Contractual Tax Terms Prevail Over Misunderstanding of GST Council Decisions

Case Title: Vishal Verma v. Union of India & Ors.
Court: High Court of Jammu & Kashmir and Ladakh at Jammu
Petition Numbers: WP(C) No. 932/2021, 933/2021, 934/2021, 1379/2021, 1656/2021, 1818/2021, 1819/2021, 1820/2021, 494/2022, 1274/2023, 1041/2021
Category of Dispute: Contractual Tax Reimbursement under GST – Applicability of Prevailing Tax Rate
Date of Judgment: 03.11.2023
Relevant Sections: Article 265 of the Constitution of India; Terms of Contract under Government Procurement
Coram: Hon’ble Mr. Justice Sanjeev Kumar and Hon’ble Mr. Justice Mohan Lal

Facts of the Case [¶21–22]

• The petitioner, Vishal Verma, proprietor of M/s Kiran Constructions, was awarded various contracts under Military Engineering Services (MES).

• The petitioner quoted bid prices assuming a 12% rate of service tax, which he claimed was based on the GST Council’s deliberations.

• After award of the contract, 18% GST was levied, and the petitioner sought reimbursement of the differential tax amount from the respondents.

• The contracts contained Special Condition No. 49, which stated that any increase or decrease in the tax rate (as on the last date of tender submission) would be adjusted accordingly between the contractor and the employer.

Question(s) in Consideration [¶20–23]

• Whether the petitioner is entitled to reimbursement of differential GST amount on the ground that he assumed a lower tax rate based on GST Council meetings?

• Whether contractual stipulations relating to tax burden adjustment override such assumptions?

Observations of the Court [¶20–23]

• As per Article 265, tax can only be levied under authority of law, i.e., statute or subordinate legislation—not based on GST Council’s recommendations.

• The tax liability of parties is governed strictly by the contractual terms, which clearly provided that the tax rate as applicable on the last date for receipt of tenders would govern reimbursement or refund scenarios.

• The petitioner failed to prove that the rate applicable on the tender date was 12%; thus, his assumption of 12% based on GST Council’s suggestion was irrelevant.

• The contract clearly stated the quoted prices were inclusive of applicable taxes, and any difference in rates would be adjusted accordingly.

Judgment of the Court [¶23]

• The Court held that the petition lacked merit as the petitioner was bound by the contractual terms, and the assumption of a 12% rate was not backed by law.

• All writ petitions were dismissed, and interim reliefs, if any, were vacated.

Between Fine Lines

1. GST Council’s recommendations do not have the force of law for levy or collection of tax.

2. Contractual clauses determining tax burden prevail over individual assumptions.

3. Reimbursement claims must adhere to exact tender dates and statutory rates.

4. Petitioner failed to establish statutory backing for the assumed lower tax rate.

5. Clear contract language on tax rate adjustments binds both parties.

Summary of Referred Cases

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