Grant of Interest under Arbitral Award for Delayed Payment of Consideration: Bombay HC holds Recipient of Service situated in Taxable Territory bear Liability of GST [Read Order]

The single bench of Bombay High Court presided by Mr. Justice B. P. Colabawalla in the issue ofgrant of interest under Arbitral Award for delayed payment of consideration has held that recipient of service situated in taxable territory bear liability of GST.

The petitioner, M/s Angerlehner Structural and Civil Engineering Company, a body corporate registered in Austria. It has a project office in Mumbai. The Corporation was desirous of undertaking the work of rehabilitation of sewering in the city by lining and quoting method.

The respondent MCGM did not make payments, the Applicant invoked Arbitration which finally culminated into an Arbitral Award. Since the Arbitrator found that there were monies due and payable by the MCGM to the applicant and which were not paid, the Arbitral Tribunal awarded interest on the aforesaid amounts. This Award was subjected to a challenge all the way upto the Supreme Court without any success. Whilst this challenge was pending, the GST law was brought into force.

The petitioner filed for the execution of the same. The respondent not deposited the entire amount due and payable under the Award but after withholding an amount of Rs.67,94,965.02 allegedly towards payment of the Goods and Services Tax (GST), and which according to the MCGM, was the liability of the applicant.

The counsel for the petitioner submitted that there is no liability to pay any GST as the GST law came into force much after the contract between the applicant and the MCGM was concluded in the year2003and even the Arbitral Award was passed long before the GST law was brought into force. The counsel for the petitioner further submitted that under the CGST Act as well asunder the IGST Act, there was a Reverse Charge Mechanism (RCM) under which it was the liability of the MCGM to make payment of the GST, if any.

The counsel for the respondent submitted that the value of supply shall include interest or late fees or penalty for delayed payment of any consideration for any supply. The GST is payable on the interest component under the Arbitral Award as the same is awarded in favour of the applicant because of the delay on the part of the MCGM to make payment. Considering that interest is being paid after the GST regime was brought into force, GST would be applicable on the interest component of the Arbitral Award, and which would have to be paid to the Government.

The single benchhas observed that the applicant was the supplier of services who is located in a non-taxable territoryand is not a non-taxable online recipient. In terms of Notification No. 10/2017-Integrated Tax (Rate), any service supplied by any person, who is located in a non-taxable territory to any person located in the taxable territory [other than a non-taxable online recipient], it is the recipient of the service who would be liable to pay the GST on a Reverse Charge basis.The single bench further observed that the MCGM is a person located in the taxable territory and is not a non-taxable online recipient.

The High Court has held that “It is the MCGM, under Notification No.10 of 2017 read with the provisions of Section 5(3) of the IGST Act, who would be liable to pay the GST to the Government on a Reverse Charge basis and the same cannot be deducted from the dues payable to the applicant”.

Mr. Firoz Andhyarujina, appeared for the petitioner and Mr. A. Y.Sakhare appeared for the respondent.

To Read the full text of the Order CLICK HERE

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