TaxTMI 
TaxTMI 
2021 (7) TMI 235
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.... be considered for allotment of temporary licenses on Category 'A' trains. Catering services in railways, which were being provided in a composite mode, were unbundled with the introduction of Railway Budget for 2016-17 by creating a distinction primarily between food preparation and distribution. In furtherance of the said restructuring plan, on 07th September, 2016, IRCTC published a limited tender inviting bids from empaneled parties for providing on-board catering services in respect of Train No. 1295152/12953-54 (Rajdhani/August Kranti Express) for six months. [hereinafter referred to as the 'tender document']. 2.2. DC participated in the afore-said tender and emerged as the highest bidder. It was awarded a temporary license vide a Letter of Award dated 06th October, 2016. The Letter of Award mentioned the amounts payable by IRCTC to DC towards production charges as well as service charges for meals (breakfast, lunch, tea and dinner) served by DC in various A.C. classes on the train. Production charges, pertaining to the cost of actual production of the meal, were inclusive of tax; whereas service charges, for the cost of serving the meals, were exclusive of tax. The Dis....
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....7. DC was apprised that unless unconditional acceptance is tendered, it would be presumed that they are not interested in extension of the license and then suitable action would be taken by IRCTC. In response, DC gave its unconditional consent vide letter dated 12th April, 2017, and sought extension of the temporary license for a further period of six months. 2.9. IRCTC notified DC that since it had not provided welcome drink from 19th December 2016 to 04th March 2017, compelling IRCTC to provide the same, the charges incurred by IRCTC in respect thereof would be adjusted against the bills raised by DC upon IRCTC. 2.10. On 13th May, 2017, DC raised the issue of adjustment of welcome drink charges to its account, asserting that since it was asked to provide welcome drink only from 05th March, 2017 it was not liable for the charges of Rs. 6,97,500/-, for the period from 19th December 2016 to 04th March 2017. It further raised the issue of non-payment of service tax on service charge for food and drink for the above period, as well as other charges allegedly payable to it. 2.11. On 07th June, 2017, a six-month extension of license was granted to DC, as per policy decision dat....
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.... wastage of food, was rejected. 2.19. IRCTC filed an objection against the Impugned Award before the District Judge at Patiala House Court Complex, Delhi, however, the claim calculated by IRCTC exceeded its pecuniary jurisdiction as per the provision of Section 12(2) of the Commercial Courts Acts, 2015. Therefore, the application was withdrawn on 18th February, 2021 with liberty to re-file before the competent court. CONTENTIONS OF THE PETITIONER: 3. Mr. Nikhil Majithia, learned counsel for IRCTC, has made the following submissions: 3.1. The Impugned Award is patently illegal and liable to be set aside as it is in direct contravention of: (i) Clause 2.4 read with Annexure-F of the tender document, (ii) Letter of Award dated 06th October, 2016, (iii) Policy decision dated 07th February, 2016, (iv) Letter of Acceptance dated 08th October, 2016, and (v) Agreement dated 29th September, 2017. Regarding welcome drink - 3.2. The Sole Arbitrator ignored the instructions that expressly mentioned welcome drink, as contained in Clause 1.5 the Railway Board Commercial Circular No. 32 of 2014 [hereinafter referred to as 'CC No. 32/1....
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....ngement would be binding upon IRCTC until the same was incorporated by a formal signed instrument. In other words, there could be no novation of the contract which was executed pursuant to a written bid. 3.7. Under Clause 11.2 of the General Conditions of License, responsibility for payment of all "taxes/duties service tax and other liabilities in respect of the business" (sic) lay on DC. 3.8. The claim of service tax as well as GST on production charges was identical. The rate of Rs. 84/- (inclusive of tax), agreed by the parties by virtue of Clause 2.4 of the tender document read with Annexure-F, included neither the earlier service tax, nor the new GST. The Arbitrator framed two issues on this aspect, viz., claim of service tax and claim of GST. Later on, DC gave up its claim of service tax on production charges, as recorded in the Order of the Arbitrator dated 18th November, 2020. As DC itself gave up the claim of service tax on production charges, its claim regarding GST, being identical, was also untenable. 3.9. There was no incidence of tax for levy of GST, and moreover no such plea on this account was made by DC. 3.10. The words "inclusive of tax" mean taxes whi....
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....roduced in the year 2016, and it was admitted by IRCTC's own witness that CC No. 32/14 had rates of composite contract for the service provider. 4.5. IRCTC's policy decision dated 7th February 2017 was challenged by DC on 10th and 13th February, 2017 to the effect that no tender was floated with respect to welcome drink, nor was a bid submitted by DC for the same. However, IRCTC insisted on welcome drink in its letters dated 22nd and 28th February, 2017, and thus, on 2nd March 2017, the same was agreed by DC but without prejudice to its objections and its demand for claiming charges for the additional service provided from 5th March, 2017. Regarding GST 4.6. When the temporary licence was awarded to DC in 2016, VAT (Value Added Tax) was being levied on production charges by each State individually. As a train travels through several States, and every State had a different rate of VAT, it was not feasible to account for the same. Hence, Annexure-C of the tender document stated that production charges were inclusive of tax, and service charges were exclusive of tax. While VAT was to be deposited by the service provider, service tax was exclusive, and was paid by IRCTC on pro....
