Facts of the Case

  • The petitioner, M/s Bharath Chemical Industries, is a partnership firm originally consisting of three partners: Sri C.N. Raju (Managing Partner who verified the writ petition), Sri P.S. Biju, and Sri K. Jayaprakash (arrayed as Respondent No. 3).
  • An internal dispute arose among the partners, leading Respondent No. 3 to file a civil suit (O.S. No. 518/2021) before the VI Additional Civil Judge and JMFC, Hassan.
  • In the civil suit, the other two partners filed an application (I.A. No. 6) under Sections 7 and 8 of the Arbitration and Conciliation Act, 1996, praying to refer the dispute to arbitration. The Trial Court allowed this application on April 5, 2022, and the order attained finality as it was not challenged by Respondent No. 3.
  • While the inter se dispute was referred to arbitration, the parties failed to reach a consensus on the selection of a sole arbitrator.
  • Concurrently, Respondent No. 3 had been filing the firm's GST returns until July 2022, and the official GSTIN user ID, registered mobile number, and email ID remained under his exclusive control.
  • The managing partners requested the GST Department to update the authorized signatory, mobile number, and email ID to allow them to file subsequent returns and clear statutory dues, alleging irregular payments by Respondent No. 3.
  • The Assistant Commissioner of Commercial Taxes (Respondent No. 2) rejected this request via an administrative endorsement dated August 10, 2022. Aggrieved by this rejection, the petitioner filed a writ petition under Article 226.

Issues Involved

  1. Whether the GST Authorities were justified in rejecting the partnership firm’s request to modify its authorized signatory and contact credentials for return filing solely because of an ongoing internal dispute and prior filings by a specific partner.
  2. How the compliance requirements of a partnership firm under the CGST Act (filing returns, making tax payments, and generating E-way bills) can be maintained when its digital credentials are held exclusively by a disputing partner.
  3. Whether the High Court can appoint an Arbitrator based on a joint submission in a writ proceeding arising out of a GST endorsement, where a civil court had already directed arbitration.

Petitioner’s Arguments

  • The petitioner argued that the impugned endorsement dated August 10, 2022, was highly arbitrary as it brought the firm's business operations and statutory tax compliances to a standstill.
  • It was contended that since the managing partners were running the business, they must have the access to update the authorized signatory, mobile numbers, and email IDs on the GST portal to ensure smooth compliance and avoid penal consequences.
  • The petitioner highlighted that the core disputes between the partners had already been referred to arbitration by the civil court, and administrative tax blocks should not be used as leverage in civil disputes.

Respondent’s Arguments

  • GST Authorities (Respondents 1 & 2): The Revenue contended that Respondent No. 3 was the recorded user handling the portal till July 2022. In the face of a pending internal partnership dispute, the department could not unilaterally alter credentials or adjudicate who held the legitimate right to manage the digital portal.
  • Respondent No. 3 (Disputing Partner): Represented by Senior Counsel, it was argued that his rights as a partner could not be bypassed. However, realizing the necessity of statutory compliances, a joint submission was made alongside the petitioner stating that they were willing to refer the main dispute to a retired District Judge to expedite resolution.

Court Order / Findings

  • Reference to Arbitration: Noting the joint consensus between the petitioner and Respondent No. 3, the High Court formally referred the dispute to the Arbitration and Conciliation Centre (Domestic & International), Bengaluru, appointing Sri V.V. Angadi, a retired District Judge, as the Sole Arbitrator.
  • Interim Mechanism for GST Compliance: The High Court observed that the issue regarding irregular payments and portal access would ultimately be decided by the Arbitral Tribunal. However, to preserve the functional capacity of the firm and ensure statutory compliance, the Court formulated a middle path without prejudice to either party's rights.
  • Filing Directives: The Court directed Respondent No. 3 to file the pending and future GST returns and execute necessary actions like generating E-way bills. For this purpose, Sri C.N. Raju and Sri P.S. Biju were directed to supply all requisite papers, accounts, and documentation to Respondent No. 3.
  • Strict Safeguards: The Court explicitly clarified that the filing of GST returns or generation of E-way bills by Respondent No. 3 under this interim order shall not be construed as creating any special right, equity, or interest in his favour that impacts the legal rights of the other partners. All rival contentions were kept open for the Arbitral Tribunal to decide.

Important Clarification

This judgment highlights that internal partnerships or corporate disputes must not jeopardize statutory revenue compliances. The High Court established that even when a digital portal contains the credentials of a single disputing partner, courts will prioritize functional business continuity and state revenue collection by directing co-operation, while clearly insulating such compliance activities from creating any adverse civil or ownership rights in ongoing arbitration.

Section Involved

  • Central Goods and Services Tax Act, 2017 (CGST Act): Provisions relating to the filing of GST returns, changing of authorized signatories, updating email/mobile credentials, and generating E-way bills.
  • Arbitration and Conciliation Act, 1996: Section 7 and Section 8 (Reference of inter se partnership disputes to an Arbitral Tribunal).
  • Constitution of India: Article 226 (Writ Jurisdiction for quashing arbitrary administrative endorsements).  

Link to download the order - https://mytaxexpert.co.in/uploads/1783144705_506compressed.pdf

Disclaimer

This content is shared strictly for general information and knowledge purposes only. Readers should independently verify the information from reliable sources. It is not intended to provide legal, professional, or advisory guidance. The author and the organisation disclaim all liability arising from the use of this content.The material has been prepared with the assistance of AI tools.