Disposed¶122

State of Karnataka v. M/S. Sudhanva Engineers and Builders

Karnataka HC10 Jun 2026WA/275/2025

Case brief

AI extract

What is this about?

Keywords: writ appeal; GST reimbursement; works contract; employer versus tax authorities; Karnataka PWD; KGST Act Section 73(1) and Section 73(9); show cause notice dated 06.11.2023; demand order dated 21.12.2023; Sri Chandrashekaraiah WP No.9721/2019 (NC: 2023:KHC:15431); waiver of interest and penalty unsustainable; revised GST returns contrary to statute; contract cannot alter GST levy; reimbursement direction confined to employer; WA No. 275 of 2025 (T-RES); M/s. Sudhanva Engineers and Builders; Vibhu Bakhru, Chief Justice.

What did the court decide?

Impugned order dated 25.04.2024 set aside to the extent of the directions issued to the tax authorities/State; appeal disposed of, with the reimbursement direction construed as operating only against the concerned Employer (appellant No.2) and not the tax authorities. ¶122

State of Karnataka Vs M/S. Sudhanva Engineers and… — GST and Indirect Tax | Karnataka HC (2026)

What the court decided

AI extract

Outcome

¶122

Issue for consideration

Whether the impugned order could incorporate the directions in Sri Chandrashekaraiah enabling the writ petitioner to file GST returns/amended returns for the period after 01.07.2017, with waiver of interest and penalty and relaxation of limitation. +1 more

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Court's answer

No directions could be issued permitting the filing of revised returns contrary to the provisions of the statute; plenary directions to waive penalty and interest under the GST Acts or relax the limitation for filing returns/revised returns are unsustainable.

¶116

Ratio / Principle

The dispute as to whether the writ petitioner is entitled to reimbursement of incremental tax paid or payable on account of the levy of GST is strictly a matter between the writ petitioner and the concerned Employer with whom it had entered into contract.

¶112

Key takeaways

The Agreement would not alter the statutory scheme for levy of GST; liability to pay GST must be determined strictly in accordance with the relevant statute, and the levy, assessment, recovery and enforcement of GST are matters of statutory prescription and cannot be altered by the terms of any contract.ratio¶115
The direction issued to the respondents to reimburse the tax is required to be construed as a direction only to the concerned Employer and not to the tax authorities.ratio¶117

Detailed headnote1 paragraphs

Division Bench (Vibhu Bakhru, CJ and K.S. Hemalekha, J.) disposed of the State's writ appeal against a Single Judge order dated 25.04.2024 (W.P.No.2911/2024) directing Respondent Nos.1 and 2 to pay a contractor's GST dues with 18% interest and 10% penalty in terms of Sri Chandrashekaraiah (WP No.9721/2019, decided 11.04.2023). Held: (i) entitlement to reimbursement of incremental GST on account of the GST levy is strictly a matter between the contractor and the employer under the works contract; the agreement cannot alter the statutory scheme — levy, assessment, recovery and enforcement of GST are matters of statutory prescription and cannot be altered by contract; (ii) no direction can issue permitting filing of revised GST returns contrary to the statute, and plenary directions waiving penalty/interest under the GST Acts or relaxing limitation are unsustainable; (iii) the reimbursement direction operates only against the concerned employer and not the tax authorities. Impugned order set aside to the extent of the directions issued to the tax authorities/State; appeal disposed of.

¶1

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NC: 2026:KHC:28967-DB WA No. 275 of 2025

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HC-KAR

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IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 10^TH DAY OF JUNE, 2026

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PRESENT

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THE HON'BLE MR. VIBHU BAKHRU, CHIEF JUSTICE

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AND

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THE HON'BLE MRS. JUSTICE K.S. HEMALEKHA

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WRIT APPEAL NO. 275 OF 2025 (T-RES)

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BETWEEN:

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STATE OF KARNATAKA

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PUBLIC WORKS DEPARTMENT

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K R CIRCLE

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BENGALURU - 560001 REP BY ITS PRINCIPAL SECRETARY.

