TaxTMI 
TaxTMI 
2025 (5) TMI 305
X X X X Extracts X X X X
X X X X Extracts X X X X
....regard to payment of Central Goods and Service Tax (CGST). 3. Clause 12 of the agreement dated 05.02.2018 is the payment of GST clause. As per the said clause, the applicable GST charges has to paid by the petitioners (Exporter) to the respondent (Processor). According to the petitioners, in respect of clause 12 of the agreement, they are liable only to pay GST at 5% as per the invoices raised by the respondent. Whereas, according to the respondent, since they have received show cause notices from the GST Department under Section 74 of the CGST Act claiming that the rate of GST for processing of prawn is 18%, the petitioners are liable to make payment of differential GST and is also liable to pay interest under Section 50 of the CGST Act and penalty under Section 74 of the CGST Act. 4. Since the petitioners refused to pay GST at the rate of 18% as demanded by the respondent, subsequent to the raising of invoices under which the respondent had claimed only GST at 5%, the respondent initiated arbitration against the petitioners in accordance with the arbitration clause. 5. Before the arbitrator, the respondent made the following claims against the petitioners: a) To direct the f....
X X X X Extracts X X X X
X X X X Extracts X X X X
....itioner is entitled to retain the original sale deeds of the respondent after taking NOC from the IDBI Bank?; e) Whether the respondent can withhold the applicable security deposit of the first petitioner until the GST proceedings attain finality?; f) Is the first petitioner not liable to reimburse all costs incurred by the respondent in respect of the challenge to the GST demand laid by it for the benefit of the first petitioner?; g) Whether the present arbitration proceedings are invalid in view of the respondent having joined the second petitioner, who is admittedly not a party to the arbitration agreement; h) Whether the respondent has proved that they are entitled under the contract to seek indemnity from the first petitioner to bear the difference in the GST liability and cost of litigation arising out of the following: a. Show cause notice dated 18.10.2019 for APGST; b. Show cause notice dated 18.10.2019 for CGST; c. Show cause notice dated 05.08.2021 for penalty and interest under APGST; d. Show cause notice dated 05.08.2021 for penalty and interest under CGST; e. Show cause notice dated 08.12.2021 for APGST and CGST?; i) Whether the reliefs claimed in p....
X X X X Extracts X X X X
X X X X Extracts X X X X
.....11 is general in nature and therefore, the arbitrator did not consider the same. 10. Aggrieved by the arbitral award dated 02.11.2023, the respondents in the arbitration have filed this petition under Section 34 of the Arbitration and Conciliation Act, 1996, challenging the impugned arbitral award. 11. Heard Mr.R. Murari, learned Senior Counsel assisted by Mr. Pavan Kumar Gandhi for the petitioners and Mr. T. Mohan, learned Senior Counsel assisted by Mr. R. Anish Kumar for the respondent. 12. Learned senior counsel for the petitioners, after drawing the attention of this Court to the agreement, which was the subject matter of dispute between the parties, as well as the impugned arbitral award, would submit as follows: a) The impugned arbitral award is contrary to the terms of the agreement. According to the learned senior counsel for the petitioners, as per clause 12 of the agreement, the petitioners are only liable to pay GST at 5% as per the invoices raised by the respondent. According to the learned senior counsel for the petitioners, since the respondent had raised invoices, claiming GST only at 5%, the petitioners as per the contract are not liable to make GST charges ov....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ring for the respondent, any liability that arises therefrom, would have to be levied only upon the respondent; e) Without prejudice to the aforesaid, it is on record that the petitioners were at all time ready and willing to pay GST at 18%, had the respondent raised invoices at 18% GST. The petitioners could not have paid GST at 18%, as the invoices had charged GST at 5% and the petitioners can only pay the amounts reflected in the invoices. Further, the respondent at no point of time raised invoices at 18% GST. Pertinently, even after issuance of the show cause notices from the GST department, the respondent voluntarily revised the GST charges in the invoices to 5% ; f) Further, as a registered person under the CGST Act, the respondent is solely responsible for furnishing returns with the correct rate of tax and such statutory obligation cannot be foisted on the petitioners under the terms of agreement, when there is no such obligation under the agreement. Therefore, the respondent would be solely responsible for any violation of provisions of the CGST Act / APGST Act and any claims made by the tax authorities under the show cause notices. Therefore, the interpretation given ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e parties; j) With respect to delayed refund of security deposit, the respondent has agreed to pay interest at 12% per annum from 10.03.2021. However, under the impugned arbitral award, the arbitrator has ignored the same. In terms of clause 4 of the agreement, the respondent is liable to return the security deposit to the petitioner without interest, within a maximum period of 4 months from the date of termination of the agreement, failing which, the respondent will be liable to pay interest at 18% per annum. The agreement was terminated by the petitioners on 11.10.2020 and therefore, the respondent was liable to return the security deposit without any interest within a period of 4 months therefrom. However, the respondent failed to return the security deposit within the time stipulated as agreed under the agreement. Though interest at 18% was payable under the agreement, in view of the respondent's undertaking to pay interest from 10.03.2021, the petitioners had agreed to receive interest at 12%; k) The respondent agreed to make payment of interest at 12% per annum on the security deposit from 10.03.2021, which is evident from the following: a. The respondent's emai....