The appeals arose from various judgments of different High Courts on the question of levy of Goods and Services Tax (GST) on works contracts executed for government departments and public authorities. The primary issue was whether works contracts executed by contractors for the State Governments for activities such as irrigation projects, roads, bridges, and government buildings were taxable under the Central Goods and Services Tax Act, 2017 and the State Goods and Services Tax Acts.

The States of Telangana and Gujarat challenged High Court rulings which had granted relief to contractors, holding that such contracts were exempt from GST or not covered under taxable supplies. The contractors, including M/s Tirumala Constructions, contended that their works were executed on behalf of the State for public functions and that the consideration received did not amount to a taxable supply under Section 7 of the CGST Act.

The Supreme Court dismissed the appeals filed by the States of Telangana and Gujarat. It upheld the High Court’s findings that the works in question were undertaken by contractors as part of delegated sovereign functions of the Government and did not constitute commercial activity attracting GST. The Court clarified that the scope of “supply” under Section 7 of the CGST Act must be read harmoniously with the statutory exemptions and the nature of the recipient of services.

Further, the Court allowed the appeals filed by certain assessees against the Bombay High Court’s contrary ruling and declared that the levy of GST in such instances was unsustainable. It held that works executed for governmental authorities, where the activity relates directly to public functions or statutory obligations, fall outside the ambit of taxable commercial transactions.

Accordingly, all State appeals were dismissed, and the assessees’ appeals were allowed. All pending applications were disposed of.