From arbitration to tax refund, here are the key court orders | Business Standard News

Clipped from: https://www.business-standard.com/article/current-affairs/from-arbitration-to-tax-refund-here-are-the-key-court-orders-120082000062_1.html

Though Section 241A of the Income Tax Act allows withholding of refund to an assessee, such action should be based on “justifiable reasons”

Civil courts have the power to stop a party to an agreement from invoking arbitration, but it should be exercised sparingly

Blacklisting must follow due process

The government and its entities hold the largest number of contracts. Therefore, if any of them blacklists a contractor, manufacturer, supplier or consultant, it could be a financial disaster for them. Since public sector undertakings are seen to be liberal in taking this drastic step, the Supreme Court of India had asked them to draft some guidelines. In one judgment related to a real estate firm two years ago, it had even given a two-week deadline to do so. But it has not been adhered to. Last fortnight, the court struck down yet another blacklisting in its judgment, Medipol Pharmaceutical India Ltd vs PGI Chandigarh. The pharma company supplied medicines to the institute, which allegedly were substandard. The drug controller blacklisted the firm after hearing it. The firm challenged this in the high court, and lost. But the Supreme Court found that the samples were tested eight months after their shelf life, the delay having caused by the authorities. It severely criticised the high court for misreading the evidence and quashed the blacklisting. The court reiterated its view that “the order of blacklisting has the effect of depriving a person of equality of opportunity in the matter of public contract. A person who has been dealing with the government in the matter of sale and purchase of materials has a legitimate interest or expectation.”

Withholding tax refund must be reasonable

Though Section 241A of the Income Tax Act allows withholding of refund to an assessee, such action should be based on “justifiable reasons”. Merely quoting the provision “ritualistically”, claiming it would affect the revenue, is not enough. Excess collection cannot be termed “revenue”. So stated the Delhi High Court in its recent judgment, Conner Institute vs ITO. In this case, the company claimed refund due to excessive deduction of TDS. Though the Centralised Processing Centre allowed the claim, it was not paid on the ground that the random scrutiny had not been completed.

The company approached the authorities several times, but it was not given the copy of the order or the ground for rejection. So it filed the writ petition. Allowing it and quashing the order, the court said: “We find that the reason is inherently flawed and contrary to the views expressed by this court earlier.”

Caution in stopping arbitration

Civil courts have the power to stop a party to an agreement from invoking arbitration, but it should be exercised sparingly. The Calcutta High Court stated so while rejecting a prayer for such an anti-arbitration injunction in its judgment, Balasore Alloys Ltd vs Medima LLC. The Odisha company, which exports ferro alloys to the US firm, fell out over two agreements. The first one stated that any dispute will be arbitrated in India according to the domestic law, while a related contract signed later mentioned the International Chamber of Commerce (ICC) in London as the forum that would follow the British law. Balasore moved the high court seeking an anti-arbitration injunction, restraining the US firm from going forward with its intent to approach ICC. Rejecting the prayer, the court stated that the mere existence of multiple proceedings in multiple forums is not sufficient reason to render an arbitration agreement inoperative. It added that the burden of proof to show that a forum is not convenient or that the proceedings launched before a neutral foreign forum is “vexatious or oppressive” is upon the party which alleges so.

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