Disputes related to tax advantages are not arbitrable: Supreme Court

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The Supreme Court ruled that tax benefit disputes are not arbitrable.

The division bench of Judge Dhananjaya Y Chandrachud and Judge Hima Kohli observed that the High Court had erred in holding that the terms of the electronic auction provided that any dispute was arbitrable. Undoubtedly, a contractual dispute would be capable of being resolved by arbitration. However, in this case, the tax benefit relief was not arbitrable.

The appellant is a limited liability company with its head office in Kolkata and branches in other states including Uttar Pradesh. The Uttar Pradesh branch is located in the Bulandshahar district and was established on July 18, 2001. The appellant is engaged in the trading of coal, which it sources through electronic auctions conducted by the subsidiaries of Coal India Limited.

The appellant stated that after purchasing coal from the respondent, Northern Coal Fields Limited, by means of electronic auctions, the appellant transported certain shipments by rail, destined for the State of Madhya Pradesh. Initially, the defendant applied a preferential tax rate of 2%.

The Appellant’s grievance was that the Respondent failed to issue Form E-1 and to grant the benefit of Form C while charging tax at the rate of four percent.

The appellant filed a written petition in the High Court asking the defendant to accept Form C and issue Form E-1 to the petitioner for goods seized interstate. The Appellant also asked the Respondent to grant the benefit of the reduced tax rate to the Applicant after accepting Form C on file.

The High Court held that the terms of the electronic auction provided that any dispute was arbitrable. The appellant practically sought to obtain performance of a contract by way of a written motion to submit a claim for reimbursement.

While allowing the appeal, the Supreme Court quashed the judgment and order of the High Court and sent the case back to the High Court for further consideration on the merits.

“We make it clear that we have expressed no opinion on the merits of the respective rights and arguments of the parties in the Petition in Writ. Given that the Petition in Writ was filed in 2016, we ask the High Court to s “Endeavor to dispose of it expeditiously, preferably within four months from the date of receipt of a certified copy of this order. Defendants will file their response within four weeks,” said the court.

Business Title: M/s Shree Enterprise Coal Sales Pvt Ltd. Versus Union Of India

Reference: 2022 LiveLaw (SC) 774

Date: 12.09.2022

Counsel for the applicant: lawyers Rohit Amit Shalekar, Anish Choudhury, Anand Kamal, Akash Agarwal

Counsel for the Respondent: ASG Vikramjit Banerjee

Arbitration and Conciliation Act 1996 – Tax benefit relief is not arbitrable

Click here to read/download the order


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