates Article 14 of the Constitution.

The respondents argued that the relevant rules and circulars are not applicable to RSRDCC unless specifically adopted. They also argued that under Clause 45.1 of the contract agreement, all taxes including GST are to be borne by the contractor, and hence no refund is payable.

The respondents further argued that the dispute arises out of a contract and the writ petition is not maintainable, and that the petitioner is estopped from claiming refund after having raised bills as per the contract terms.

The Single Judge Bench comprising Ganesh Ram Meena observed that the contract itself incorporated various government rules and circulars, which indicates that the Public Works Financial & Accounts Rules are applicable to the contracts executed by RSRDCC.

The court observed that Clause 45.1 of the contract did not deal with change in tax rates during execution of the contract. It explained that this gap was addressed by insertion of Clause 36E through the Government order dated 07.01.2021.

The court observed that Clause 36E clearly provides for adjustment of contract price in case of change in tax rates during performance of the contract, and such benefit must be extended to the contractor. The court also observed that other government entities were granting such benefit and denial by RSRDCC to the petitioner is discriminatory and violates Article 14.

The court held that the petitioner is entitled to refund of the differential 6% GST. The impugned letter was quashed and the respondents were directed to refund the amount along with interest at 6% per annum from the date of claim. The writ petition was allowed.

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