The Delhi High Court has recently allowed the arbitration appeal of Spectrum Power Generation Limited against Gas Authority of India Limited (GAIL) to decide whether GAIL is entitled to the Input Tax Credit claim, which shall disentitle the petitioner from availing refund.
GAIL raised invoices billing it under the heads of (i)gas price, (ii)marketing margin, (iii)transmission charges, (iv)Goods and Service Tax costs @ 18% and (v)Value Added Tax on the sum total of gas price. The aforesaid invoices were acknowledged and payments made by the petitioner accordingly.
It is however contended that subsequently the petitioner came to realize that it had been incorrectly foisted with liability towards GST and in contravention of the provisions of the Gas Sale Agreement itself. The aggrieved petitioner issued notice to GAIL, invoking the arbitration
Upon notices being issued, GAIL has filed a reply in the proceedings. The principal objection which is taken by it before this Court is that the dispute which is raised relates to issues of taxation and is “non arbitrable”.
It was pointed out by the counsel for Spectrum Power Generation Limited that, in terms of the price which the petitioner was liable to pay was understood to be inclusive of royalty and exclusive of taxes, duties, cess, VAT, Service Cess, Education Cess as well as other statutory levies payable on purchase of gas from the Oil and Natural Gas Corporation or any other source by GAIL or those leviable at the point of sale by GAIL to the petitioner.
It was also contended that any other liability towards GST or VAT and which was unconnected with the levy of tax on the purchase transaction undertaken by GAIL or on the sale transaction with the petitioner was clearly not a liability which was liable to be borne by the petitioner.
The Bench of Justice Yashwant Varma observed that “the petitioner here does not assail, question or dispute a tax that may have been imposed upon it by the State in exercise of its sovereign or statutory powers.”
It was further observed that “The issue which is essentially raised is whether the GST/VAT liability which came to be placed upon GAIL could be passed onto the petitioner or it be held liable to reimburse GAIL to the aforesaid extent under the agreement.”
It was noted that the issue does not relate to the taxing power of the state or any action taken or an order made in exercise thereof and observed that, “The contention that the dispute raised is non-arbitrable on the aforesaid ground is thus negatived” and the arbitration petition was allowed.
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