TaxTMI 
TaxTMI 
2026 (9) TMI 1204
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....y the petitioner, on a non-exclusive basis, to render marketing, branding and promotional services on commercial terms with regard to compensation as set out in Annexure-A thereto. The Letter of Engagement contains, an 'Indemnification and Limitations of Liability' clause as well as an arbitration clause. 4. It is the petitioner's case that between 27.04.2022 and 29.02.2024 the respondent raised invoices upon it aggregating to a taxable value of Rs. 18,53,31,120/-, together with goods and services tax ("GST") at 18% amounting to Rs. 3,33,59,601.59/-; and that between 02.04.2022 and 13.06.2024, the petitioner made payments to the respondent aggregating to Rs. 22,27,82,622.09/-. As per the petitioner, since the GST component was already paid to the respondent, the petitioner availed input tax credit ("ITC") in its own GST returns. 5. By letter No. 499 dated 19.10.2024, a notice was issued under Rule 86A of the Central Goods and Services Tax Rules, 2017 by the Deputy Commissioner (SIB), State Tax, Division-A, Gautam Buddha Nagar, Zone Noida. It recorded that an inspection had been carried out at the petitioner's place of business on 01.10.2024, and that the petitioner ha....
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....ts, or of confidentiality obligations, and no such breach has been alleged. The Respondent did not accede to the appointment of an arbitrator. 9. It is the petitioner's case that on 20.06.2025 it deposited Rs. 4,46,16,401/- with the goods and services tax authorities by way of Form DRC-03 (ARN: AD090625059817G), comprising tax of Rs. 3,33,59,152/-, interest of Rs. 62,53,376/- and penalty of Rs. 50,03,873/-. 10. Learned counsel for the petitioner submits that disputes have arisen between the parties to an arbitration agreement; that the efforts to have a sole arbitrator appointed have failed, the respondent having neither consented to any of the names proposed nor concurred in any appointment of arbitrator; and that the petitioner is accordingly constrained to invoke Section 11(6) of the Act. The claim is founded upon the indemnity clause in the Letter of Engagement, the tax component having been charged by the respondent on its own invoices and paid to it thereunder. 11. Learned counsel for the respondent, opposes the petition on the grounds that; the dispute is ex facie non-arbitrable and falls within the exclusive jurisdiction of the GST authorities. 12. The Respo....
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....r's payment to the authorities cannot automatically create a corresponding right of reimbursement, its entitlement remaining disputed and incapable of being presumed from the factum of payment. 15. It is also urged by the respondent that the jurisdiction exercised under Section 11 is not a mechanical exercise for the appointment of an arbitrator, that the Court must at the appropriate level of scrutiny examine the existence of a valid arbitration agreement, and that in a case of manifest non arbitrability it should decline reference at the threshold. They pray that the petition be dismissed and that the dispute be held to be ex facie non-arbitrable and outside the scope of the arbitration agreement contained in the Letter of Engagement dated 01.04.2021. REASONING AND CONCLUSION: 16. The controversy lies within a narrow compass. The petitioner paid to the respondent, along with contract consideration, amounts represented by the respondent in its invoices as the goods and services tax. The petitioner availed input tax credit in respect of those amounts. The GST authorities thereafter called upon the petitioner to reverse the input tax credit on the footing that the GST c....
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.... the 2015 amendment with reference to insertion of sub-section (6A) in Section 11 of the 1996 Act, reads thus: "(iii) an application for appointment of an Arbitrator shall be disposed of by the High Court or the Supreme Court, as the case may be, as expeditiously as possible and an endeavour should be made to dispose of the matter within a period of 60 days. (iv) to provide that while considering any application for appointment of Arbitrator, the High Court or the Supreme Court shall examine the existence of a prima facie arbitration agreement and not other issues." 10. The significance of the use of the expression "not other issues" in the statement of objects and reasons of the 2015 amendment was noticed by a seven-Judge bench of this Court in In Re : Interplay Between Arbitration Agreements under the Arbitration and Conciliation Act, 1996 and the Indian Stamp Act, 18995, and it was observed: "209. The above extract indicates that the Supreme Court or High Court at the stage of the appointment of an Arbitrator shall 'examine the existence of prima facie arbitration agreement and not other issues'. These other issues not only pertain to the vali....
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....ame shall finally be settled and determined by arbitration in accordance with the Arbitration and Conciliation Act, 1996 or any amendment thereof. The language to be used in the arbitral proceedings shall be English. The arbitrator will be selected by the joint approval of both the Parties. Each Party shall bear its own cost of preparing and presenting its case and the arbitration proceedings. The courts of New Delhi, India shall have exclusive jurisdiction for all disputes arising out of this Letter." 22. The existence of the arbitration agreement being not in dispute; all objections pertaining to jurisdiction/arbitrability are required to be decided by a duly constituted arbitral tribunal. Prima facie, therefore, this Court finds no merit in the objections raised by the respondent to constitution of an arbitral tribunal. 23. However, the learned counsel for the respondent insists that given the kind of dispute that has been sought to be raised, non-arbitrability is manifest on the face of the record. The learned counsel for the respondent has gone to the extent of urging that for all practical purposes, given the nature of the disputes/s sought to be raised, there cannot be....
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....rties. The relevant observation in the said judgment are as under : "16. However, it is relevant to bear in mind 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. 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. The challenge is raised solely on the anvil of Article 10.6. The petitioner asserts that it was only liable to bear such taxes as may have been shouldered by GAIL while purchasing gas from any supplier or any tax that may have been levied or stood attracted at the time when natural gas was sold to the petitioner. Viewed in the aforesaid light, it is manifest that the issue does not relate to the taxing power of the State or any action taken or an order made in exercise thereof." 28. Reliance sought to be placed by the respondent on a judgment of the Madhya Pradesh High Court in case of Premief Shield Pvt. Ltd. Vs. Indian Institute of Science Education and Research Bhopal, 202....