2024 (10) TMI 979 - HC - Central Excise

Arbitral award upheld in excise duty classification dispute after goods reclassification by department

Delhi HC dismissed challenge to arbitral award concerning excise duty classification dispute. Petitioner contested respondent's claim for additional ... Challenge to arbitral award - excise duty payable on the goods in question - difference in classification of the goods by the petitioner, and the classification adopted by the Excise Department - Whether the disputes between the parties were arbitrable? - claims were on account of a “change” in taxes, within the meaning of Clause III.12.2 of the NIT, or whether the same constituted a revision in the POs? - entitlement to recover the price alongwith excise duty at the rate mentioned in the invoices raised by it - HELD THAT:- The respondent had anticipated the controversy, and kept the petitioner notified of the possibility of additional excise duty becoming payable on the goods. The evidence on record, including the certificate dated 30.09.2015, was sufficient to support the conclusion that the revenue authorities had, in fact, recovered excise duty at the rate of 12.36%, in respect of the goods in question. Even de hors the question of correctness of the classification adopted, this, in itself, would have been sufficient to allow the respondent’s claim on this account. There are no reason to interfere with the manner in which the learned arbitrator has dealt with the documentary evidence placed before him. The assessment of evidence, and weight to be attached thereto, are ordinarily matters within the domain of the arbitral tribunal, which in the present case, has come to entirely reasonable and justifiable conclusions. In the present case, the underlying legal argument was admittedly raised and contested during the course of hearing. The judgments cited in the impugned award, elaborate and elucidate upon the argument being analyzed in the award, but do not per se go to the root of the award. An award is liable to be interfered with, only if it contains errors which go to the root of the matter - Two caveats may, however, be placed. The first is that factual material must be disclosed to all parties, and the second is that it would remain open to the parties to assail the arbitral tribunal’s reliance upon the authorities and the conclusions derived therefrom, within the parameters provided in Section 34 of the Act. There are no merit in the present petition, which is hereby dismissed. Issues Involved:1. Arbitrability of the disputes.2. Interpretation of 'change' in taxes under Clause III.12.2 of the NIT.3. Entitlement of the respondent to recover the price along with excise duty at the rate mentioned in the invoices.Issue-wise Detailed Analysis:1. Arbitrability of the Disputes:The primary issue was whether the disputes regarding excise classification were arbitrable. The arbitrator determined that the dispute was between two commercial entities and did not involve an adjudication in rem, thus not concerning a sovereign function of the State. The arbitrator referenced the Supreme Court's judgment in Vidya Drolia v. Durga Trading Corpn., establishing that such disputes are capable of resolution by arbitration. The court upheld this view, noting that the dispute was about the inter se obligations between the parties, not affecting the rights and obligations of the State, and thus was arbitrable.2. Interpretation of 'Change' in Taxes under Clause III.12.2 of the NIT:The crux of the dispute was whether the respondent's claims were due to a 'change' in taxes, as per Clause III.12.2 of the NIT. The arbitrator interpreted this clause to include changes in classification, not just changes in tax rates. The arbitrator concluded that the contract allowed for price variations due to changes in taxes/duties, which could encompass classification issues. The court found no manifest unreasonableness in this interpretation, supporting the arbitrator's decision that the respondent's claims were justified under the contractual provisions.3. Entitlement of the Respondent to Recover the Price with Excise Duty:The arbitrator had to decide if the respondent could claim amounts beyond the POs due to excise duty classification differences. The arbitrator noted the technical specifications and relied on a judgment by the Authority for Advance Rulings to classify the goods under Tariff Head No. 90011000. The court agreed with the arbitrator's finding that the respondent was entitled to recover the excise duty at the rate of 12.36%, based on the evidence, including a certificate from the Excise Department. The court dismissed the petitioner's argument that the arbitrator had no jurisdiction to decide on the classification, affirming that the arbitrator only determined the inter-party liability, not a declaration in rem.Conclusion:The court dismissed the petition, finding no merit in the petitioner's challenges. It upheld the arbitrator's conclusions on all issues, including the arbitrability of the dispute, the interpretation of tax changes under the contract, and the respondent's entitlement to recover the excise duty as claimed. The court also addressed the petitioner's concerns about references to judgments in the award, clarifying that such references do not constitute errors warranting interference under Section 34 of the Arbitration and Conciliation Act, 1996.