Facts of the Case

  • The petitioner, GAIL (India) Limited, is a Central Public Sector Undertaking engaged in transportation of petroleum and natural gas.
  • GAIL awarded a contract to Respondent No.2 for pipeline works.
  • Subsequently, GAIL discovered that Respondent No.2 had allegedly submitted fabricated documents and terminated the contract in 2014, along with blacklisting.
  • Disputes arose and were referred to arbitration; interim protection orders were also granted.
  • Meanwhile, GST authorities initiated proceedings against Respondent No.2 and issued summons to GAIL.
  • An order dated 08.03.2018 was passed directing GAIL to pay ₹13.13 crores allegedly payable to Respondent No.2 under Section 87(b).
  • GAIL challenged the order, contending that no such amount was admitted or payable.
  • During proceedings, arbitration culminated and parties settled disputes, agreeing to a reduced payment subject to invoicing.

Issues Involved

  1. Whether GST authorities can invoke garnishee provisions against a third party when liability is disputed and not admitted.
  2. Whether an order under Section 87(b) can compel payment of amounts not yet determined or payable.
  3. Whether pending arbitration or settlement impacts enforceability of such recovery proceedings.

Petitioner’s Arguments (GAIL)

  • No amount was admitted as due to Respondent No.2; hence, garnishee proceedings were invalid.
  • Liability was sub judice before the arbitral tribunal and later settled.
  • GAIL could not be treated as an “assessee in default” without crystallized liability.
  • The impugned order exceeded statutory powers by demanding payment of disputed sums.

Respondent’s Arguments (GST Department)

  • The department intended to recover dues payable to Respondent No.2 through GAIL.
  • It argued that any amount payable or becoming payable pursuant to settlement/arbitral award should be directed to the government.
  • Sought directions to ensure recovery from GAIL as a garnishee.

Court’s Findings / Order

  • The impugned order was in the nature of a garnishee order.
  • A garnishee order can only operate on amounts that are due and payable, not on disputed claims.
  • GAIL had never admitted liability of ₹13.13 crores.
  • There was no material evidence establishing such liability.
  • Therefore, the direction to deposit ₹13.13 crores was unsustainable in law.
  • The Court set aside the impugned order.
  • However, GAIL was restrained from making payment to Respondent No.2 for four weeks.
  • The GST department was given liberty to take steps as per law to safeguard revenue.

Important Clarification by Court

  • Garnishee powers under tax law cannot be exercised for recovery of unascertained or disputed amounts.
  • Third parties cannot be compelled to pay unless the liability is crystallized and admitted.
  • Recovery mechanisms must align with actual enforceable debt, not hypothetical or contingent claims.

Link to download the order -  https://delhihighcourt.nic.in/app/showFileJudgment/VIB29032023CW50562018_124400.pdf

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