2025 (9) TMI 1419 - HC - Customs

Appeal dismissed; arbitration award upheld denying contractor customs duty reimbursement due to missing timely exemption certificates

HC dismissed the appeal and upheld the majority award of the Arbitral Tribunal, holding there was no illegality in denying reimbursement of customs duty ... Liability of reimbursement of the custom duty on the import rates item paid by the contractor - employer failed to supply required exemption certificates in time - HELD THAT:- There is no illegality in the awards passed by the majority view of the Arbitral Tribunal dated 07.10.2017 and upheld by the learned Single Judge on 08.10.2018. The claim of the corporation, as noticed was on account of the fact that it had paid custom duty of Rs. 1,00,30,984/- and was liable to be reimbursed the same along with interest. A perusal of the notification No. 84/97 would go on to show that the importer, at the time of clearance of the goods, had to produce necessary certificate that the goods which are intended to be used in the project financed by the World Bank, Asian Development Bank or any other International Organization. The project having been approved by the Government of India for implementation, the certificate from the Executive Head of the project implementing authority and counter-signed from the Principal Secretary (Finance) as the case may be of the concerned department, was required. The necessary e-mails having been sent asking for the said certificate on 24/25.10.2011 are already on record wherein specific reference is made to the notification in question requiring the said certificate on the format as such. It is not disputed that the requisite certificate was issued only as late on 14.06.2012 which was counter-signed by the Principal Secretary (Finance) to the Government of Himachal Pradesh along with the Managing Director of the appellant-Corporation and further signed by the Director Finance and the General Manager Electrical. For their own inefficiency as such two certificates No. 17 and 18 have been issued at the belated stage on 14.06.2012 as the goods already stood imported in January, 2012 - vide communication dated 17.12.2013, the company had applied to the customs and their case was rejected on 31.12.2013 in view of the statutory mandate as such of Section 149 of the Customs Act, 1962, that exemption had to be applied earlier at the time of import of the goods. On earlier occasion also, the custom as such had not agreed with the request of the contractor and returned their claim vide letter dated 13.11.2012 on the account that they were required to apply to the original assessing authority of the bill of entry and then approach for re-assessment of the bill. The Arbitral Tribunal and the learned Single Judge has rightly upheld the said award and held that the contractor cannot be saddled with the liability to pay custom duty. Even the corporation apparently had failed to produce the necessary exemption certificates when asked for in October, 2011, as it should have been done so while stressing upon the contractor to expeditiously set up a project for which it has been done by specifically importing the goods from Singapore etc. Thus a reasonable view having been taken on the consideration of the terms of the contract and the materials placed before the Arbitrators and the conclusion drawn by the Tribunal is a reasonable and possible conclusion, which a prudent man would arrive at and therefore keeping in view the principles laid down by the Apex Court, there are no plausible reason found as to interfere. There are no plausible reason as such to interfere in the well reasoned majority award passed by the Arbitral Tribunal and duly upheld by the learned Single Judge - appeal dismissed. ISSUES PRESENTED AND CONSIDERED 1. Whether, under the contractual scheme (GCC Clauses 14.1-14.3 and 21.4), the employer is liable to reimburse customs and import duties paid by the contractor where the contractor handled imports at its own expense and the employer failed to supply required exemption certificates in time. 2. Whether the employer's post-facto issuance of exemption certificates and acceptance of supplied goods defeats the contractor's claim for reimbursement of customs duties paid at import. 3. Whether the majority arbitral award (in favour of reimbursement) suffers from illegality, perversity or patent illegality warranting interference by the High Court in appeal under the constrained scope of Section 37 of the Arbitration Act. 4. Whether a dissenting opinion of an arbitral tribunal member, asserting contractor's procedural non-compliance at import, can justify setting aside a majority arbitral award. ISSUE-WISE DETAILED ANALYSIS - Issue 1: Employer's liability under Clauses 14.1-14.3 and 21.4 Legal framework: GCC Clause 14.1 generally places taxes and duties on the contractor; Clause 14.2 expressly provides that the Employer shall bear and promptly pay all customs and import duties on Plant specified in the Price Schedule to be incorporated into the Facilities; Clause 14.3 imposes an obligation on the Employer to use best endeavors to enable the contractor to obtain tax exemptions where available; Clause 21.4 requires the contractor to handle imported materials at its own expense at point(s) of import, subject to Employer's obligations under Clause 14.2, and allows time extensions for delays not attributable to contractor. Precedent Treatment: The Court relied on established jurisprudence affirming contractual allocation of risks and that specific allocation (Clause 14.2) overrides general taxation clause (Clause 14.1). Authorities were invoked to limit appellate re-examination of arbitral findings to cases of patent illegality. Interpretation and reasoning: The Court construed Clause 14.2 as the operative provision making the Employer liable for customs/import duties on specified Plant. Clause 21.4 was read as assigning logistical responsibility to the contractor for customs clearance formalities but subject to Employer's obligation under Clause 14.2 to bear duties. Clause 14.3 was interpreted as confined to tax exemptions broadly and not to displace the employer's express duty in Clause 14.2. The Tribunal found that the Employer had knowledge of imports (December 2011-January 2012), did not timely object, and failed to supply the