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THE CHIEF PROJECT OFFICER

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PROJECT IMPLEMENTATION UNIT STATE HIGHWAYS DEVELOPMENT PROJECT K R CIRCLE

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BENGALURU - 560001

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Digitally signed by K P SWETHA Location: High Court of Karnataka

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STATE OF KARNATAKA FINANCE DEPARTMENT

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II FLOOR, VIDHANA SOUDHA BENGALURU - 560001 REP BY ITS ADDITIONAL

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CHIEF SECRETARY

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COMMISSIONER OF COMMERCIAL TAXES

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GOVERNMENT OF KARNATAKA VANIJYA THERIGE KARYALAYA 1^ST MAIN ROAD, GANDHINAGAR BENGALURU - 560009

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2 - NC: 2026:KHC:28967-DB WA No. 275 of 2025

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HC-KAR

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DEPUTY COMMISSIONER OF COMMERCIAL TAXES (AUDIT)-5.7 DEPARTMENT OF COMMERCIAL TAXES 6^TH FLOOR, B BLOCK VIVEKNAGAR POST, KORAMANGALA BENGALURU - 560047

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…APPELLANTS

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(BY SRI ADITYA VIKRAM BHAT, AGA)

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AND:

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M/S. SUDHANVA ENGINEERS AND BUILDERS A SOLE PROPRIETORSHIP HAVING ITS REGISTERED OFFICE AT NO. 1298 13^TH MAIN, 5^TH A CROSS JUDICIAL LAYOUT, YELAHANKA BENGALURU - 560064 REP BY PROPRIETOR SRI SUDHANVA S.

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…RESPONDENT

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(BY SRI S.S NAGANAND, SENIOR ADVOCATE A/W SRI SIDHARTH SRIKANTH, ADVOCATE FOR SRI NAGESH MORO, ADVOCATE)

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THIS WRIT APPEAL IS FILED UNDER SECTION 4 OF THE KARNATAKA HIGH COURT ACT PRAYING TO SET ASIDE THE JUDGEMENT DATED 25/04/2024 PASSED BY THE LEARNED SINGLE JUDGE OF THIS HONBLE COURT IN W.P. NO.2911/2024 (T-RES) AND ETC.

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THIS APPEAL, COMING ON FOR PRELIMINARY HEARING, THIS DAY, JUDGMENT WAS DELIVERED THEREIN AS UNDER:

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NC: 2026:KHC:28967-DB WA No. 275 of 2025

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HC-KAR

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CORAM: HON'BLE MR. VIBHU BAKHRU, CHIEF JUSTICE and HON'BLE MRS. JUSTICE K.S. HEMALEKHA

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ORAL JUDGMENT

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(PER: HON'BLE MR. VIBHU BAKHRU, CHIEF JUSTICE)

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The appellants have filed the present appeal impugning the

¶42

order dated 25.04.2024 [ impugned order ] passed by the learned Single Judge of this Court in W.P.No.2911/2024 (T-RES) clubbed with W.P.No.3196/2024 (T-RES). The preset appeal arises from W.P.No.2911/2024. Respondent No.1 [ writ petitioner ] had filed

¶43

the said writ petition, inter alia , praying as under:

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"i. Direct Respondent No.2 (appellant No.2 herein) to pay Respondent No.5 (appellant No.5 herein) a sum of RS. 93,60,678- (Rupees Ninety-three lakhs, Sixty thousand, Six hundred and seventyeight only) along with interest at the rate of 18% per annum, and penalty at 10% per annum, towards the GST dues of the Petitioner for FY 2018-19;

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In the alternative, direct Respondent No. 2 to reimburse to the Petitioner a sum of Rs. 93,60,678/- (Rupees Ninety-three lakhs, Sixty thousand, Six hundred and seventy-eight only) along with interest at the rate of 18% per annum, and penalty at 10% per annum;

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ii. Restrain Respondent No.5 from proceeding against the Petitioner on the basis of the show cause

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4 - NC: 2026:KHC:28967-DB WA No. 275 of 2025

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HC-KAR

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notice dated 06.11.2023bearing No. DCCT (A) - 5.7/DGSTO-5/ADJU/2023-24(Annexure-H), and the Demand Order dated 21.12.2023 bearing No. DCCT (A) -5.7/DGSTO-5/ADJU/No. 74/2023-24 (AnnexureM), till the payment of the due amount by Respondent No. 2;

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iii. Award costs of the proceedings;

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iv. Grant any such relief as this Hon'ble Court deems fit under the facts and circumstances of this case, in the interest of justice and equity."

