2023 (3) TMI 1565 - HC - GST

Deduction of 18% from the RA bills submitted by the petitioner towards Goods and Services Tax (GST) - H ELD THAT - There is no dispute that the petitioner has submitted bids based on the SR rates notified on 25.11.2016 and these rates included tax as was applicable under the provisions of Indirect Tax Regime. Crucially as pointed out by Sri. S.Mahesh the petitioner has signed the subject agreement specifically agreeing to the second respondent deducting taxes at source as per applicable law. The intent of the parties in signing the contract including the terms as aforesaid even before it could be opined that the term will include any upward variation in the tax rates will have to be examined in the back drop of the evidence that will be brought on record to substantiate the intent as respectively claimed by them. There cannot be any directions in the absence of such evidence. The parties have agreed to resolve the disputes through arbitration and therefore this Court is of the considered view that all questions must be left open to be decided in the arbitral proceedings if the petitioner proposes to have recourse to such remedy. Conclusion - The petitioner is bound by the 2019 agreement which allows for GST deductions and that disputes regarding these deductions should be resolved through arbitration. Petition disposed off.

Summary

ISSUES PRESENTED and CONSIDERED

The primary legal issues considered in this judgment are:

• Whether the respondents are justified in deducting 18% from the RA bills submitted by the petitioner towards Goods and Services Tax (GST).
• Whether the petitioner is entitled to receive payment for the RA bills without any deductions for GST under the terms of the contract.
• Whether the petitioner can seek judicial intervention for payment disputes related to GST deductions or if such disputes must be resolved through arbitration as per the contract.

ISSUE-WISE DETAILED ANALYSIS

1. Justification of GST Deductions from RA Bills

• Relevant Legal Framework and Precedents: The petitioner relies on the Schedule of Rates (SR) notified on 25.11.2016, which includes prevailing market rates inclusive of taxes. The petitioner also references the Supreme Court decision in National Highways Authority Vs. ITD Cementation India Limited, which recognizes contractual terms contemplating upward variation in tax rates.
• Court's Interpretation and Reasoning: The Court notes that the petitioner signed an agreement in 2019, post the change in the indirect tax regime, explicitly agreeing that the rates quoted would include applicable taxes, and that the second respondent would deduct taxes at source as per applicable law.
• Key Evidence and Findings: The petitioner submitted bids based on the SR rates from 2016, which included taxes applicable at that time. However, the subsequent agreement in 2019 indicates the petitioner's acceptance of tax deductions at source.
• Application of Law to Facts: The Court considers the contractual terms and the petitioner's agreement to tax deductions, determining that these terms govern the payment obligations, including tax deductions.
• Treatment of Competing Arguments: The petitioner argues against unilateral deductions, while the respondent emphasizes the petitioner's agreement to such deductions. The Court finds the respondent's position consistent with the contractual terms.
• Conclusions: The Court concludes that the deductions for GST are justified under the terms of the agreement signed by the petitioner.

2. Entitlement to Payment Without GST Deductions

• Relevant Legal Framework and Precedents: The petitioner argues based on the SR rates and the principle of contractual terms allowing for upward tax variations.
• Court's Interpretation and Reasoning: The Court highlights that the agreement signed in 2019 supersedes previous understandings, with explicit terms regarding tax deductions.
• Key Evidence and Findings: The signed agreement with terms on tax deductions is pivotal in determining the petitioner's entitlement.
• Application of Law to Facts: The Court applies the contractual terms agreed upon in 2019 to the facts, emphasizing the petitioner's acceptance of deductions.
• Treatment of Competing Arguments: The petitioner's reliance on previous SR rates is countered by the respondent's emphasis on the 2019 agreement. The Court sides with the latter based on the explicit contractual terms.
• Conclusions: The petitioner is not entitled to payment without GST deductions as per the 2019 agreement.

3. Resolution of Disputes Through Arbitration

• Relevant Legal Framework and Precedents: The contract stipulates arbitration as the method for resolving disputes.
• Court's Interpretation and Reasoning: The Court acknowledges the arbitration clause and emphasizes that disputes regarding the intent and terms of the contract should be resolved through arbitration.
• Key Evidence and Findings: The existence of an arbitration agreement within the contract is crucial in determining the appropriate forum for dispute resolution.
• Application of Law to Facts: The Court applies the arbitration agreement to the current dispute, indicating that judicial intervention is not appropriate at this stage.
• Treatment of Competing Arguments: The petitioner seeks judicial directions, but the Court defers to the arbitration clause, leaving the matter to be resolved in arbitral proceedings.
• Conclusions: The Court disposes of the petition, directing that disputes be resolved through arbitration.

SIGNIFICANT HOLDINGS

• Preserve Verbatim Quotes of Crucial Legal Reasoning: The Court states, "The intent of the parties in signing the contract including the terms as aforesaid, even before it could be opined that the term will include any upward variation in the tax rates, will have to be examined in the back drop of the evidence that will be brought on record to substantiate the intent as respectively claimed by them."
• Core Principles Established: The Court establishes that contractual terms explicitly agreed upon by the parties, including those concerning tax deductions, govern the obligations and entitlements of the parties.
• Final Determinations on Each Issue: The Court determines that the petitioner is bound by the 2019 agreement, which allows for GST deductions, and that disputes regarding these deductions should be resolved through arbitration.