Allahabad HC Clears Arbitration in Railway GST Claim

Arbitration referral

The Allahabad High Court has sent a Rs 50.27 lakh GST reimbursement dispute between Indian Railways and contractor M/s Dharmendra Kumar Srivastava to arbitration.

Justice Piyush Agarwal held that a no-claim certificate signed under financial pressure cannot bar a Section 11(6) reference.

The immediate stakes are small; the contracting precedent is not.

Contract background

The dispute originates in a Rs 9.45 crore contract for Limited Height Subways replacing five level crossings, awarded in 2018 with the contractor as lowest bidder.

Eight time extensions pushed completion to 2021 and layered on price variations.

The contractor claims GST was never reimbursed despite the Railway Board’s 27 October 2017 letter mandating reimbursement on contracts awarded before GST rollout.

The contractor also claims that a Senior Divisional Engineer made release of dues conditional on withdrawing an earlier arbitration reference.

The court’s reasoning

Indian Railways ultimately released Rs 79.57 lakh, covering EMD, security deposit, performance bank guarantee and PVC amounts, while retaining the GST component.

The department argued the no-claim certificate was voluntary and cited Paragraph 3.4 of the Railway Board letter requiring a CA-certified pre/post-GST worksheet.

The court drew the line at coercion: distinguishing HPCL Bio-Fuels Ltd v. Shahji Bhanudas Bhad and citing Indian Oil Corporation v. SPS Engineering Limited, it held the tribunal must test voluntariness and the scope of the unsigned Joint Procedure Order.

Former judge Ravindra Nath Kakkar has been appointed arbitrator.

Industry implications

For contractors, the signal is structural.

A no-claim certificate is no longer an automatic dead-end when it was signed to unlock EMD, retention and bank guarantees.

The burden of proving voluntariness shifts to the tribunal, but the operational lesson is procedural:

- Document every closeout demand
- Tie each certificate to specific withheld amounts
- Preserve the CA-certified worksheet the Railway Board circular requires

Owners face mirrored exposure because closeout leverage that reads as coercion can resurrect settled claims and reopen completed contracts.

Outlook

Expect more such references: pre-GST-awarded railway contracts remain exposed to GST reconciliation risk years after completion, and arbitration is becoming the default venue to resolve them.