Post-contract tax change shifts service tax burden; writ relief remains available despite arbitration clause in a fit case.

An arbitration clause did not bar writ relief because the dispute concerned a post-contract shift in tax incidence, the respondent was an Article 12 entity, and the material facts were clear from the record. The Court held that the railway had to reimburse the service tax component arising after the contracts were concluded, treating service tax as an indirect levy whose burden follows the law in force and construing the tender clauses as protecting against contractor default rather than shifting a later-imposed tax. By analogy to Section 64A of the Sale of Goods Act, the post-contract statutory change could not be used to impose an unintended tax burden on the contractor. Reimbursement with interest was ordered.

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Issues: (i) Whether the existence of an arbitration clause barred invocation of writ jurisdiction in the facts of the case. (ii) Whether the respondent railway was liable to reimburse the service tax component arising from the post-contract change in the service tax regime, notwithstanding the tender and contract terms.

Issue (i): Whether the existence of an arbitration clause barred invocation of writ jurisdiction in the facts of the case.

Analysis: The arbitration clause was held not to operate as an absolute bar. The dispute was treated not as a pure contractual liability contest but as one concerning the shifting incidence of tax after a change in the legal regime. The Court also treated the clause as ineffective in the circumstances and held that the availability of arbitration did not preclude writ relief where the respondent was an Article 12 entity and the material facts were discernible from the record.

Conclusion: The arbitration clause did not bar the writ remedy.

Issue (ii): Whether the respondent railway was liable to reimburse the service tax component arising from the post-contract change in the service tax regime, notwithstanding the tender and contract terms.

Analysis: The contracts were concluded before the service tax regime shifted on 1 July 2012. The Court treated service tax as an indirect tax whose incidence could be passed on, and relied on the statutory presumption under the Finance Act, 1994 and the Central Excise Act, 1944. The tender clauses requiring the contractor to pay service tax were construed as protecting the railway from default by the contractor, not as shifting the ultimate burden of a later-imposed tax to the contractor. The Court also used the principle embodied in Section 64A of the Sale of Goods Act, 1930 by analogy to hold that a post-contract statutory levy should not unjustly burden the contracting party that had not contemplated the new tax at the time of contract.

Conclusion: The railway was liable to reimburse the service tax component with interest.

Final Conclusion: The impugned order was set aside and the appellants were granted reimbursement of the service tax burden arising from the post-contract change in law.

Ratio Decidendi: Where a post-contract statutory change creates a new tax burden, contractual clauses must be construed in light of the legal shift so that the incidence of an indirect tax is borne by the party on whom the law places it, and the existence of an arbitration clause does not by itself oust writ jurisdiction in a fit case.

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