Karnataka High Court Holds Writ Jurisdiction Not Invocable for Contractual Tax Reimbursement Disputes Involving Factual Controversies and Arbitration Clause

Karnataka High Court has reaffirmed the principle that writ jurisdiction under Article 226 of the Constitution is not the appropriate forum for resolving contractual disputes involving complex questions of fact and law, particularly where the contract contains an arbitration clause.

The case arose from a dispute between a contractor and the State of Karnataka regarding reimbursement of Goods and Services Tax (GST) paid by the contractor in the execution of a redevelopment project. The appellant, a Class-I contractor, had successfully bid for the redevelopment of the Old City Bus Stand under the Davanagere Smart City Program. After entering into a work order agreement in March 2019, the contractor claimed to have completed 90% of the work and raised 23 running account bills, which included GST amounts. While the bills were cleared, the GST component was not reimbursed, prompting the contractor to seek a writ of mandamus for payment of GST.

The Single Judge dismissed the writ petition, holding that the matter involved disputed questions of fact and law, and that the existence of an arbitration clause in the contract made arbitration the appropriate remedy. On appeal, the Division Bench, led by Chief Justice Vibhu Bakhru, examined the contract terms, particularly Clause 39, which stated that the rates quoted by the contractor were deemed inclusive of all taxes. The Court also considered the instructions to bidders, which reiterated that all duties, taxes, and levies payable under the contract were to be included in the tender price.

Despite the appellant’s contention that the contract rates did not account for GST, the Court found that the dispute required determination of several factual issues: whether the contract price included GST, the quantum of incremental taxes, and whether the appellant had actually paid GST. The Court emphasized that such issues are not amenable to summary adjudication in writ proceedings, especially when the contract provides for arbitration.

The Division Bench concluded that the Single Judge was correct in declining to entertain the writ petition, as the dispute was contractual in nature and involved factual controversies best resolved through arbitration. The appeal was accordingly dismissed, and all pending applications were disposed of.

This decision reinforces the judicial approach that contractual disputes, particularly those involving tax reimbursement and requiring factual determination, should be resolved through the mechanisms agreed upon by the parties, such as arbitration, rather than through writ proceedings.