The above Execution Application is filed for executing the Arbitral Award dated 23rd June 2014 passed in favour of the Applicant and against the Municipal Corporation of Greater Mumbai. The MCGM was aggrieved by the Award passed by the Arbitral Tribunal, and therefore challenged the same thrice. In light of the above factual position, this Execution Application was moved. It was pointed out to the Court that the Applicant, being a foreign entity, does not have a bank account in India (as the contract between the Applicant and the MCGM was concluded in 2003). The Applicant, therefore, requested that payment under the Arbitral Award be made by the MCGM in the name of the Applicant’s lawyer and agent who would credit the same into the Applicant’s account in escrow for transfer to the Applicant in Austria.

it was pointed  out to the Court that the amounts deposited in the aforesaid Bank Account was not 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. It was pointed out that as per the Arbitral Award, the principal amount due was Rs.6,83,55,000/-and the interest amount due was Rs.4,45,44,770.69/-. Hence, the total amount payable under the Arbitral Award was Rs.11,28,99,770.69/-. However, the MCGM had credited only an amount of Rs.10,61,04,805.67 on 31st March 2022. The differential amount of Rs.67,94,965.02 was not deposited as the same was withheld by the MCGM towards liability of GST payable by the Applicant. This deduction was made by the MCGM because of the provisions of Section 15(2)(d) of The Central Goods and Services Tax Act, 2017 (for short the “CGST Act”) read with Section 20 of the Integrated Goods and Services Tax Act, 2017.

Mr. Firoz Andhyarujina, the learned Senior Counsel appearing on behalf of the Applicant, pointed out that that by virtue of the Notification issued by the Government of India dated 28th June 2017 [under Section 5(3) of the IGST Act],, the MCGM, being the recipient of the service, would have to bear the liability of GST under a Reverse Charge Mechanism. Mr. Andhyarujina submitted that this Notification clearly casts the liability on the MCGM to pay the GST, if applicable, as admittedly the Applicant is a person who is located in a non-taxable territory and the recipient of the service (the MCGM) was a person located in the taxable territory. This being the factual position, it is the recipient of the service (in India) who would have to pay the GST, was the submission of Mr. Andhyarujina. Mr. Andhyarujina submitted that in the case of normal taxable supply, the supplier issues a tax invoice to the recipient of the goods or services and receives the amount from the recipient along with the GST and then discharges his GST liability to the Government. This is referred to be as the “forward charge”. In case of a “reverse charge” the supplier of the services or goods does not charge GST on the invoice and receives the amount from the recipient without any GST. Further, the liability to pay the GST is on the recipient of the goods or services instead of the supplier of such goods or services in respect of notified categories of supply.

Mr. Andhyarujina further submitted that under the provisions of the GST regime, the recipient of the service (in the present case MCGM) can avail of Input Tax Credit for the GST paid under the Reverse Charge Mechanism. The only condition is that the goods and services are used or will be used for business or furtherance of business. The only condition is that the goods and services are used or will be used for business or furtherance of business.

Mr. Sakhare, the learned Senior Counsel appearing on behalf of the MCGM, submitted that there is no merit in the arguments canvassed by Mr. Andhyarujina. He submitted that it is true that under the Notification relied upon by Mr. Andhyarujina (referred to by me above), the liability to pay the GST would be on the MCGM because admittedly the Applicant is a person who is located in a non-taxable territory and is supplying services to a person in the taxable territory (other than a non-taxable online recipient). In such a situation, any person located in a non-taxable territory, and supplying services to a person located in the taxable territory (other than a non-taxable online recipient), it is the recipient of the service that would be liable to pay the GST. He has submitted that though this is the law, the burden of tax can always be shifted by the parties by entering into a contract to the contrary.

Mr. Sakhare submitted that in the present case, Clause 3 of the contract between the Applicant and the MCGM clearly stipulated that the rates and prices bid in the priced Bill of Quantities shall, except insofar as it is otherwise provided under the contract, include all constructional plant, labour, supervision, materials, erection, maintenance, insurance, profit, taxes and duties, together with all general risks, liabilities and obligations set out or implied in the Contract. He, therefore, submitted that by reading clause 3, it was clear that the Applicant had agreed that the rates and prices bid in the priced Bill of Quantities shall include taxes and duties as well. Mr. Sakhare therefore contended that in the present case, though the MCGM is the assessee under the provisions of the GST regime and was liable to pay the GST under the Reverse Charge Mechanism, since the Applicant had agreed to bear all the taxes, the MCGM was entitled and justified to deduct from the Applicant the GST payable by the MCGM. He, therefore, submitted that the MCGM was well within its rights to withhold the amount of Rs.67,94,965.02 towards payment of the GST in view of Clause 3 of the contract between the parties.

As far as the argument of Mr. Andhyarujina regarding the Input Tax Credit is concerned, Mr. Sakhare submitted that the aforesaid argument has no merit because firstly the MCGM has not claimed any Input Tax Credit on the amount of Rs.67,94,965.02 and therefore there is no question of a double benefit or unjust enrichment on the part of the MCGM. Secondly, Mr. Sakhare submitted that in any event, MCGM’s output liability towards payment of GST is miniscule as the MCGM is providing most of the services which are exempt from tax and no Input Tax Credit can be availed on exempted services.