Calcutta High Court Mandates Re-evaluation of GST Reimbursement for Post-Transition Works Contracts

The transition from the erstwhile indirect tax regime—comprising Value Added Tax (VAT) and Service Tax—to the Goods and Services Tax (GST) framework on July 1, 2017, introduced significant transitional challenges, particularly in the realm of works contracts. A recurring point of litigation has been the appropriate tax treatment and subsequent reimbursement of tax components for contracts that straddled the transition date or were executed immediately thereafter.

In a significant judicial development, the Calcutta High Court, in the case of Manash Ghosh Vs State of West Bengal & Ors., has provided critical clarity on the reimbursement of GST for works contract services rendered after the rollout of the GST regime. The Court meticulously examined the administrative instructions issued by the State Government and reinforced the principle that state authorities cannot arbitrarily apply pre-GST contractual clauses to post-GST executions.

Background of the Dispute

The core of the controversy revolved around the interpretation of Notification No. 5050-F(Y) dated August 16, 2017, issued by the State Government to manage the financial and taxation transition of government contracts.

The assessee, operating as a sole proprietorship firm registered under both the Central Goods and Services Tax (CGST) Act and the West Bengal Goods and Services Tax (WBGST) Act, had executed various works contracts for the state authorities. The services in question were provided on or after July 1, 2017. Consequently, the assessee discharged the applicable GST liabilities from their own funds for the financial years 2017-18 and 2018-19.

When the assessee sought reimbursement for the GST component paid against the gross bills, the respondent authorities rejected the claim. The authorities relied on paragraph 3(iv) of Notification No. 5050-F(Y), which generally stipulated that the contractual values would not be revised due to the impact of the change in tax rates from VAT/Service Tax to GST.

Aggrieved by this denial, the assessee approached the Calcutta High Court by filing a writ petition (W.P.A. 18515 of 2021), seeking a writ of mandamus to compel the state authorities to remit the GST amount on the works contract services provided during the post-GST period.

Factual Matrix and Assessee's Submissions

The assessee presented a robust legal argument challenging the mechanical application of the government notification by the state authorities. The primary contentions were rooted in statutory interpretation and constitutional safeguards.