https://www.taxtmi.com/css/info/rss_sitemap/rss_feed.css?v=1746094055 https://www.taxtmi.com Business/Tax/Law/GST/India/Taxation/Policies/Legal/Corporate Tax/Personal Tax/Vat Law/Legal Information/Tax Information/Legal Services/Tax Services Tax Management India. Com / MS Knowledge Processing Pvt. Ltd. All rights reserved. One stop solution for Direct Taxes and Indirect Taxes https://www.taxtmi.com/caselaws?id=768821 https://www.taxtmi.com/caselaws?id=768821 Interpretation 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. Case-Laws GST Wed, 09 Apr 2025 00:00:00 +0530