The Tripura HC directed the state government to reimburse a contractor Rs 4.14 crore with 12% annual interest, ruling that denial of tax reimbursement under a works contract was arbitrary, unconstitutional, and violated Article 14, with payment ordered within three months.
The Tripura High Court has directed the state government to reimburse more than Rs 4.14 crore to a contractor, along with 12 per cent annual interest, holding that the state’s refusal to release the contractual tax reimbursement was arbitrary, illegal and violative of Article 14 of the Constitution.
The judgment was delivered by a Division Bench comprising Chief Justice M.S. Ramachandra Rao and Justice Biswajit Palit, while hearing a writ petition filed by a contractor engaged in the upgradation of the Netaji Subhash Regional Coaching Centre and construction of an indoor gymnasium in Agartala.
According to court records, the contract, valued at over Rs 32.74 crore, was awarded to the contractor in December 2010, and the project was completed in January 2018. During the execution of the work, the contractor paid various taxes, including Works Contract Tax and Goods and Services Tax (GST), which it later sought to recover under the terms of the agreement.
The petitioner argued that Clause 37.2 of the contract specifically entitled it to reimbursement of taxes and statutory levies paid or deducted during the execution of the project. Based on this contractual provision, the contractor claimed reimbursement of tax payments and applicable interest, taking the total amount due to Rs 4.14 crore as of March 31, 2025.
The dispute had previously reached the High Court when the contractor sought the appointment of an arbitrator to resolve differences arising out of the contract. However, in April 2024, the High Court ruled that claims relating to tax reimbursement were not arbitrable, granting the petitioner the liberty to pursue the matter before an appropriate legal forum.
Following that order, the contractor filed the present writ petition seeking recovery of the tax reimbursement amount together with interest.
During the hearing, the state government opposed the petition, contending that such relief could not be granted through a writ petition under Article 226 of the Constitution. The government maintained that contractual disputes should not ordinarily be entertained in writ jurisdiction.
However, the Division Bench observed that the state’s own counter affidavit acknowledged that tax reimbursement was governed by Clause 37.2 of the agreement. Importantly, the government neither disputed its contractual liability to reimburse the taxes nor challenged the amount claimed by the contractor.
Taking note of these facts, the High Court held that once the issue had already been declared non-arbitrable and the respondents had admitted the contractual obligation, withholding the reimbursement lacked any legal justification.
The Bench observed that such refusal amounted to arbitrary state action, making it unconstitutional and violative of Article 14, which guarantees equality before the law and prohibits arbitrary exercise of state power.
Referring to earlier judicial precedents, the court reiterated that High Courts possess the authority to exercise jurisdiction under Article 226 even in contractual matters where the actions of the State are found to be unfair, unreasonable or arbitrary.
The petitioner had also sought interest at the rate of 18 per cent per annum on the outstanding amount. While declining this request, the court held that 12 per cent annual interest would be appropriate, noting that the same rate had been awarded in similar commercial contract disputes decided earlier.
Accordingly, the High Court directed the state government to reimburse the entire tax amount claimed by the contractor together with 12 per cent annual interest, calculated from the respective dates on which taxes were either deducted from the contractor’s bills or paid by the contractor to the government, until the date of actual payment.
The Bench further ordered the respondents to release the entire payment within three months from the date of receipt of the judgment.
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The ruling is expected to have wider implications for government contractors executing public infrastructure projects, reaffirming that contractual commitments entered into by the State must be honoured fairly and that arbitrary denial of legitimate contractual dues cannot withstand judicial scrutiny. Legal observers believe the judgment strengthens accountability in public contracting while underscoring the constitutional obligation of government authorities to act reasonably, transparently and in accordance with the law.
