GST Payable Over and Above Tender Amount: Kerala High Court Quashes Recovery From Contractor

The Kerala High Court has held that GST is payable over and above the contract value quoted in a tender, and cannot be treated as included in the bid amount unless expressly specified. The bench of Justice Harisankar V. Menon has set aside the recovery proceedings initiated by the Irinjalakuda Municipality against a contractor based on an adverse audit objection and noted that tender rates were required to be quoted exclusive of GST but inclusive of all other taxes. For the purpose of identifying the lowest bidder (L1), rates exclusive of GST had to be considered. At the time of processing bills, payment had to be made for the total contract value “PLUS the applicable GST.” The petitioner, Ganga Constructions, represented by its Managing Partner, had been awarded a municipal public works contract pursuant to a notice inviting tender dated February 23, 2019. A formal work order was issued on June 18, 2019, and an agreement was executed for a total estimated value of ₹2.53 crore. According to the contractor, the quoted amount in the tender was exclusive of GST, in line with prevailing government circulars issued after the introduction of GST in 2017. Accordingly, while processing running bills, the Municipality paid GST over and above the contract value. However, an audit report dated August 23, 2022, concluded that GST had already been included in the quoted rate and that payments made towards GST were irregular. Based on this finding, the Assistant Executive Engineer issued proceedings seeking to recoup the GST amounts already disbursed to the contractor. Challenging both the audit report and the recovery proceedings, the contractor approached the High Court. The central question before the Court was whether the Municipality was legally bound to pay GST in addition to the contract value while settling the contractor’s bills, or whether GST was deemed to have been included in the quoted amount. The Court emphasised that the use of the word “PLUS” in the circulars clearly indicated the intention that GST was to be paid separately, and not absorbed into the quoted rate. It further observed that the tender submitted by the petitioner did not separately disclose a GST component, which, in fact, was consistent with the requirement that bids be submitted exclusive of GST. The Municipality attempted to justify its action by relying on a clarification suggesting that cost indices used in preparing estimates had factored in GST. However, the Court rejected this argument, pointing out that GST was introduced only from July 1, 2017. Any earlier cost indices could not have contemplated GST. Moreover, by the time the tender was issued and the agreement executed in 2019, the relevant circulars mandating exclusion of GST from quoted rates were already in force. The Court held that the audit objection failed to consider the binding nature of these circulars. The Court also examined Section 15 of the CGST Act, 2017, which defines the “value of taxable supply.” It noted that the value of supply does not include GST payable under the CGST/SGST Acts themselves. This statutory provision, the Court observed, aligns with the government circulars that required GST to be added at the stage of bill processing and payment. Concluding that the contractor was legally entitled to receive GST over and above the contract value, the Court allowed the writ petition. It set aside the proceedings issued by the Assistant Executive Engineer as well as the audit-based recovery action. Case Details Case Title: Ganga Constructions Versus Assistant Executive Engineer Citation: JURISHOUR-218-HC-2026(KER) Case No.: WP(C) NO. 4911 OF 2023 Date: 12/02/2026 Counsel For Petitioner: S.Ambily Counsel For Respondent: Sri Sunil Nath Click Here To Read Order Read More: DGFT Operationalises Inter-Ministerial Group for Supply Chain Resilience Amid West Asia Conflict

GST Payable Over and Above Tender Amount: Kerala High Court Quashes Recovery From Contractor

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