Karnataka High Court: Contractors Must Prove Incremental GST Payment to Claim Reimbursement from BBMP

Background of the Dispute

The Karnataka High Court, in Bruhath Bangalore Mahanagara Palike Vs PMJ Constructions Pvt. Ltd., examined whether a contractor executing public works is entitled to reimbursement of additional Goods and Services Tax (GST) arising after the introduction of the GST regime, and what level of proof is required to sustain such a claim.

The appeal was filed by Bruhath Bangalore Mahanagara Palike (BBMP) against an order of a learned Single Judge in W.P. No. 461/2023 (LB-TAX) dated 25.07.2025. The Single Judge had directed BBMP to reimburse Rs. 2,23,23,979.92 said to be the differential tax component (incremental GST) claimed by PMJ Constructions Pvt. Ltd., a registered public works contractor.

The contractor had been awarded two major works under contracts dated 20.03.2013 and 29.10.2015, relating to:

  • Construction of a 20-metre corridor from BTM Layout to Hosur Road along Madiwala Tank Bund Road; and
  • Construction of a four-lane divided bidirectional underpass at the junction of Magadi Road and Basaveshwar Nagar Road along Magadi Road.

The controversy did not relate to pre-GST payments. The assessee did not challenge running account (RA) bills and tax liabilities prior to 01.07.2017. The core issue was restricted to reimbursement of the incremental tax burden after GST was implemented on 01.07.2017.

Contractual Framework on Taxes and Reimbursement

The contracts were on a lump-sum basis and specifically mentioned that the contract price included all taxes prevailing at the time of tender. At the same time, Clause 8 of the Special Conditions of Contract created a mechanism for adjustment where there were changes in the tax structure after tender submission.

Clause 8 – Taxes and Duties

The relevant clause, which formed the backbone of the assessee’s claim, provided that:

  • The approved lump-sum amount was inclusive of all taxes, duties, levies, municipal and local taxes, royalties and similar charges.
  • The assessee was expected to factor in the taxes and duties prevailing one month prior to the date of submission of the tender.
  • If, after tender submission, the Government of Karnataka or Government of India introduced changes resulting in increased taxes, duties or royalties, the employer (BBMP) may consider reimbursing the increase, subject to proper certification from appropriate tax authorities.
  • Conversely, if tax rates were reduced by either government, the contractor was obligated to refund the benefit of such reduction to BBMP.

In essence, the contract price was fixed on the basis of pre-existing tax rates, with a limited and conditional window for reimbursement for post-tender statutory increases in tax.

Shift from VAT to GST and Contractor’s Claim

Pre-GST Position

Before 01.07.2017, the works executed under these contracts were subject to Value Added Tax (VAT). According to the assessee, it was liable for VAT at the rate of 4% on the works contracts.

Post-GST Position and Claim for Incremental Tax

With the advent of the:

  • Central Goods and Service Tax Act, 2017 (CGST Act),
  • State Goods and Service Tax Act, 2017 (KGST Act), and
  • Integrated Goods and Service Tax Act, 2017 (IGST Act),

the tax structure applicable to works contracts changed substantially. The assessee continued to execute the contracts beyond 01.07.2017 and raised RA and final bills for the work executed during the GST regime.

The assessee contended that:

  • GST resulted in an additional tax incidence beyond what had been factored into the original contract price.
  • The incremental tax liability worked out to 8% of the value of the RA bills for the post-GST period, treating the earlier VAT at 4% as already embedded in the contract price and claiming the excess over that as reimbursable.
  • It relied both on Clause 8 of the Special Conditions and a BBMP circular dated 11/21.09.2017, which, according to the assessee, recognised the principle of reimbursement of GST differences in eligible cases.

As BBMP did not process or honour these reimbursement claims, the assessee invoked the writ jurisdiction of the High Court.

Relief Sought in the Writ Petition

In the writ petition, the assessee prayed for the following primary reliefs:

  1. A writ of mandamus directing the respondents (BBMP and others) to reimburse the differential GST at 8% to the assessee.
  2. A further direction to pay interest at 18% per annum on the GST dues, purportedly aligned with the statutory interest rate under Section 50 of CGST Act, 2017.