TaxTMI 
TaxTMI 
2007 (9) TMI 598
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....r our convenience we will take up DIC for all practical purpose. The appellant, Numaligarh Refinery Limited (hereinafter to be referred to as 'NRL') is a Government of India undertaking incorporated under the Companies Act, 1956, having its registered office at Guwahati, in the State of Assam. NRL through its consultant Engineers India Limited (hereinafter to be referred to as 'EIL'), also a Government of India undertaking, on 22.11.1993 invited global quotations for building of a Cogeneration Captive Power Plant for its Petroleum Refinery at Numaligarh in Assam. DIC with its consortium partner, Turbotecnica SPA of Italy, contested the global bid and after negotiation with NRL, the contract was awarded to DIC by its fax of intent dated 31.1.1995. Three contract agreements were signed between NRL and DIC and Turbotecnica. The total contract price embodied in the above contract agreements dated 11.4.1995 was on a Turnkey basis and the time schedule for completion of the works as per the consolidated contract was as follows : " (i) First train of Gas Turbine Generator (GTG), Heat Recovery Steam Generator (HRSG) an....
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.... Conciliation Act, 1996 ( hereinafter to be referred to as the' Act') in the Court of the District Judge at Golaghat which was registered as Misc. Arbitration Case No.1 of 2001. Notice was issued and in pursuance of such notice the respondent appeared. The learned District Judge after hearing the parties and on consideration of the materials on record, set aside the award. Aggreived against that order of the District Judge an appeal was preferred by the DIC before the High Court. DIC itemized their claims as under : A. Transfer of US$ 6 million Rs.9.6 crores B. Turbotecnica's Contract price Included in Item C C. Countervailing Duty Rs.13.0 crores D. Excess Custsoms Duty due to Fluctuation of exchange rate Included in Item C E. Liquidated damages for delay In approval of Design and Engineering Rs.8.9 crores F. Excess expenses due to lack of infrastructure Rs.4.6 crores G. Additional expenses cost by Schedule delay Rs.12.0 crores H. Interest for borrowed funds, Delayed opening of LC for Design Rs.0.5 crore I. Escalation Rs.4.1 crores J. Change Order No dispute K. Extra tax burden as per AGSI With effect from 1st May 1997 Rs.3.1 crores L. Indian stat....
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....aimed Rs. 25.3 crore incurred as the total cost, but it limited its claim to Rs. 21.7 crores being the procurement cost of indigenous materials by applying the conversion rate of Rs. 36.28 per US $ as on 26.2.1996. Rs. 12 crores was paid by NRL and therefore DIC registered its claim under the above head to the extent of Rs. 9.6 crores. For computing the actual cost of Rs. 25.3 crores, the DIC took into consideration various factors; like bare cost, Excise duty, Central Sales tax, freight and insurance, procurement service charges, inspection and expediting charges, overhead expenses, profit and tax deduction at source. The majority of the arbitrators after considering all the materials placed before them came to the conclusion that since EIL was the prime consultant of NRL for the execution of the project, assessed the value of Rs. 17.68 crores by applying its mind to the submission of DIC, the majority of the Arbitrators accepted the value expressed by EIL by its communication dated 4.11.1996 and the majority of the Arbitrators as per clause 14.3 accepted, the advice of EIL. Though NRL tried to withhold this letter, however same was brought on record and the majority of the Arbitr....
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....ges is also entitled to reasonable margin of profit amounting to 15 per cent of the cost amount of Rs. 17.68 crores which does not appear to be illogical or arbitrary and confirmed the finding of the majority award of the Arbitrators. 4. After considering the findings given by the majority and minority Arbitrators and the view taken by the High Court on the interpretation of Clause 14.3, in normal course the parties should have led evidence to substantiate their claims with reference to vouchers and other documents in evidence in order to justify their claim, but in the present case we find that when NRL through the communication dated 4.11.1996 have accepted the total value to the extent of Rs. 14.19 crores, then there is no reason why this should not have been accepted as they have examined all the items in their letter. Be that as it may, the fact remains that the DIC has purchased the indigenous materials and substituted that as permissible under Clause 14.3, then there is no reason to deny them the cost for the same especially when intrinsic evidence is available i.e. an independent body NRL which is a Government of India undertaking and conceded the amount to the exten....
