One of my clients recently had a case which I am explaining below and if you are stuck in such similar situation, here is what to do.
Note: Due to attorney-client privilege, I cannot disclose complete case details or identify the actual parties involved. However, I am sharing the essential facts and legal approach so that if you find yourself in a similar situation, you can understand the available solutions and legal remedies.
Rohan Gupta, a salaried professional from Gomti Nagar, Lucknow, entered into a written construction agreement with a local builder in early February 2024 for a total consideration of Rs. 70 lakhs. The contract was explicitly described as an all-inclusive package. Shortly after signing, the builder verbally suggested that GST would be charged separately and split equally between both parties — and Rohan, trusting the assurance, agreed. At that stage, the builder indicated GST would not exceed Rs. 2 lakhs total, meaning Rohan's share would be around Rs. 1 lakh.
Payments went through multiple channels. Approximately Rs. 25 lakhs transferred to the builder's registered company account at HDFC Bank, another portion to two personal accounts of individuals connected to the builder, and roughly Rs. 12 lakhs in cash. Construction was completed by late March 2025. That's when the trouble started.
The builder suddenly claimed he had paid Rs. 8 lakhs as GST on the project, calculating 18% on Rs. 50 lakhs, and demanded Rs. 4 lakhs from Rohan as his 50% share. Rohan had never agreed to this figure. He first tried resolving it directly and even approached a general civil advocate, but neither effort produced any meaningful outcome. He then consulted Advocate Sudhir Rao, whose experience in construction contract and consumer protection matters proved material. A formal legal notice was sent, the builder's GST payment records were scrutinised, and the matter was contested on the basis of the original written contract terms. The builder eventually settled for a significantly reduced amount, consistent with what had been verbally agreed at the outset.
Advice in Such Cases
Consult with Lawyer: The very basic and important step to start is talk to Lawyer / advocate. You should not hesitate in paying his consultation fee i.e. might be in range of Rs. 10,000 to 50,000 depends case to case. He is helping you in this situation to come out. He is expert in the domain and can help you explain the procedure which you might have never explored. A good lawyer can get the issues resolved much faster than you think.
Preserve all payment records immediately. Gather every bank statement, UPI transaction history, cheque copy, and cash receipt you have. Payments made to personal accounts and in cash create complications, and your advocate needs to map what was paid, to whom, and on what date. Don't wait on this.
Do not make any further payment under pressure. Builders sometimes use aggressive follow-ups or threats of stopping possession to extract extra payments. Any additional payment made without written acknowledgement weakens your legal position. Put everything in writing going forward. And here's the thing, once you pay without a receipt, you've made the advocate's job considerably harder.
Cases involving construction contracts and GST disputes sit at the intersection of consumer protection law, contract law, and tax regulation. This combination of procedural and evidentiary considerations is often unfamiliar to general practitioners, so engaging an advocate who regularly handles construction and consumer disputes can make a meaningful difference to both the timeline and the outcome.
Applicable Sections of Law
This is primarily a civil matter, with elements of consumer law and contract enforcement. The following provisions are directly applicable:
- Section 10, Indian Contract Act, 1872: A verbal variation to a written contract must meet the requirements of a valid agreement — offer, acceptance, consideration, and certainty. A vague verbal GST-sharing arrangement may not override a clear written all-inclusive clause.
- Section 55, Indian Contract Act, 1872: Where a party fails to perform within the agreed terms (including price terms), the other party may treat the contract as broken and claim compensation.
- Section 2(1)(g) and Section 2(1)(o), Consumer Protection Act, 2019: Demanding payment beyond the contracted price without written agreement, and misrepresenting the applicable GST liability, may constitute a deficiency in service and unfair trade practice.
- Section 36 of the CGST Act, 2017: The builder, as a registered taxpayer, is legally responsible for maintaining GST records. Any claim of GST outflow must be supported by actual tax invoices and GSTR filings — not merely verbal assertion.
Frankly, Section 36 of the CGST Act, 2017 is the one builders least expect you to invoke. And it tends to change the conversation rather quickly.
Jurisdiction — Where to File the Case
For civil recovery and contract enforcement, jurisdiction lies with the Civil Court of appropriate pecuniary competence in Lucknow, where the contract was executed and construction took place. Since the disputed amount (Rs. 4 lakhs) and likely total contract value fall within consumer dispute thresholds, the District Consumer Disputes Redressal Commission under the Consumer Protection Act, 2019 is also a viable and often faster forum. As held in Lucknow Development Authority v. M.K. Gupta, 1994, the Supreme Court confirmed that construction services fall squarely within the definition of "service" under consumer law. Choosing the right forum early is critical and directly affects timelines.
Limitation Period
Don't sleep on this.
Under the Limitation Act, 1963, a suit for breach of contract must be filed within three years from the date the breach occurred or the cause of action arose, which here would be the date the builder made the inflated GST demand in writing or otherwise formally communicated it. For a consumer complaint under the Consumer Protection Act, 2019, the limitation is two years from the date of deficiency. Missing these windows can be fatal to the case. Condonation of delay is possible under Section 5 of the Limitation Act, but courts apply it cautiously and require sufficient cause, so don't rely on it as a fallback.
Interim Reliefs Available
Where the builder threatens to withhold possession, completion certificate, or other documents unless the extra GST amount is paid, interim relief becomes urgent. Now, before you act, understand what's available to you. Under Order 39 Rules 1 and 2, CPC, a temporary injunction can be sought restraining the builder from withholding documents or demanding payment beyond the contracted figure. If there is a credible risk of the builder dissipating assets, attachment before judgment under Order 38 Rule 5, CPC is available. A status quo order can also be sought pending hearing.