¶53

The said writ petitioner is a sole proprietorship concern, engaged in the business of construction and executing various public works in the State of Karnataka. The writ petitioner was duly registered as a dealer under Section 22 of the Karnataka Value Added Tax Act, 2003, with effect from 24.05.2012. After the roll out of the Goods and Services Tax [ GST ] regime with effect from 01.07.2017, the writ petitioner obtained a registration certificate dated 15.09.2020 with the GST authorities.

¶54

The writ petitioner and appellant No.2 entered into an agreement dated 17.10.2016 [ the Agreement ] for executing the following works:

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"(i) improvement to Sureban-ChittaragiKoodalasangam SH-133 from KM 27.50 to KM 42.00 (is selected reaches) in Badami Taluk, Bagalakot District;

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HC-KAR

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(ii) improvement to Sureban-ChittaragiKoodalasangam SH-133 from KM 102 to KM 106 in Hunagund Taluk, Bagalakot District."

¶59

Appellant No.2 issued a notice to proceed with the Work dated 17.10.2016 at a contract price of `23,52,84,303/-. The writ petitioner claimed that it commenced the project work and regularly raised RA bills and invoices. The writ petitioner claimed that it was initially liable to pay Value Added Tax [ VAT ] at the rate of 4%, but after 01.07.2017, it became liable to pay GST at the rate of 12% for the execution of Works. The writ petitioner states that although the imposition of GST increased the tax payable, it continued to execute the works and perform its obligations under the Agreement. The writ petitioner had raised invoices indicating the additional tax burden imposed on account of GST, but appellant no.2 failed to reimburse the same. The works were duly completed, and appellant no.2 issued a Work Completion Certificate dated 11.09.2019.

¶60

The writ petitioner also claimed that it was unable to pay the GST to appellant No.5 due to non-reimbursement of the amount by appellant No.2.

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6 - NC: 2026:KHC:28967-DB WA No. 275 of 2025

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HC-KAR

¶63

The writ petitioner states that appellant no.5 issued an observation dated 30.06.2023 alleging that the writ petitioner had defaulted in payment of GST. According to appellant no.5, the writ petitioner was liable to pay GST at the rate of 18% on its taxable turnover (9% towards CGST and 9% towards SGST).

¶64

The writ petitioner furnished its reply to appellant no.5, inter alia , stating that the applicable rate of GST was 12% and not 18% since the Agreement was for the execution of Governmental Project Works. It also claimed that it was unable to pay the GST as appellant no.2 had not reimbursed the said amount.

¶65

Appellant mo.5 issued a show cause notice dated 06.11.2023 under Section 73(1) of the Karnataka Goods and Service Taxes Act, 2017 [ KGST Act ] for the Financial Year 20182019.

¶66

The writ petitioner claimed that in view of the proceedings instituted by appellant no.5, it once again requested appellant no.2 to release the reimbursement of GST, as due. The writ petitioner made a representation dated 09.11.2023 requesting appellant no.2

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HC-KAR

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to release an amount of `93,60,678/- along with interest, towards the reimbursement of GST.

¶70

The writ petitioner also responded to the show cause notice dated 06.11.2023 issued by appellant no.5. The said proceedings culminated by passing a demand order under Section 73(9) of the KGST Act raising a demand of 2,42,68,900/- (Rupees Two Crores Forty Two Lakhs Sixty Eight Thousand and Nine Hundred only) along with interest at the rate of 18% per annum and penalty at the rate of 10% of the principal liability. Cumulatively, the said demand amounted to 4,84,76,038/- (Rupees Four Crores Eighty Four Lakhs Seventy Six Thousand and Thirty Eight only).

¶71

In the aforesaid backdrop, the writ petitioner filed a Writ Petition in W.P. No.2911/2024.

¶72

The writ petitioner claimed that the prices it quoted for the works included only VAT, computed at 4% of the taxable turnover. However, a portion of the project work was executed prior to 01.07.2017, and the remaining portion was executed after the GST regime came into force. The writ petitioner claimed that appellant

¶73

¶74

NC: 2026:KHC:28967-DB WA No. 275 of 2025

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HC-KAR

¶76

no.2 was liable to pay the tax component of the project works executed by it.

¶77

The said writ petition was allowed by the impugned order. The operative part of the impugned order reads as under:

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"(i) Petitions are hereby allowed and disposed of in terms of the order passed in Sri Chandrashekaraiah and others Vs. The State of Karnataka and others – WP No.9721/2019 and connected matters dated 11.04.2023.

