Company Taking Calculated Business Risk Cannot Challenge Root Of Contract Merely Due To Change In Tax Laws: Calcutta HC Denies GST Refund

The Calcutta High Court has recently dismissed writ petitions by M/s Kayal Construction, which had been awarded tenders floated by the state government, on the condition that the petitioner would bear expenses for all the taxes/cess payable.Petitioners contended that the rates for the taxes/cess payable had been specified in the terms of contract, and that due to the subsequent implementation of the Goods & Services Tax (“GST”) in 2017 they were compelled to bear additional expenses. Through these petitions, they claimed a refund of the additional expenses made by them.In dismissing the petitioners’ case, a single-bench of Justice Sabyasachi Bhattacharya held:Introduction of the GST regime has not taken away the certainty of price. Even if the petitioner argues that the taxes have been enhanced, the same was factored into the original clauses of the contract. Mere replacement of Sales Tax, Excise Duty, VAT and other similar taxes by the GST regime does not change such parameters in any manner. In fact, even Sales Tax, VAT, Excise Duty and other levies specifically enumerated by way of example in the contract can very well be enhanced from time to time by the revenue authorities. It was argued by the petitioners that the contract was a commercial document and Courts would need to interpret it in a pragmatic manner and not strictly technically.Counsel relied on several case laws to substantiate that a definite price was an essential element of a binding agreement and that a contract could not have any uncertainty, especially in price. Petitioners hence complained of having to pay prices in excess of those which were agreed upon due to the subsequent implementation of the GST regime and enhancement of tax rates.Respondents on the other hand argued that the relevant clause of the contract was specific to the extent that it fixed the liability on the bidder to pay all indirect taxes. It was submitted that the petitioner would be liable to pay taxes under the GST regime and that the petitions seeking for refund of amounts already paid ought to be dismissed. In perusing the impugned clause which shifted the burden of taxes on the bidder, the Court noted that none of the clauses were restricted to operate on taxes payable “on that date” only.The relevant clause in the contract contemplates that the contractor/bidder is to quote its rate accordingly after considering “all these charges”, thus referring to the taxes mentioned therein. Such taxes were Income Tax, VAT, Sales Tax, Royalty, Construction Workers‟ Welfare Cess and “similar other statutory levy/Cess. The GST Act has merely subsumed the indirect taxes payable by a supplier for the entire service chain and has not introduced any additional set of taxes. Mere alteration of the taxation regime does not absolve the petitioner of honouring the said Clause, it was held. Court held that the petitioner could not be permitted to have price revision, since even from the perspective of the contract, the supplier/petitioner would have to bear the taxes under the GST regime as well. It was opined that no new liability was being imposed on the petitioner which had not been contemplated under the contract, and that the phrase “similar other statutory levy/cess” did not limit the paying of taxes to only those mentioned in the contract. It was concluded that the contract executed between the parties was never uncertain and that essentiality of price was never an issue between the parties. Thus the petitioner being required to bear the GST, as contractually agreed, the Court dismissed the writ petitions. Citation: 2023 LiveLaw (Cal) 329Case: M/s. Kayal Construction Vs. The State of West Bengal & OrsCase No: WPA 17188 of 2023Click here to Read/Download Order

Company Taking Calculated Business Risk Cannot Challenge Root Of Contract Merely Due To Change In Tax Laws: Calcutta HC Denies GST Refund

Srinjoy Das

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Srinjoy Das

Company Taking Calculated Business Risk Cannot Challenge Root Of Contract Merely Due To Change In Tax Laws: Calcutta HC Denies GST Refund

Srinjoy Das

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INR 1099+GST

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Srinjoy Das

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