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Ltd. and Others reported in 2006 (11) SCC 181; d. The decision of the Honourable Supreme Court in the case of Ssangyong Engineering and Construction Co. Ltd. Vs. National Highways Authority of India reported in 2019 SCC Online SC 677; e. The decision of the Delhi High Court in the case of Ramkishan Singh Vs. Rocks Buildcon Pvt. Ltd. reported in 2017 SCC Online Del 6471; f. The decision of the Honourable Supreme Court in the case of Rajasthan State Mines and Minerals Ltd. Vs. Eastern Engg. Enterprises reported in 1999 (9) SCC 283 (SC). 15. On the other hand, the learned senior counsel appearing for the respondent would submit as follows: a) Interest, penalty and legal costs are consequential claims on account of non-payment of the differential GST amount by the petitioners. Further, before the arbitral Tribunal, the petitioners never disputed the claim for payment of interest and penalty made by the respondent. For the first time before this Court, the petitioners have raised the contention that the respondent cannot claim penalty and interest since the contract does not provide for the same; b) Being liable to pay GST to the GST Department, the respondent is under obliga....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... legal costs to the respondent; i) The arbitral Tribunal has granted 12% interest as prayed for by the petitioners for a period of 9 months on the net payment of Rs. 2,58,19,785/- arrived at by the petitioners as on 28.02.2022 till November 2022, which is 9 months against the claim of 21 months made by the petitioners in their counter claim for the period from March 2021 till November, 2022. But, the arbitral Tribunal has granted further interest to the petitioners at 12% from December 2022 till the date of realization if the respondent did not pay within 6 weeks. The respondent has not agreed for interest in the event of failure to bear the GST liabilities by the petitioners. Thus, the award of interest is the discretion of the arbitral Tribunal; j) The arbitrator has only directed the petitioners to give indemnity bond in favour of the respondent for the GST liabilities, which is a plausible view; k) None of the grounds for interference under Section 34 of the Arbitration and Conciliation Act, 1996 are satisfied by the petitioners for the purpose of setting aside the Arbitral Award. 16. Discussion: The adjudication of the dispute between the parties depends upon the inter....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... if not paid on time, interest and penalty amounts become automatically due and payable. The respondent has challenged the levy of the differential GST amount as well as the interest and penalty, by exercising their statutory rights available under the GST statutes. They have given interpretation that they are liable to pay GST only at the rate of 5% for the subject transaction. Presently, their challenge is pending on the file of High Court of Andhra Pradesh and the High Court has also granted interim stay of levy of the differential GST amount demanded by the GST authorities but, whether they succeed in their challenge or not, no one can predict. Having undertaken to pay the applicable GST amount under clause 12 of the contract, the petitioners are liable to indemnify the respondent, in case the respondent fails in their challenge with regard to the demand of differential GST amount by the GST authorities. Though the respondent is liable to the GST department, in case their challenge to the differential GST amount demanded by the GST department fails, ultimately, the petitioners have to pay the respondent the said differential GST amount as they have unconditionally agreed to pay....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s a small player and they have only done job-work on behalf of the petitioners, which has resulted in the claim for demand of differential GST amount of 13%, interest and penalty from the respondent. Having agreed to pay the applicable GST amount to the respondent and having failed to pay the GST amount as per the demand of the GST department, the arbitral Tribunal was right in directing the petitioners to indemnify the respondent, in case their challenge for the demand of the differential GST amount for the subject transaction fails. The view taken by the arbitrator, that the petitioners will have to indemnify the respondent towards claim for differential GST amount, interest, penalty and legal costs, is totally justified and is only in accordance with the terms and conditions of the agreement dated 05.02.2018. 23. As observed earlier, the claim for payment of interest and penalty is only in accordance with the GST statutes. This Court does not find any infirmity in the findings of the arbitrator that the petitioners have to indemnify the respondent with regard to the claim of the GST Department for interest and penalty. According to the GST department, since the differential GST....
X X X X Extracts X X X X
X X X X Extracts X X X X
....demand of differential GST amount, interest and penalty. 27. Section 34 of the Arbitration and Conciliation Act provides a limited scope for judicial interference with arbitral awards. Court can set aside an award only on specific ground such as patent illegality or it violates public policy. The award must be demonstrably illegal on its face, such as being contrary to a fundamental provisions of law or the terms of the contract. The award must be in violation of the fundamental policy of the Indian law or against justice and immorality and this includes situations were the award is induced by fraud or corruption. Section 34 also allows for interference if the arbitral award is in violation of the provisions of the Arbitration and Conciliation Act, 1996 or the arbitration agreement. The Court reviewing the award under Section 34 of the Arbitration and Conciliation Act, 1996 is not an appellate body. It cannot re-appreciate the evidence. The Court's limited role is only to ensure that arbitral award is not fundamentally flawed or perverse. 28. In the impugned arbitral award, the arbitrator has only directed the petitioners to give indemnity bond in favour of the respondent. Th....