The court upheld the arbitrator's award, confirming the petitioners' liability for differential GST and associated costs under the agreement, emphasizing limited grounds for judicial interference under Section 34 of the Arbitration and Conciliation Act.

ORDER :

This petition has been filed under Section 34 of the Arbitration and Conciliation Act, 1996, challenging the impugned arbitral award dated 02.11.2023 passed in favour of the respondent against the petitioners.

2. The petitioners are the respondents and the respondent is the claimant in the arbitration. The petitioners used the sea food processing facility of the respondent for the purpose of pre-processing, processing, packing and storing all type of marine products and they entered into an agreement dated 05.02.2018 with the respondent. There arose disputes between the respondent and the petitioners with regard to payment of Central Goods and Service Tax (CGST).

3. Clause 12 of the agreement dated 05.02.2018 is the payment of GST clause. As per the said clause, the applicable GST charges has to paid by the petitioners (Exporter) to the respondent (Processor). According to the petitioners, in respect of clause 12 of the agreement, they are liable only to pay GST at 5% as per the invoices raised by the respondent. Whereas, according to the respondent, since they have received show cause notices from the GST Department under Section 74 of the CGST Act claiming that the rate of GST for processing of prawn is 18%, the petitioners are liable to make payment of differential GST and is also liable to pay interest under Section 50 of the CGST Act and penalty under Section 74 of the CGST Act.

4. Since the petitioners refused to pay GST at the rate of 18% as demanded by the respondent, subsequent to the raising of invoices under which the respondent had claimed only GST at 5%, the respondent initiated arbitration against the petitioners in accordance with the arbitration clause.

5. Before the arbitrator, the respondent made the following claims against the petitioners:

a) To direct the first petitioner to furnish an indemnity bond undertaking to pay the difference in GST liabilities arising out of the following:

a. Show cause notice dated 18.10.2019 for APGST;

b. Show cause notice dated 18.10.2019 for CGST;

c. Show cause notice dated 05.08.2021 for penalty and interest under APGST;

d. Show cause notice dated 05.08.2021 for penalty and interest under CGST; and

e. Show cause notice dated 08.12.2021 for APGST + CGST against the invoices raised by the respondent for the job work done for the first petitioner in the event of crystallization of the tax amount by the tax authority and the Honourable Courts;

b) To direct the petitioners to return 13 Nos. original sale deeds of the respondent, which were given as security to the petitioners by the respondent;

c) To direct the petitioners to support the respondent / claimant in any pending or future litigation / show cause notices relating to the transactions between them, initiated by the tax authorities by way of making pre-deposit and bearing litigation expenses including lawyers fee;

d) Subject to the respondent undertaking to return the balance amount of security deposit of Rs.4 Crore after adjusting the tax pre- deposit for the GST appeals and advocate / tax consultant fee for the GST litigation fee and further payment if any, or such other amount as may be directed by the arbitral Tribunal.

6. Before the arbitrator, the first petitioner made a counter claim against the respondent, seeking for a direction to the respondent to pay the first petitioner a sum of Rs.3,18,03,894/- with further interest on INR 2,58,19,785/- at 12% from 01.12.2022 till the realisation as per the particulars of claim disclosed in Annexure-I to the counter claim.

7. Based on the pleadings of the respective parties, the arbitrator framed the following issues:

a) Whether clause 12 of the agreement dated 05.02.2018 mandates the first petitioner to incur GST liabilities for the job-work done by the respondent to the first petitioner?;

b) Whether the first petitioner is liable to pay the differential in GST demand made by the GST authorities in the event of crystallisation of the liability?;

c) Whether the first petitioner can deny