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(ii) Respondent Nos.1 and 2 are hereby directed to pay the GST dues of the petitioner, including interest at the rate of 18% and penalty at the rate of 10%, levied as per the demand order dated 21.12.2023 for the FY 2017-18, FY 2018-19, FY 2019-20 and FY 2020-21 as and where applicable to respondent Nos.3 to 5 – State after due verification and in accordance with law.

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(iii) Liberty is reserved in favour of the petitioner to submit fresh / new representation along with calculation to the respondents, who shall consider the same and proceed further in terms of the directions issued in this order."

¶81

As is apparent from the above, the writ petition was allowed following the earlier decision in the case of Sri. Chandrashekaraiah and others V. The State of Karnataka¹ .

¶82

It is thus relevant to refer to the operative part of the decision in Sri. Chandrashekaraiah ( supra ). The same is set out below:

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1 NC: 2023:KHC:15431

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NC: 2026:KHC:28967-DB WA No. 275 of 2025

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HC-KAR

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"20. In the result, I pass the following:-

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ORDER

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(i) Petitions are hereby disposed of.

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(ii) The Respondents-State and other Govt agencies / Respondents who have entered into works contract with the Petitioners are issued the following directions / guidelines:-

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(a) Calculate the works executed pre-GST (prior to 01.07.2017) under KVAT regime and payments received by the Petitioners.

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(b) The payments received by the Petitioners preGST for such of the works executed before 01.07.2017 are to be assessed under KVAT tax regime – either under COT or VAT scheme as applicable.

¶93

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(d) Derive the rate of materials, KVAT items required or used to complete the balance works.

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(e) Deduct the "KVAT" amount from those materials and the service tax, if applicable.

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(f) Add the applicable "GST" on those items.

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(g) Input Credit on the materials is to be arrived at and be set off as against the output GST, for those assessed under regular VAT.

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(h) Further, the “tax difference” should be calculated on such balance works executed or to be executed after 01.07.2017 separately.

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(i) Based on the result obtained on calculation of the tax difference on the contract value, concerned department/authority has to decide whether agreement needs to be changed or not.

¶100

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HC-KAR

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(j) A supplementary agreement may be signed with the Petitioners for the revised GST-inclusive work value for the Balance Work completed or to be completed as determined above and in case the revised GST-inclusive work value for the Balance Work, completed or to be completed after 01.07.2017, is more than the original agreement work value, the Petitioners are to be paid /reimbursed, as the case may be, the differential tax amount by the concerned employer; so also, in case payments for works completed pre-GST are made postGST, the concerned employer has to pay or reimburse, as the case may be, the differential tax amount, to the Petitioners.

¶103

(iii) Petitioners are directed to submit comprehensive representations to the respective employers/Respondents within a period of 4 weeks from the date of receipt of a copy of this order, irrespective of whether they have completed the works pre-GST or post-GST or payments were received or yet to be received post-GST.

¶104

(iv) If such representations are submitted, the respective employers/Respondents are directed to consider and dispose of the same in the light of the aforesaid directions / guidelines as expeditiously as possible and at any rate within a period of 8 weeks from the date of submission of the representations.

¶105

(v) In view of the interim orders passed by this Court in the present petitions, such of the petitioners who had not filed their GST returns during the period after 01.07.2017 are permitted to file their returns / amended returns, pursuant to the calculation of the differential tax as per procedure above under GST regime, without insisting on interest or penalty or limitation.

¶106

(vi) The GST authorities are also directed not to take precipitative action against the Petitioners for a period of 6 months from the date of receipt of a copy of this order.

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(vii) Liberty is reserved in favour of the petitioners to challenge any order / decision passed / taken by the respondents or the authorities, subsequent to this order

¶108

11 - NC: 2026:KHC:28967-DB WA No. 275 of 2025

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HC-KAR

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and also take recourse to such remedies as available in law."

¶111

The learned counsel appearing for the appellants has confined the challenge to the impugned order on two fronts. First, it is submitted that the operative part of the order seeks to incorporate the directions issued in the case of Sri.Chandrashekaraiah ( supra ), which also includes a direction enabling the writ petitioners to file GST returns/ amended returns for the period after 01.07.2017 by calculating the differential tax in a manner as set out in the said order. Further, the interest and penalty have been waived, and the limitation period has been relaxed. Second, it is submitted that the appellants are not liable to reimburse any amount to the writ petitioner, and the direction to the concerned respondents to do so must be read as confined to the concerned Employer (appellant No.2).