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....eering and supervision and other incidental costs and requested for break-up of costs, so that DIC may not pay customs duty on the total contract price when such duty was payable on CIF value by the owner. Therefore, the amendment not being carried out by the NRL, DIC could not avail necessary concession in customs duty. Therefore, they claimed under this head a sum of Rs. 1.65 crores and the same was accepted by the majority of the Arbitrators. The majority took the view that DIC had to unnecessarily pay the customs duty on service portion of the price consideration and as such allowed the claim. As against this, Justice M.M. Dutt in minority took a contrary view and held that NRL was not responsible for framing of such agreement and it was held that it was the fault of DIC and as such the claim was turned down. However, it was observed that DIC could justify and claim the said amount from the Customs department but NRL could not be held responsible for the extra duty paid by the DIC. The District Judge agreed with the minority award. However, the Division Bench of the High Court reversed the finding and approved the view taken by the majority of the Arbitrators. We have heard lea....
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....1, 15.2, 15.3 that entire customs duties or levies including the stamp duty and import licence fee levied on the equipments by Government of India or any State Government will have to be borne by DIC. The payment of countervailing duty was allowed by both the Arbitrators i.e. the Majority and Minority. But the Division Bench of the High Court reversed the finding. Aggrieved against this part of the order, appeal has been filed by DIC which has been registered as Civil Appeal arising out of S.L.P.(c) No.4409 of 2007. 7. In order to appreciate the submission of rival parties it will be appropriate to refer to necessary clauses of the agreement; Clause 6 of the Consolidated Agreement read with Clauses 1.8, 13.2, 15.3. The crucial clause is Clause 6 which reads as under : " It is specifically understood and agreed between the parties hereto that if there is any liability towards taxes/ duties (including custom duty on foreign component of supply portion) as may be assessed/ claimed/ demanded by the concerned Indian or Foreign authorities, it shall be the sole responsibility/ liability of the contractor to pay all such taxes/ duties and that the owner shall not be responsible at all th....
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....ract Act, 1872 and submitted that the contract party is entitled to reimbursement of tax liability. As against this, learned counsel for the respondent submitted that Clause 2 (b) & Clause 6 of the Consolidated Agreement read with Clause 2.1 (g) of the Instructions to Bidders and Clause 13(f) of the Bid Document, leave no manner of doubt that it is the duty of the contracting party to pay all taxes, duties and levies. Relevant provisions are reproduced below : " "Clause 2(b) all taxes and duties in respect of job mentioned in the aforesaid contracts shall be the entire responsibility of the contractor " " Clause 6. It is specifically understood and agreed between the parties hereto that if there is any liability towards taxes/ duties (including custom duty on foreign component of supply portion) as may be assessed/ claimed/ demanded by the concerned Indian or foreign authorities, it shall be the sole responsibility/ liability of the contractor to pay all such taxes/ duties and that the owner shall not be responsible at all for the payment of such taxes/ duties" " Clause 2.1 (g). The scope of this proposal- ....
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....spect of any goods after the making of any contract for the sale or purchase of such goods without stipulation as to the payment of tax where tax was not chargeable at the time of the making of the contract, or for the sale or purchase of such goods tax-paid where tax was chargeable at that time,- (a) if such imposition or increase so takes effect that the tax or increased tax, as the case may be, or any part of such tax is paid or is payable, the seller may add so much to the contract price as will be equivalent to the amount paid or payable in respect of such tax or increase of tax, and he shall be entitled to be paid and to sue for and recover such addition; and (b) if such decrease or remission so takes effect that the decreased tax only, or no tax, as the case may be, is paid or is payable, the buyer may deduct so much from the contract price as will be equivalent to the decrease of tax or remitted tax, and he shall not be liable to pay, or be sued for, or in respect of, such deduction. (2) The provisions of sub-section (1) apply to the following taxes, namely;- (a) any duty of customs or excise on goods; (b) any tax on the sale or purchase of goods." This section also c....