exemption certificate despite repeated requests in October 2011; therefore the contractor's payment of duty did not shift liability onto it as a matter of contract interpretation and equitable result. Ratio vs. Obiter: Ratio - Specific contractual allocation (Clause 14.2) imposed liability on Employer to reimburse customs duty despite contractor handling imports; contractor's handling under Clause 21.4 did not negate Employer's payment obligation. Obiter - Observations on best endeavors in Clause 14.3 and on procedural requirements under customs law clarifying interplay with contract terms. Conclusion: Employer was contractually liable to reimburse customs/import duties paid by the contractor; contractor's import and payment did not discharge Employer's reimbursement obligation where Employer failed to provide exemption certificates timely. ISSUE-WISE DETAILED ANALYSIS - Issue 2: Effect of post-facto exemption certificates and acceptance of goods Legal framework: Notification No. 84/97-Customs required production of specified exemption certificates at the time of clearance to obtain duty exemption; Customs Act provisions (Section 149 referenced) limit availability of exemption/refund if procedural steps are not followed at import. Precedent Treatment: The Court accepted that customs law imposes time-sensitive procedural requirements but emphasized that contractual obligations and the conduct of the parties (acceptance certificates, directions to apply for reassessment) are relevant to allocation of loss when statutory relief is denied for reasons attributable to Employer's delay. Interpretation and reasoning: The Tribunal and Court found that although statutory entitlement to refund was lost because the exemption certificate was produced belatedly (14.06.2012) after imports, the Employer's delay in issuing the certificate and previous communications (including directions to seek refund/reassessment) estopped it from avoiding liability. Further, acceptance certificates (dated 25.06.2012) demonstrated Employer's satisfaction with installed equipment, undermining any reliance on non-transfer of ownership to deny reimbursement. Ratio vs. Obiter: Ratio - Employer's post-facto remedial acts and acceptance of goods did not absolve it of contractual liability; delay by Employer that caused forfeiture of statutory relief renders Employer liable to indemnify contractor. Obiter - Comments on customs procedural law explaining why refund was denied under statute. Conclusion: Employer could not rely on statutory or procedural denial of customs refund to shift the financial burden to the contractor where delay and conduct of Employer caused the loss of statutory remedy and where contract allocated the duty to Employer. ISSUE-WISE DETAILED ANALYSIS - Issue 3: Scope of appellate review under Section 37 - Patent illegality standard Legal framework: Section 37 confers constrained appellate jurisdiction over judgments in Section 34 petitions; appellate scrutiny is limited and interference is permissible only for illegality going to the root of the arbitration award; arbitral awards are not to be reappreciated on merits except where patent illegality or perversity is shown. Precedent Treatment: The Court relied on multiple controlling decisions (as cited in the judgment) establishing that appellate courts must be cautious, that Section 37 review is narrower than original Section 34 review, and that concurrent reasonable views by arbitral tribunal and Section 34 court should not be lightly disturbed on appeal. Interpretation and reasoning: Applying the constrained standard, the Court held the majority award to be a reasonable and possible conclusion based on contractual language, documentary evidence (emails requesting exemption certificates), and accepted performance. No patent illegality, perversity or contravention of applicable law was demonstrated that would justify interference under Section 37. Ratio vs. Obiter: Ratio - Absence of patent illegality prevents appellate interference with a reasoned majority arbitral award; judicial role is not to sit in appeal on merits. Obiter - Exposition of comparative scope between Sections 34 and 37 and citations of authorities reiterating the limited nature of appellate review. Conclusion: No interference was warranted under Section 37; the majority arbitral award was sustained as free of patent illegality. ISSUE-WISE DETAILED ANALYSIS - Issue 4: Effect of dissenting arbitrator's view on the validity of majority award Legal framework: Arbitral awards rendered by a tribunal may be majority awards; dissenting opinions do not invalidate a majority award unless the award itself suffers from the legal infirmities available under challenge provisions. Precedent Treatment: The Court treated the dissent as a permissible separate view; established principles require challenge to the award's legality rather than reliance on minority reasoning to overturn majority findings. Interpretation and reasoning: The Court examined the dissent which emphasized procedural non-compliance at import by the contractor and held that such a view did not displace the majority reasoning that (i) Employer knew of imports and did not timely object, (ii) Employer failed to supply exemption certificates despite requests, and (iii) the contract allocated duty to Employer. Consequently, the dissent did not demonstrate patent illegality or remove the majority's reasonableness. Ratio vs. Obiter: Ratio - A dissenting opinion does not per se invalidate a majority arbitral award; only patent illegality or other valid grounds of challenge can. Obiter - Observations on weight to be given to tribunal majority findings where supported by contract and evidence. Conclusion: The dissenting member's view did not justify setting aside the majority award; majority award stands. OVERALL CONCLUSION The majority arbitral award ordering reimbursement of customs duties paid by the contractor was reasonable and consistent with the contractual allocation of liabilities (Clauses 14.2 and 21.4), the parties' conduct (requests for exemption certificates, acceptance certificates), and applicable statutory/procedural constraints on customs refunds. There was no patent illegality or perversity warranting interference under Section 37; the dissenting opinion did not affect the validity of the majority award.