Interim reliefs, if obtained early, shift the balance of negotiation significantly. They're often what brings the opposite party to a genuine settlement discussion, sometimes within weeks of filing.
If You Are the Victim
- Compile the original written construction agreement immediately and mark every clause related to price, GST, and payment terms.
- Obtain your full bank statements and UPI transaction records for all payments made, including those to personal accounts, and prepare a consolidated payment summary.
- Send a formal legal notice through an advocate demanding the builder produce actual GST invoices, GSTR-3B filings, and proof of GST deposited with the government on this specific contract.
- Do not sign any receipt, settlement letter, or "no dues" certificate presented by the builder without your advocate reviewing it first.
- File a consumer complaint or civil suit depending on the relief sought — your advocate can advise on which forum gives you a faster and more enforceable outcome in the specific facts of your case.
Documents You Must Keep Ready
- Original construction agreement / contract signed by both parties
- All payment receipts — cheque copies, bank transfer confirmations, UPI screenshots
- Bank statements from all accounts from which payments were made
- Any WhatsApp messages, emails, or written communications with the builder about GST
- The builder's GST registration certificate (GSTIN) — this is public information, verifiable on the GST portal
- Any tax invoices the builder may have issued for the construction work
- Photographs of the completed construction (as proof that services were rendered and project completed)
- Your Aadhaar card and PAN card for filing purposes
What Evidence Is Required?
- Primary evidence — written contract: The original signed construction agreement is your strongest document. Every ambiguous verbal addition the builder claims will be tested against what the contract actually says.
- GST invoices issued by the builder: Under the CGST Act, 2017, a registered supplier must issue a tax invoice for every taxable supply. If the builder can't produce proper invoices for Rs. 8 lakhs in GST, his claim collapses.
- GSTR-3B and GSTR-1 filings of the builder: These are the builder's own GST return filings with the government and can be obtained through RTI or summons in proceedings. They show what GST was actually declared and paid on this contract.
- Bank statements showing payment trail: Tracing where money went, especially to personal accounts, establishes the actual financial relationship and may support arguments that the "company" contract was a sham billing arrangement.
- WhatsApp / email records: Any message in which the builder mentioned "GST of Rs. 2 lakhs max" or similar can be used to establish the verbal representation. Screenshots must be preserved and ideally certified.
- Witness evidence: Any person present during the verbal GST discussion who can confirm what was agreed can be a witness in proceedings.
How Courts Typically Approach Such Cases
Civil courts and consumer commissions approach construction contract disputes by first examining the written agreement closely. Where a contract is described as all-inclusive, courts are generally reluctant to import verbal additions that inflate the buyer's obligation. This principle is reinforced in Bharathi Knitting Company v. DHL Worldwide Express Courier, 1996, where the Supreme Court emphasised that written contracts must be read as a whole. Consumer commissions tend to be more expeditious and are increasingly strict about builders who demand amounts beyond what is documented. Make no mistake, that strictness is something experienced consumer advocates know how to use.
That said, courts also look at whether payments to personal accounts were made knowingly, which is why the payment trail matters enormously. It can cut either way.
Timeline of Legal Process
- Step 1 — Legal Notice (Week 1-2): Advocate drafts and sends a formal legal notice to the builder demanding documentary proof of GST paid and asserting your position under the contract. The builder typically has 15-30 days to respond.
- Step 2 — Filing Complaint / Plaint (Week 3-6): If the notice is ignored or rejected, a consumer complaint or civil suit is filed. Court fees are calculated at this stage.
- Step 3 — Summons and Written Statement (Month 2-4): Court issues summons to the builder. Builder files a written statement responding to the claims.
- Step 4 — Framing of Issues and Evidence (Month 4-10): Issues are framed, documents are exhibited, and witnesses are examined. Interim reliefs can be sought during this phase.
- Step 5 — Arguments and Judgment (Month 10-18): Final arguments are heard and judgment is delivered. Consumer commissions aim for disposal within 5 months under the 2019 Act, though timelines vary in practice.
- Step 6 — Execution / Appeal (if required): If the builder does not comply with the order, execution proceedings follow. Either party may appeal to the State Commission or High Court.
Understanding the Costs
The total cost of a matter like this varies significantly from one case to the next — it depends on the complexity of the dispute, the forum involved, the number of hearings, and the specific facts of your situation. There is no single fixed figure that applies to everyone.
A professional advocate can give you an accurate estimate only after reviewing all your facts and documents in a consultation.
Can the Matter Be Settled Out of Court?
Yes, and in many cases this is the most practical path. Once a formal legal notice is sent and the builder realises his GST payment records will be subjected to legal scrutiny, the willingness to negotiate tends to increase considerably. Settlement options include:
- Direct negotiation through advocates: A written settlement recording the agreed amount and full and final discharge is enforceable and clean.
- Mediation under Section 89 CPC: Courts can refer civil matters to mediation at any stage. This is increasingly common in contract disputes and often saves significant time.
- Lok Adalat: Pre-litigation or pending matters can be referred to Lok Adalat under the Legal Services Authorities Act, 1987. Awards passed by Lok Adalat are final and binding, with no court fees payable on settlement.
Settlement is worth considering seriously, particularly where the documentary record is mixed, as it often is when payments were made partly in cash. But negotiate from a position of preparation, not desperation.
Common Mistakes People Make
- Making payments to personal accounts without written receipts: Paying a builder through personal accounts of individuals rather than the registered company account creates evidentiary problems. Always insist on receipts from the entity named in the contract.
- Paying cash without documentation: Cash payments of any significance should be accompanied by a written receipt or at minimum an acknowledgement via WhatsApp. Without this, proving
