Premief Shield PVT. LTD. vs. Indian Institute Of Science Education And Research Bhopal

Held

The Court held that the dispute concerning the penalty and interest imposed by the GST authorities on the petitioner for non-payment of GST was a purely tax dispute and not a dispute arising out of the contract between the petitioner and IISER. The Court reasoned that the respondent (IISER) was not privy to the petitioner's tax liability, and the petitioner was solely responsible for complying with statutory requirements, including the payment of GST. The Court noted that there was no allegation that IISER was obligated to deduct tax at source or reimburse the GST amount to the petitioner. Applying the prima facie test as laid down in Vidya Drolia and BSNL v. Nortel Networks, the Court found that there was no vestige of doubt that the claim was non-arbitrable as the respondent was not a party to the tax dispute. Therefore, the application for the appointment of an arbitrator was rejected.

Facts

The petitioner, Premief Shield Pvt. Ltd., entered into a work order with the respondent, Indian Institute of Science Education and Research Bhopal (IISER), on March 23, 2017, for providing services including security. The work order contained an arbitration clause. The petitioner claims that it was subjected to GST on service charges, and due to IISER not being registered under GST, the petitioner had to pay GST, penalty, and interest to the GST authorities, amounting to Rs. 17.98 lakhs. The petitioner sought arbitration for IISER to pay this amount. The respondent refused arbitration, leading the petitioner to file a petition under Section 11(6) of the Arbitration and Conciliation Act, 1996, for the appointment of an arbitrator. The respondent argued that the dispute was between the petitioner and the GST authorities, and IISER was not privy to this tax liability.

Key Issues

1. Whether a dispute concerning penalty and interest imposed by GST authorities on a contractor for non-payment of GST on service charges, where the other party to the contract (IISER) is not registered under GST, constitutes a dispute arising out of the contract that is arbitrable under Section 11(6) of the Arbitration and Conciliation Act, 1996? Petitioner's contention: The petitioner argued that a dispute arose from the contract because the GST amount, penalty, and interest were imposed due to IISER's non-registration under GST, and therefore, IISER should be liable for these costs. Respondent's contention: The respondent argued that the dispute was solely between the petitioner and the GST authorities, and IISER was not privy to the petitioner's tax liability. They contended that the petitioner was responsible for complying with all statutory requirements as per clause 19.6 of the work order and that the dispute was not a dispute between the parties to the arbitration agreement. They relied on the principle that referral courts can examine the existence of an arbitration agreement and screen ex facie meritless claims.