Disputes concerning GST liabilities under a contract are arbitrable and do not pertain to sovereign functions or taxation issues as defined by the Arbitration and Conciliation Act, 1996.

ORDER

Yashwant Varma, J.

1. The petitioner seeks to invoke the jurisdiction of the Court conferred by Section 11(6) of the Arbitration and Conciliation Act, 1996 [the Act] for appointment of a Sole Arbitrator in light of the disputes which have arisen between the parties and in terms of the provisions made in the Gas Sale Agreement [GSA] which came to be executed between the parties on 18 December 2015.

2. The petitioner asserts that from the time of commencement of the contract for supply of natural gas, the respondent raised invoices billing it under the heads of (i) gas price, (ii) marketing margin, (iii) transmission charges, (iv) Goods and Service Tax [GST] costs @ 18% on the aforesaid and (v) Value Added Tax [VAT] on the sum total of gas price. The aforesaid invoices were acknowledged and payments made by the petitioner accordingly.

3. 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 GSA itself. In view of the aforesaid, a notice for conciliation in terms of Article 15 of the GSA came to be issued on 06 October 2021. However, and since the disputes could not be amicably resolved, the petitioner invoked the arbitration clause by issuance of a notice dated 06 December 2021. The notice alleged that a sum of Rs.22,40,50,273/- had been wrongfully and illegally invoiced, collected and received by Gas Authority of India Limited [GAIL] under the GSA.

4. On receipt of the aforesaid notice, GAIL in terms of its reply of 30 December 2021 took the position that the service of transmission of natural gas intra unit is subjected to GST. It further asserted that GAIL is paying and bearing the burden of GST on its inter-unit billing connected with the supply of gas. In view thereof, it was averred that since GAIL is not entitled to claim Input Tax Credit, it would be entitled to to recover the GST cost from the petitioner. In view of the aforesaid, it stated that no refunds are due or payable to the petitioner here and that consequently no occasion arises for invocation of arbitration. Since the respondent, according to the petitioner, failed to take further steps in terms of the appointment procedure as set forth in Clause 15 of the GSA, it was constrained to file the instant petition.

5. Upon notices being issued, GAIL has filed a reply in these 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". Reliance in this respect is placed on the following observations as appearing in the decision of the Supreme Court rendered in Vidya Drolia versus Durga Trading Corporation, (2021) 2 SCC 1 :

"50. Sovereign functions of the State being inalienable and non- delegable are non-arbitrable as the State alone has the exclusive right and duty to perform such functions. For example, it is generally accepted that monopoly rights can only be granted by the State. Correctness and validity of the State or sovereign functions cannot be made a direct subject-matter of a private adjudicatory process. Sovereign functions for the purpose of Arbitration Act would extend to exercise of executive power in different fields including commerce and economic, legislation in all forms, taxation, eminent domain and police powers which includes maintenance of law and order, internal security, grant of pardon, etc. as distinguished from commercial activities, economic adventures and welfare activities. Similarly, decisions and adjudicatory functions of the State that have public interest