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....ews expressed by majority as well as minority. In this connection, it is relevant to mention Clause 12.2 of the Instructions to the Bidders which clearly stipulates that it must be understood and agreed that such factors have properly been investigated and considered while submitting the bids. It also clearly stipulates that no financial adjustments arising thereof shall be permitted by the owner. Clause 12.2. of the Instructions to Bidders is reproduced as under : " 12.2. It must be understood and agreed that such factors have properly been investigated and considered while submitting the bids. No claim for financial adjustment to the contract awarded under these specifications and documents will be entertained by the owner. Neither any change in the time schedule of the contract nor any financial adjustments arising thereof shall be permitted by the owner, which are based on the lack of such clear information of its effect on the cost of the works to the bids." Similarly, clause 13 which deals with price scope and basis clearly stipulates that price for the entire scope of work on divisible contract basis, break up has been given in the schedule. In this connection, clause 13 w....
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....e for giving any benefit of fluctuation on the exchange rates. Once the price is fixed there is no provision for giving any benefit for fluctuation in terms of the contract then in that case, the claimant DIC cannot raise this claim of excess payment made towards customs duty on account of fluctuation on exchange rate. The minority view expressed by Justice M.M.Dutt appears to be correct. Had there been downward trend in the exchange rate, then the DIC would not have slashed the exchange rate. If the downward trend cannot benefit either party then equally the up-ward trend cannot benefit the DIC for claiming the payment of the higher customs duty on account of fluctuation in exchange rate. Therefore, the expression, 'firm and fixed' is clear answer to the question if during the course of contract certain fluctuation has taken place in the market then on that count the claimant cannot raise extra demand on account of upward trend in the exchange rate. In this connection, reliance was placed on a decision of this Court in Pure Helium India (P) Ltd. v. Oil & Natural Gas Commission [(2003) 8 SCC 593]. In this case this Court granted the contractor's claim for being compensa....
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....e with the views of the Arbitrator in interpretation of the terms of agreements interpreted by the Arbitrator when the Arbitrator is appointed with consent of parties. However, in peculiar facts and circumstances of the case, the view taken by the High Court in accepting the majority view of the arbitrators cannot be accepted. We overrule the view taken by the High Court in accepting the majority view and accept the minority view taken by Justice M.M.Dutt and decline the claim of DIC in the sum of Rs. 2.9 crores on account of fluctuation in the exchange rate. [Claim of Rs. 2.9 crores on account of fluctuation on exchange rate declined] 12. The next item is with regard to liquidity damages for delay of 929 days. So far as this liquidity damages is concerned, it was decided purely on the question of fact. The majority of the Arbitrators after review of the factual aspect held that whole contract was time bound delay occurred at various level, like delay in approval of drawing and designs submitted by DIC, delay in opening of letter of credit. After review of all these factual aspects, the Tribunal concluded that on account of delay for about 929 days, the contractor had suffered lo....
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....s delayed due to any act of omission on the part of the Owner or his authorized agents, then the Contractor shall be given due extension of time for the completion of the works, to the extent such omission on the part of the owner has caused delay in the Contractor's performance of his work. 22.2. In addition, the Contractor shall be entitled to claim demonstrable and reasonable compensation if such delays have resulted in any increase in the cost. The owner shall examine the justification for such a request for claim, and if satisfied, the extent of compensation shall be mutually agreed depending upon the circumstances at the time of such an occurrence." In terms of this clause if delay has been caused to the contractor on account of the omission or commission on the part of the owner or its authorized agent then the contractor is entitled to claim demonstrable and reasonable compensation if such delay has resulted in any increase in the cost. In that case, the owner shall examine the justification for such claim and if satisfied then compensation shall be mutually agreed depending upon the circumstances at the time of such an occurrence. Since DIC's claim for compensati....