Municipality Must Pay GST 'PLUS' Contract Value — Tender Rates Are Exclusive of GST Under Government Circulars: Kerala HC Quashes Audit Objection and Recoupment Action

The Kerala High Court has held that local bodies are bound to reimburse GST over and above the contract value to contractors, as Government circulars unambiguously mandate that tender rates quoted by contractors are "exclusive of GST" and payment must be made for "total value of the works PLUS the applicable GST." The court quashed the audit objection and the consequent recoupment action by the Irinjalakuda Municipal Council seeking to recover GST payments already made to the contractor. The judgment was delivered by Justice Harisankar V. Menon on 12.02.2026 in WP(C) No. 4911 of 2023.

The petitioner, a contractor awarded work by the Municipality in 2019 pursuant to a tender, contended that the tender amount of Rs. 2,53,82,519.35 was exclusive of GST and the Municipality was obligated to pay GST separately. The Municipality had initially paid GST along with periodical bills, but after an audit report (Ext.P15) recorded that GST was included in the contractor's quote, the Municipality sought to recoup all GST payments made till that date.

The court undertook a detailed examination of three Government circulars — the Finance Department circular dated 14.12.2017 (Ext.P4), the Chief Engineer's circular dated 27.11.2017 (Ext.P5), and the modified Finance Department circular dated 01.03.2019 (Ext.P6). The court noted that across all three circulars, the position is consistent: Clause 5 of the 2019 circular provides that "rates quoted by the bidders shall include all taxes and duties… except the GST"; Clause 7 provides that L1 determination is on rates "exclusive of GST"; and Clause 9 uses the word "PLUS" in capital letters, providing that "payment has to be made to the contractor for the total value of the works at contract rates PLUS the applicable GST rate." The court held that since the tender documents are structured to exclude GST from the quoted rate, the tender placed by the petitioner must be understood as one filed without the GST component, and the Municipality is bound to pay GST separately. The audit objection was found to be contrary to the Government's own circulars.