5. Service supplied by an Arbitral Tribunal to business entity
Supplier :- An arbitral tribunal
Recipient :- Any business entity located in taxable territory.
Meaning of arbitral tribunal :-
As per explanation given under notification 12/2017-CTR arbitral tribunal has the same meaning as assigned to it in clause (d) of section 2 of Arbitration and Conciliation Act, 1996.
Section 2(1)(d) of the Arbitration and Conciliation Act, 1996 defines an "Arbitral Tribunal" as :-
"A sole arbitrator or a panel of arbitrators." This means that an Arbitral Tribunal can be :-
A single arbitrator appointed to decide a dispute.
A group (panel) of arbitrators deciding a dispute collectively.
Meaning of the term "business entity" and "taxable territory" has already been discussed in previous entry.
Just like advocate services, services provided by arbitral tribunals are subject to specific exemptions and reverse charge provisions under GST. Let's analyze the GST applicability on arbitral tribunal services in the following parts
Exemption for Arbitral Tribunal Services
Under Notification No. 12/2017-Central Tax (Rate), Entry 6, certain services provided by an arbitral tribunal are exempt from GST. The exemption applies in the following cases :-
When an arbitral tribunal provides services to an individual or non- business entity, no GST is applicable. This is because GST is generally applicable only when services are supplied to business entities unless specifically notified otherwise.
When services are provided to the government, i.e., Central Government, State Government, Union Territories, or local authorities, they are exempt from GST, provided that the government is not engaged in business activities. If the government entity is involved in business activities, GST may be applicable under Reverse Charge Mechanism (RCM).
The intent of the exemption is to ensure that individuals, government bodies, and non-business entities do not bear GST costs on dispute resolution services provided by an arbitral tribunal.
However, if the recipient is a business entity, different GST rules apply, as discussed below.
Reverse Charge Mechanism (RCM) on Arbitral Tribunal Services :-
As per Notification No. 13/2017-Central Tax (Rate), Entry 3, services provided by an arbitral tribunal to a business entity located in the taxable territory are liable to GST under Reverse Charge Mechanism (RCM).
This means :-
The business entity (recipient) is responsible for paying GST at 18% under RCM, instead of the arbitral tribunal collecting and paying GST.
The arbitral tribunal does not charge GST on its invoices. Instead, the business entity receiving the service must deposit the GST to the government and can claim Input Tax Credit (ITC) if eligible.
Since the arbitral tribunal is not required to collect GST, it does not need to register under GST, provided that it only provides services covered under RCM or exemption.
By applying RCM, the GST law ensures that arbitral tribunals do not have to register under GST or handle compliance, thereby simplifying tax administration for dispute resolution services.
Examples
Example 1 :- Arbitration Between Two Businesses (RCM Applies)
An arbitral tribunal is appointed to resolve a contractual dispute between ABC Ltd. and XYZ Pvt. Ltd.
The tribunal charges a fee of Rs. 5,00,000 to ABC Ltd. for the arbitration proceedings.
Since ABC Ltd. is a business entity, it must pay GST at 18% under RCM (i.e., Rs. 90,000).
The arbitral tribunal does not charge GST, and ABC Ltd. directly deposits the GST to the government.
Example 2 :- Arbitration Between an Individual and a Company (Exempt from GST for Individual, RCM for Business)
Mr. Sharma (an individual) has a dispute with XYZ Pvt. Ltd., and the arbitral tribunal is engaged for the resolution.
The tribunal charges a fee of Rs. 3,00,000, and both parties agree to split the cost equally.
Mr. Sharma (an individual) is not a business entity, so no GST applies to his share (Rs. 1,50,000).
XYZ Pvt. Ltd. (a business entity) is liable to pay GST under RCM on its share (RFs. 1,50,000 × 18% = Rs. 27,000).
Example 3 :- Arbitration Services Provided to the Government (Exempt from GST)
An arbitral tribunal handles a dispute involving a State Government department and a private contractor.
The tribunal charges Rs. 4,00,000 for its services.
Since the recipient is a government entity (not engaged in business activities), the service is exempt from GST.
No GST is payable, and the tribunal does not need to charge GST.
Example 4 :- Arbitration Between Two Individuals (Exempt from GST)
Mr. A and Mr. B have a property dispute and engage an arbitral tribunal.
The tribunal charges a fee of Rs. 2,00,000 for arbitration services.
Since both Mr. A and Mr. B are individuals (non-business entities), the service is exempt from GST.
No GST is payable, and the tribunal does not need to charge GST.