¶112

The dispute as to whether the writ petitioner is entitled to reimbursement of incremental tax paid or payable by them on account of the levy of GST is strictly a matter between the writ petitioner and the concerned Employer with whom it had entered into a contract. The Agreement between the writ petitioner and the

¶113

12 - NC: 2026:KHC:28967-DB WA No. 275 of 2025

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HC-KAR

¶115

Employer would not alter the statutory scheme for the levy of GST. Thus, the liability of the writ petitioner to pay Goods and Services Tax under the (Central Goods and Services Tax Act, 2017, State Goods and Services Tax Act, 2017 or the Integrated Goods and Services Tax Act, 2017) is required to be determined strictly in accordance with the provisions of the relevant statute. The question of the levy of GST, assessment, recovery, and enforcement is a matter of statutory prescription and cannot be altered by the terms of any contract.

¶116

In view of the above, no directions could be issued permitting the filing of any revised returns contrary to the provisions of the statute. The plenary directions to waive the penalty, interest under the GST Acts or relax the limitation for filing returns/revised returns, are also unsustainable. No such directions can be issued contrary to the statute.

¶117

In the aforesaid view, the direction issued to the respondents to reimburse the tax is required to be construed as a direction only to the concerned Employer and not to the tax authorities.

¶118

13 -

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NC: 2026:KHC:28967-DB WA No. 275 of 2025

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HC-KAR

¶121

The impugned order, to the extent of the directions issued to

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the tax authorities/State, is set aside. The appeal is disposed of in

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the aforesaid terms.

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Sd/(VIBHU BAKHRU) CHIEF JUSTICE

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Sd/(K.S. HEMALEKHA) JUDGE

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KPS List No.: 2 Sl No.: 0

Procedural history

How this case reached the court

AI extract

Order under challenge
Order dated 25.04.2024 of the learned Single Judge in W.P.No.2911/2024 (T-RES) (clubbed with W.P.No.3196/2024 (T-RES)) allowing the writ petition in terms of Sri Chandrashekaraiah (WP No.9721/2019, decided 11.04.2023) and directing Respondent Nos.1 and 2 to pay the petitioner's GST dues with interest at 18% and penalty at 10% as per the demand order dated 21.12.2023.¶42
Learned Single Judge, High Court of Karnataka · 25.04.2024
Prior proceeding
Agreement dated 17.10.2016 between the writ petitioner and appellant No.2 for improvement works on SH-133 in Bagalakot District.¶54
Prior proceeding
Notice to proceed with the Work dated 17.10.2016 issued by appellant No.2 at a contract price of Rs. 23,52,84,303/-.¶59
Prior proceeding
Works completed; Work Completion Certificate dated 11.09.2019 issued by appellant No.2.¶59
Prior proceeding
Observation dated 30.06.2023 issued by appellant No.5 alleging default in payment of GST; per appellant No.5, GST was payable at 18% (9% CGST + 9% SGST).¶63
Prior proceeding
Reply of the writ petitioner claiming the applicable GST rate was 12% and not 18%, and citing non-reimbursement by appellant No.2.¶64
Prior proceeding
Show cause notice dated 06.11.2023 issued under Section 73(1) of the KGST Act for FY 2018-2019 (Annexure-H).¶65
Prior proceeding
Representation dated 09.11.2023 to appellant No.2 seeking release of Rs. 93,60,678/- with interest towards reimbursement of GST.¶69
Prior proceeding
Demand Order dated 21.12.2023 bearing No. DCCT (A)-5.7/DGSTO-5/ADJU/No. 74/2023-24 (Annexure-M) challenged in the writ petition.¶50
Prior proceeding
Proceedings culminated in a demand order under Section 73(9) of the KGST Act raising a demand of Rs. 2,42,68,900/- with interest at 18% p.a. and penalty at 10% of the principal; cumulative demand Rs. 4,84,76,038/-.¶70
Prior proceeding
Writ petitioner filed W.P. No.2911/2024 seeking payment/reimbursement of GST dues and restraint against recovery.¶71

State of Karnataka v. M/S. Sudhanva Engineers and Builders

Case brief

What is this about?

What did the court decide?

State of Karnataka v. M/S. Sudhanva Engineers and Builders

Case brief

What is this about?

What did the court decide?

Why is it important?

What the court decided

Issues for consideration

Cases cited

Statutes considered

Procedural history

Parties & counsel

Coram

Case details

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