Delhi High Court Sets Aside Arbitral Award Rejecting Spectrum Power's GST Refund Claim Against GAIL

The Delhi High Court has set aside an arbitral award rejecting Spectrum Power Generation Limited's claim for refund of GST reimbursed to GAIL (India) Limited under a Gas Sale Agreement, holding that the award suffered from patent illegality.

The court held that GAIL was required to independently establish that it had deposited GST and that the arbitral tribunal could not rely on disputed tax payment receipts without first deciding their admissibility.

Justice Avneesh Jhingan observed, "In the absence of the issue of admissibility having been decided by the tribunal, non cross-examination of RW-2 on the tax receipts produced shall not prove fatal to the case of the petitioner. The respondent has to stand on its own legs to prove the tax paid. In other words, production of the tax receipts without having been held to be admissible cannot form the basis for concluding that GST on the transmission of gas was deposited by the respondent."

The dispute arose out of a Gas Sale Agreement executed in December 2015 under which GAIL supplied natural gas to Spectrum Power. After the GST regime came into force in July 2017, GAIL began raising invoices seeking reimbursement of GST on transmission charges.

Spectrum reimbursed the amounts for more than three years before objecting. It contended that the transaction continued to be governed by the Andhra Pradesh Value Added Tax Act, 2005 and that GST was not leviable because the movement of gas was between GAIL's own units. It subsequently invoked arbitration seeking refund of the GST amounts reimbursed.

The arbitral tribunal rejected the claim, holding that GAIL had deposited the GST with the authorities and that Spectrum had waived its objections and was estopped from disputing reimbursement of the tax.

Setting aside the award, the High Court held that the tribunal committed patent illegality by relying on tax payment receipts without first deciding their admissibility. It noted that, apart from the disputed receipts, GAIL had not produced GST returns, purchase and sale records, books of account or any other material establishing that GST had been deposited on the transmission of gas supplied to Spectrum.

The Court held that the receipts, by themselves, did not prove payment of GST on the transmission of gas supplied to Spectrum and that the tribunal's finding to the contrary was perverse.

The High Court also held that the tribunal had wrongly invoked the doctrines of waiver and estoppel.

"Every failure to raise an objection or to assert right cannot lead to an inference of waiver. It must be established that the petitioner was aware of its right to object yet consciously chose not to raise the issue," the court observed.

The court found that GAIL had failed to discharge the burden of proving waiver.

It also found that GAIL had failed to establish the ingredients necessary to invoke estoppel. The court noted that there was nothing to show Spectrum had made any unequivocal representation on which GAIL had relied or altered its position.

The court further said the Gas Sale Agreement required Spectrum to first pay the invoices and then raise any dispute. As a result, payment of earlier invoices did not prevent it from challenging subsequent GST reimbursement claims, each of which gave rise to a fresh cause of action.

In view of these findings, the High Court held that the tribunal's conclusions on proof of GST payment, waiver, and estoppel were vitiated by patent illegality and set aside the arbitral award.

For Petitioner (Spectrum Power Generation Limited): Senior Advocate Saurabh Kirpal with Advocates Rudra Pratap, Rajat Chaudhary, Tushar Randhawa, Rahul Sharma and Ali Ibrahim.

For Respondent (GAIL (India) Limited): Senior Advocate Ratan Kumar Singh with Advocates Anish Chawla and Prateek.