The Karnataka High Court has held that courts cannot direct GST authorities to permit revised returns contrary to statutory provisions, waive interest or penalties, or extend limitation periods prescribed under the GST laws.
The bench of Chief Justice Vibhu Bakhru and Justice K.S. Hemalekha clarified that contractors affected by the additional GST burden after the rollout of GST may pursue their claims for reimbursement against the respective government employers.
The litigation arose from works contracts that had been awarded before July 1, 2017, when the erstwhile VAT regime was in force. Although the contracts were executed prior to the introduction of GST, portions of the work, invoices, or payments continued after GST came into effect.
The contractors argued that the original contract rates had been quoted on the basis of the then-prevailing tax structure and did not contemplate the increased tax burden resulting from the implementation of GST. They submitted representations requesting that the employers bear the additional tax liability arising solely because of the transition to the GST regime.
When those representations were not accepted, the contractors approached the High Court.
The Single Judge had issued detailed directions for determining the differential tax burden and had directed that the employers reimburse the additional GST liability to eligible contractors.
The order also contained directions enabling contractors to file returns or amended returns after July 1, 2017, while providing relief relating to limitation, interest, penalties, and coercive recovery proceedings under the GST laws.
These directions were challenged by the GST authorities in appeal.
The Division Bench distinguished between contractual disputes involving reimbursement of additional tax and statutory powers exercised under the GST enactments.
The Court observed that the levy, assessment, recovery, and enforcement of GST are matters governed entirely by the provisions of the Central Goods and Services Tax Act, the State GST Act, and the Integrated GST Act.
Accordingly, the Court held that no judicial direction can permit the filing of revised returns contrary to statutory provisions or override the legislative scheme governing limitation, interest, penalties, and tax administration.
The Bench held that such matters must be determined strictly in accordance with the applicable GST statutes and cannot be altered through general judicial directions.
While limiting the directions against tax authorities, the Court recognized that the core controversy concerns who should ultimately bear the additional tax burden caused by the transition from the pre-GST regime to GST.
According to the Court, that dispute primarily exists between the contractors and the respective government departments or employers that awarded the contracts.
Consequently, the Bench clarified that the earlier direction requiring reimbursement of differential tax should be understood only as a direction to the concerned employers and not as one binding the GST authorities.
Allowing the appeals in part, the Division Bench set aside the portions of the Single Judge’s judgment that directed GST authorities to permit filing or revision of GST returns contrary to statutory provisions; waive interest, penalties, or statutory limitation periods; and refrain from taking recovery action under the GST laws merely because of the contractual dispute.
However, the Court preserved the contractors’ right to pursue reimbursement of the differential GST burden from their respective employers in accordance with law.
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