2025 (1) TMI 1523 - HC - GST

Rates quoted in the contract deemed inclusive of taxes preclude reimbursement of taxes such as GST or not - existence of an arbitration clause in the contract necessitates relegating the dispute to arbitration rather than adjudicating it through a writ petition - HELD THAT - The Gujarat High Court judgment in M/S BIPSON SURGICAL (INDIA) PVT. LTD. VERSUS STATE OF GUJARAT 2018 (12) TMI 69 - GUJARAT HIGH COURT does not much come to the aid of appellant inasmuch as in the contract document involved in that case had clause (13)(b) were differently worded qua clause 39.1 of the contract document herein. That apart when the higher up itself has agreed to give the benefit by virtue of Clarification Circular dated 03.01.2020 which is in response to appellant s query raised in its letter dated 06.12.2019 it is un-understandable as to how a contra stand can be taken up by the entity which is in appeal. Existence of arbitration clause is one thing and existence of dispute is another. Both need to concur to non-suit the writ petitioner so that he can invoke arbitration clause. In the absence of a dispute in view of Clarificatory Circular the question of relegating the respondent contractor to arbitration even remotely would not arise. Conclusion - i) The clarification issued by KUIDFC regarding tax adjustments post-GST implementation was binding on the appellant necessitating compliance. ii) The presence of an arbitration clause does not automatically preclude judicial intervention especially in the absence of a genuine dispute. Appeal dismissed.

Summary

ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment are:

• Whether the rates quoted in the contract, deemed inclusive of taxes, preclude reimbursement of taxes such as GST.
• Whether the existence of an arbitration clause in the contract necessitates relegating the dispute to arbitration rather than adjudicating it through a writ petition.
• Whether the clarification issued by the Managing Director of the Karnataka Urban Infrastructure Development & Finance Corporation (KUIDFC) impacts the contractual obligations regarding tax adjustments post-GST implementation.

ISSUE-WISE DETAILED ANALYSIS

1. Contractual Rates and Tax Inclusion

• Relevant Legal Framework and Precedents: The contract included a clause indicating that the quoted rates were inclusive of taxes. The appellant argued that this clause negated the need for tax reimbursement.
• Court's Interpretation and Reasoning: The Court noted that the GST subsumed various taxes, including sales tax, and that the clarification from KUIDFC required adjustment of sales tax amounts against GST obligations.
• Key Evidence and Findings: The clarification dated 03.01.2020 from KUIDFC was pivotal in determining that tax adjustments were necessary.
• Application of Law to Facts: The Court applied the clarification to conclude that the tax component, being statutory, needed reconciliation in light of GST implementation.
• Treatment of Competing Arguments: The Court dismissed the appellant's argument that the contract's tax inclusion clause precluded reimbursement, emphasizing the statutory nature of GST.
• Conclusions: The Court upheld the Single Judge's order requiring the appellant to adjust sales tax amounts against GST obligations.

2. Arbitration Clause and Jurisdiction

• Relevant Legal Framework and Precedents: The appellant contended that the presence of an arbitration clause should have led to arbitration rather than judicial intervention.
• Court's Interpretation and Reasoning: The Court differentiated between the existence of an arbitration clause and the existence of a dispute, noting that the latter is necessary to invoke arbitration.
• Key Evidence and Findings: The Court found that the clarification issued by KUIDFC resolved any potential dispute, negating the need for arbitration.
• Application of Law to Facts: The Court concluded that the clarification provided a clear resolution, and thus, arbitration was unnecessary.
• Treatment of Competing Arguments: The Court rejected the appellant's reliance on the arbitration clause, emphasizing that not every question constitutes a dispute warranting arbitration.
• Conclusions: The Court affirmed the decision to address the matter through a writ petition rather than arbitration.

3. Impact of KUIDFC Clarification

• Relevant Legal Framework and Precedents: The clarification from KUIDFC was issued in response to queries about tax adjustments post-GST implementation.
• Court's Interpretation and Reasoning: The Court viewed the clarification as authoritative, requiring compliance by the appellant, an instrumentality of the State.
• Key Evidence and Findings: The clarification was deemed binding, as it was approved by the Additional Chief Secretary to the Government, Finance Department.
• Application of Law to Facts: The Court applied the clarification to mandate tax adjustments in line with GST requirements.
• Treatment of Competing Arguments: The Court dismissed the appellant's contention that the clarification did not apply to the contract, citing the overarching nature of GST.
• Conclusions: The Court concluded that the appellant must comply with the clarification and adjust the tax amounts accordingly.

SIGNIFICANT HOLDINGS

• The Court held that the clarification issued by KUIDFC regarding tax adjustments post-GST implementation was binding on the appellant, necessitating compliance.
• The Court established that the presence of an arbitration clause does not automatically preclude judicial intervention, especially in the absence of a genuine dispute.
• The Court emphasized the statutory nature of GST and the need for reconciliation of pre-GST and post-GST tax obligations.
• Final determinations included the dismissal of the appeal and the requirement for the appellant to adjust sales tax amounts against GST as per the KUIDFC clarification.

The appeal was dismissed, with the Court affirming the Single Judge's order requiring the appellant to adhere to the tax adjustments outlined in the KUIDFC clarification. The Court emphasized the statutory nature of GST and the necessity of reconciling tax obligations in light of the new tax regime.