Gail( INDIA) Limited vs. Directorate General Of GST Intelligence & Anr.

Facts

GAIL (India) Ltd. (GAIL) impugns an order dated 08.03.2018 issued by the Directorate General of GST Intelligence (DGGI) under Section 87(b) of the Finance Act, 1994, read with Section 174(2)(e) of the CGST Act, 2017. The order directed GAIL to pay ₹13,13,07,485/- to respondent no.2, claiming GAIL was an 'assessee in default'. GAIL had terminated a contract with respondent no.2 in 2014 due to alleged fabricated documents and subsequently blacklisted respondent no.2. This led to arbitration proceedings. DGGI initiated proceedings for statutory dues owed by respondent no.2 and issued the impugned order. GAIL filed the present writ petition, and an interim order restrained recovery. During the proceedings, GAIL and respondent no.2 settled their disputes, with GAIL agreeing to pay approximately ₹6.54 crores, subject to respondent no.2 furnishing an invoice of approximately ₹1.01 crores, and to return bank guarantees worth ₹4.25 crores.

Held

The Court held that the impugned order dated 08.03.2018, directing GAIL to pay ₹13,13,07,485/-, is not sustainable. The Court reasoned that the order was based on the premise that GAIL owed this substantial amount to respondent no.2, but there was no material to show that such an amount was actually due and payable. GAIL had never admitted this amount as due. The Court noted that the impugned order was in the nature of a garnishee order, and respondent no.1 could not compel GAIL to pay amounts that were not due and payable by GAIL to respondent no.2. The settlement between GAIL and respondent no.2 indicated a much lower amount payable. The Court set aside the impugned order. However, to protect the revenue's interest, GAIL was restrained from making any payments to respondent no.2 for a period of four weeks. The Court clarified that respondent no.1 was not precluded from taking other legal steps to secure the revenue's interests. The issue of returning bank guarantees was not a subject matter of the impugned order and GAIL was free to return them. The Court also noted that the payment of ₹6.54 crores was contingent on respondent no.2 issuing an invoice, which required restoration of its GST registration.

Key Issues

1. Whether the impugned order dated 08.03.2018, issued by respondent no.1 under Section 87(b) of the Finance Act, 1994, read with Section 174(2)(e) of the CGST Act, 2017, directing GAIL to pay ₹13,13,07,485/- to respondent no.2, is sustainable when GAIL has not admitted any amount as due and payable to respondent no.2, and the dispute between GAIL and respondent no.2 was pending adjudication before an Arbitral Tribunal at the time of issuance of the order? Petitioner's arguments: GAIL contended that it cannot be treated as an 'assessee in default' as it has not admitted any amount as due and payable to respondent no.2. The impugned order, being in the nature of a garnishee order, cannot compel GAIL to pay amounts not legitimately due. GAIL also highlighted the settlement reached with respondent no.2, which stipulated a significantly lower payment. Revenue's arguments: Respondent no.1 argued that its intention was to demand any amount payable or which may become payable on account of settlement in light of Arbitral Awards, and the impugned notice was issued for this purpose. Respondent no.1 prayed for directions to GAIL to pay any amount held by GAIL on account of respondent no.2, as and when it becomes payable.