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2025 (4) TMI 735 - HC - GSTInterpretation of contractual clauses concerning GST rate changes and the statutory variation clause - benefit of additional Input Tax Credit (ITC) accrued to the contractors due to the GST rate increase when there was no corresponding change in input tax regime has not been passed on to ICF the employer - respective contractors were obligated to reduce prices under Clauses 2.8 and 2.9 of the General Conditions of the Contract (GCC) and Clause 3.0 of the respective Purchase Orders (POs) or not - ICF (employer) was contractually bound to reimburse full GST amount in the light of statutory variation clause available under the respective POs or not. HELD THAT - In the case on hand due to revision in the rate of GST subsequent to the date of the contract the respective contractors have been compelled to enforce the statutory variation clause. They cannot be left high and dry for no fault of theirs as it seen from the evidence available on record they would not have factored unexpected revision in the rate of GST from 5% to 12% while they had quoted their price through their respective bids. The respective Arbitral Tribunals has rightly considered and passed the impugned arbitral awards in favour of the respective contractors. None of the grounds raised in these petitions fall within the parameters required for setting aside the arbitral awards insofar as the arbitral awards passed in favour of the respective contractors are concerned - Unless and until the impugned arbitral awards passed in favour of the respective contractors suffer from perversity and are patently illegal and have been passed without any evidence and contrary to well settled law the question of interference by this Court under Section 34 of the Act does not arise. Rejection of claim through its arbitral award - HELD THAT - The Arbitral Tribunal had also completely misunderstood the scope of Clause 2.9 of the GCC. The expressions additional input tax credit as may become available in the future reveals that if there was any additional input tax credit available it is that credit which the contract mandates to pass on provided it is again unabsorbed credit which cannot be utilized elsewhere. Further if the ITC does not form part of the cost it would make no difference to the cost of final product and there would be no price reduction on the final product - The variation in tax was only with respect to the final products (contract goods) from 5% to 12% and it was nobody s case that there was corresponding variation on the input tax which resulted in any additional tax benefit. Therefore neither Clause 2.8 which contemplates input tax credit that may become available nor clause 2.9 which refers to additional input tax credit has happened in the facts of the present case. The variation was not in respect of inputs but in respect of final products. Therefore neither of the said clauses are applicable to the case on hand. The Arbitral Tribunal which had rejected the claim of one of the contractors had also completely disregarded and failed to take into consideration the fact that a similarly placed contractor was reimbursed namely M/s.Kineco Limited by applying the statutory variation clause due to increase in GST rate from 5% to 12%. No reasoning has been given by the Arbitral Tribunal for non-consideration of the fact that M/s.Kineco Limited was reimbursed with full GST amount by applying the statutory variation clause. On the one hand ICF has sought price revision upto the period when the GST rates were increased from 5% to 12% i.e. from 01.01.2019 to 30.09.2021 however on the other hand ICF has not made any claim for price revision when the GST rates were increased from 12% to 18%. The only submission made by ICF in support of this arbitrary and whimsical approach is that when the rate of GST increased from 12% to 18% the quantum of ITC was negligible. It is settled law that instrumentality of the State cannot adopt arbitrary whimsical and unreasonable approach even in the realm of private contracts. Conclusion - i) The impugned arbitral award suffers from infirmity on account of misapplication and misreading of the clear terms of the bid document. ii) The impugned arbitral award disregards the settled position of law regarding ITC under the GST regime. iii) The impugned arbitral award is an unreasoned award and therefore is violative of Section 31(3) of the Act. iv) The impugned arbitral award is passed in ignorance of the vital evidence and therefore is absolutely perverse in law. v) The impugned arbitral award is in conflict with the public policy of India since the arbitrator has failed to take note of the fact that the contractor involved in the said arbitral award has established beyond reasonable doubt based on the contractual provision that the said contractor is also entitled for an arbitral award in their favour in respect of increase in the rate of GST from 5% to 12% subsequent to the date of the contract. vi) The only possible view that could have been taken by the Arbitral Tribunal is that ICF was contractually bound to reimburse the GST amount to the contractor on account of the statutory variation clause. The impugned arbitral award dated 06.11.2023 passed against the petitioner in Arb.O.P.No.128 of 2024 through which the claim of the contractor was rejected has to be set aside and accordingly the same is set aside by this Court - Petition allowed.
ISSUES PRESENTED and CONSIDERED
The core legal questions considered in this judgment include: (a) Whether additional Input Tax Credit (ITC) benefits accrued to the contractors due to the GST rate increase, and if so, whether these benefits were required to be passed on to ICF. (b) Whether the contractors were obligated to reduce prices under Clauses 2.8 and 2.9 of the General Conditions of the Contract (GCC) and Clause 3.0 of the respective Purchase Orders (POs). (c) Whether ICF was contractually bound to reimburse the full GST amount in light of the statutory variation clause available under the respective POs. ISSUE-WISE DETAILED ANALYSIS Relevant legal framework and precedents: The legal framework primarily involves the interpretation of contractual clauses under the General Conditions of the Contract and the Purchase Orders, alongside the statutory provisions of the GST law, particularly Sections 16, 17, 49, and 49A of the CGST Act. The judgment also references precedents from the Gujarat High Court and Guwahati High Court that distinguish between the availment and utilization of ITC. Court's interpretation and reasoning: The Court interpreted the statutory variation clause as applicable to the contractors since ICF did not challenge its applicability. The Court found that the availment and utilization of ITC are distinct concepts under GST law, and the contractors were not obligated to pass on any ITC benefits since no additional benefits accrued due to the GST rate increase. Key evidence and findings: The contractors provided Chartered Accountant certificates indicating no additional ITC benefits accrued due to the GST rate increase. The Court noted that ICF failed to produce evidence to counter these certificates. Additionally, ICF's reliance on an internal Joint Procedure Order (JPO) was deemed non-binding on the contractors. Application of law to facts: The Court applied the statutory variation clause, determining that the contractors were entitled to reimbursement of the full GST amount since no additional ITC benefits accrued. The Court found that the statutory variation clause was correctly applied by the Arbitral Tribunals in favor of the contractors. Treatment of competing arguments: ICF's argument that additional ITC benefits should result in price reductions was rejected due to lack of evidence and the non-binding nature of the JPO. The Court emphasized that the statutory variation clause was applicable as no change occurred in the input tax regime. Conclusions: The Court concluded that the Arbitral Tribunals correctly applied the statutory variation clause, and ICF's claims lacked merit. The judgment upheld the arbitral awards in favor of the contractors, except for the award in Arb.O.P.No.128 of 2024, which was set aside due to misinterpretation of the contractual clauses. SIGNIFICANT HOLDINGS The Court held that: "The impugned arbitral awards passed in favor of the respective contractors allowing their respective arbitral claims by directing ICF to reimburse the full GST amount in the light of statutory variation clause available in the respective contracts, are only in accordance with the law and as per the contractual provisions." The Court emphasized that the statutory variation clause applies when there is no change in the input tax regime, and the contractors are entitled to reimbursement for GST rate increases. The Court also set aside the arbitral award in Arb.O.P.No.128 of 2024, allowing the contractor to initiate fresh arbitration, as the initial rejection was based on a misinterpretation of the contractual clauses. In conclusion, the judgment upheld the arbitral awards favoring the contractors, except for the case in Arb.O.P.No.128 of 2024, which was remanded for fresh arbitration proceedings. The Court dismissed ICF's petitions, affirming the contractors' entitlement to GST reimbursement under the statutory variation clause.
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