The Tribunal held that when a government department executes targeted physical repair tasks for a commercial entity to facilitate its business layout, it steps out of its sovereign capacity, and the transaction falls squarely within the GST net as a fee-for-service supply.
The Goods and Services Tax Appellate Tribunal, Lucknow Bench, has dismissed the appeal of a gas distribution company and upheld the rejection of its refund claim for GST of ₹7,264 paid under the reverse charge mechanism on road restoration charges paid to the Public Works Department for laying a gas pipeline network [Torrent Gas Limited v. Commissioner, CGST & Central Excise, Kanpur].
The appellant, engaged in supplying natural gas through pipeline networks, had obtained permission from the PWD, Uttar Pradesh, to cut open public roads for laying gas pipelines, and was required to pay road restoration charges. The appellant paid GST on these charges under the RCM as notified under Notification No. 13/2017-Central Tax (Rate), but subsequently claimed a refund contending that the charges were either compensatory damages not constituting "supply" or, alternatively, were exempt as an activity in relation to a function entrusted to municipalities under Article 243W of the Constitution.
The Bench of Santosh Kumar Srivastava (Judicial Member) and Arvind Kumar (Technical Member) systematically rejected each contention. On the compensatory damages argument, the Tribunal held that the transaction was fundamentally different from a unilateral wrongful act or post-injury civil damages. The appellant had voluntarily applied for a permit, the PWD performed a distinct physical asset-repair service to return the dug-up road to its public baseline state, and the fee was calculated based on the structural volume of the work required — establishing bilateral transactional reciprocity falling squarely within the definition of "consideration" under Section 2(31). Circular No. 178/10/2022-GST on liquidated damages was held inapplicable as that circular covers passive compensation for contractual breaches, not active fee-for-service arrangements.
On the sovereign function exemption, the Tribunal drew a critical distinction: while routine road upkeep for the general public out of public funds is a sovereign function under Article 243W, custom request-driven road repair executed specifically for a private commercial entity's business pipeline rollout loses sovereign tax immunity. The restrictive proviso at Sl. No. 6, Point (d) of Notification No. 12/2017-Central Tax (Rate) categorically excludes any service provided by a Government or local authority to a business entity from general tax exemptions. The Tribunal also rejected the appellant's reliance on favourable refund orders obtained by it in Rajasthan and Punjab under identical facts, holding that a summary refund sanction order of a proper officer in one state jurisdiction does not operate as a binding legal precedent over an independent adjudicating or appellate authority in another state.
2026-juristway.com-2865-GSTAT(Lucknow)-GST | GSTAT Lucknow | APL/40/LCK/2026 | 07.10.2026
