Procuring Authority Liable For Differential GST In Government Contracts: Madras High Court Reiterates

Reiterating that additional GST arising from the rollout of the GST regime in government works contracts must be borne by the procuring authority, the Madras High Court has directed the Tamil Nadu Housing Board to consider a contractor's claim for reimbursement of differential tax.

A Bench of Justice N Sathish Kumar relying on settled law, held that contractors cannot be fastened with liability for differential GST, interest, or penalties when tax was discharged strictly in accordance with the payment certifications issued by the government authority.

The petitioner, a contractor engaged in construction works including government projects, had been awarded contracts by the Tamil Nadu Housing Board (TNHB). Following the introduction of GST with effect from 1 July 2017, construction services became taxable at 18 per cent. 

However, TNHB applied and paid GST at a reduced rate of 12 per cent in its payment certifications, instead of the prescribed 18 per cent. The petitioner remitted GST as per the certified payments, which resulted in a shortfall of 6 per cent GST for works executed after 1 July 2017.

Subsequently, the Directorate General of GST Intelligence (DGGI) issued a show cause notice to the petitioner alleging short payment of GST. Thereafter, TNHB passed a Board Resolution dated 23 June 2023, adopting 18 per cent GST for saleable projects from 1 July 2017 and 12 percent GST for government schemes and Board-owned buildings from 18 July 2022.

The petitioner made multiple representations seeking reimbursement of the differential 6 percent GST amount, but only partial payment was made by TNHB.

Relying on earlier judicial precedents and government orders issued post the introduction of GST, the Court observed that contractors cannot be penalised for alleged underpayment of GST when billing and payment were made strictly as per the directions of the procuring authority. The Bench emphasized that in government works contracts, the GST liability must be borne by the procuring authority and that TNHB could not ignore the contractor's legitimate claim for reimbursement.

Accordingly, the court directed the Tamil Nadu Housing Board to consider the petitioner's representations and pass appropriate orders in accordance with law.

With these directions, the writ petition was disposed of.

Case Title: Kanthan Associates v. State of Tamil Nadu

Citation: 2026 LLBiz HC (MAD) 14

Case Number: WP No. 48149 of 2025

Counsel for Petitioner: Advocates Shrivirudishni V

Counsel for Respondent: Additional Government Pleader V. Jeevagiridharan for R1 and Standing Counsel D.Veerasekaran for R2 to R6