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.... order to decide IRCTC's objections to the Impugned Award, we must be reminded of the scope and ambit of this court's jurisdiction under Section 34 of the Act. The law on the subject is now well settled. It has been held in umpteen number of decisions of the Apex Court as well as this court, that an arbitral award can be assailed only on the grounds enumerated under the Act, as interpreted and explained by way of judicial pronouncements. The ground of patent illegality argued by IRCTC is no doubt one of the grounds available for setting aside an award, however, it is attracted only if the decision of the arbitrator is found to be perverse, or so irrational that no reasonable person would have arrived at the same. With respect to the other ground urged by IRCTC pertaining to Section 28(3) of the Act, alleging that the Impugned Award is contrary to the express provisions of the contract between the parties, the legal position is no longer res integra. An award can be held to be perverse only if the construction of the contract is such that no reasonable person would take such a view, or if the view of the arbitrator is by no means a possible view. In Dyna Technologies Pvt. Ltd. v. Cr....
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....ed dinner/lunch menu from its own base kitchens/approved sources. Service Provider will be required to depute its representative to pick-up meal from IRCTC units (transportation by IRCTC) for which an indent for number of meals required, along with its veg. and non veg. break up, must be placed to the designated officials. The indent for meals must be placed minimum 6 hours before the schedule departure of the train. Service Provider will be paid services charges for service of dinner/lunch supplied by IRCTC units. Service Provider shall be responsible for provision of other services, including arrangement for meals/snacks etc., as required to be provided during the course of journey. Service charges payable for services where IRCTC has supplied material and catering charges payable for supply of food and for services where material is also supplied by the Service Provider is indicated at Annexure-"F". 2.5. Provision for onboard meals The casseroles packed meals shall be supplied from IRCTC designated Base Kitchens. All other items necessary for service to all classes of passengers, as per the guidelines, shall be arranged by the Service Provider. Service Pr....
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....ircular mentions provision of welcome drink under Clause 1, titled 'Rationalization of Menu', relevant portion whereof reads as under: "1.5. Welcome Drink will be served to all passengers of AC Classes (1A/EC & 2A/3A/CC) on commencement of the journey, however, whenever the Breakfast is followed immediately after Welcome Drink, then Frooti, the Tetra Pack drink hitherto being provided along with Breakfast will not be served. In case of service of subsequent breakfast during any journey, drink/Aerated Drink/Chach/in Tetra Pack will continue to be served." 10. Since CC No. 32/14 is undeniably a part of the tender document, the next question which arises is whether DC was contractually bound to provide welcome drink as part of the license condition. On this issue, the learned Arbitrator meticulously examined the tender conditions, circulars issued by Railway Board, IRCTC's policy, contractual provisions, and testimonies of the witnesses, and went on to answer the question in the negative. 11. The findings rendered by the Arbitrator on this aspect, in para 18 of The Impugned Award, are summarized as under: 11.1. For the period of 19th December 2016 to 04th March, 2017....
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....at was to be done in this regard. Therefore, it cannot be said for certain that it was the service provider's duty to supply the welcome drink as was being done earlier when the catering services were being operated by the Railways. The approval for brands of welcome drink was on a temporary basis, which showed that there was a presumption that the supply of welcome drink was the responsibility of IRCTC, before the above policy decision was implemented. The policy decision also refers to the exercise to implement the Railway Board Budget announcement (2016-17) regarding unbundling of catering services. This indicates that it was a fresh policy decision altogether and the same was implemented after the license came into force. 11.5. There is no express provision in the tender document or in the Letter of Award dated 6th October, 2016 that welcome drink to the passengers is to be supplied by DC. While the rates for specified services (meals) were called for, but rates for welcome drink were not invited, and thus DC did not bid for the same. It cannot be assumed that welcome drink was part of the service to be provided by DC. Even if it is presumed that the policy decision of 07th ....
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....'s 'unconditional acceptance' of the policy decision dated 7th February 2017, one can notice that the learned Arbitrator has carefully perused the chain of correspondence between the parties to determine the legal effect of the acceptance. IRCTC, vide letters dated 22nd February, 2017 and 28th February, 2017, insisted for welcome drink to be provided by DC. It is significant to note that DC vide letter dated 2nd March, 2017, by categorically referring to earlier letters exchanged between the parties, and without prejudice to its rights and contentions, agreed to adhere to the policy decision dated 7th February, 2017, subject to the condition that it will commence serving welcome drink w.e.f. 05th March, 2017 and claim the charges in respect thereof from IRCTC. DC was thus compelled accept the policy decision which was done in good faith and was unambiguously conditional- DC claimed the privilege of the 'without prejudice rule' - keeping its rights and contentions open. Besides, this claim is restricted to the initial period of licence (i.e., from 19th December, 2016 to 18th June, 2017). Under these circumstances, DC cannot be barred from charging IRCTC for the provision of welcome ....
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.... on submission of proof of deposit of the same with the concerned authorities. Zonal railways/ IRCTC shall ensure that the GST collected from the passengers is deposited with the concerned Authorities as per the guidelines/ procedures laid down by the Ministry of Finance. To ensure the same, Zonal Railways shall also obtain monthly proof of compliance of tax deposit by the service providers as per procedure. From the above, it is clear that GST is to be reimbursed by IRCTC upon submission of proof of deposit by DC. 16.2. In CC No. 32/14, para 5.1 clearly mentioned that Service Tax was to be paid separately, subject to proof of payment. Para 5.2 mentioned that any applicable taxes which are notified by Government of India (Ministry of Finance, Department of Revenue notifications) or State Governments from time to time were to be collected by the Zonal Railways from the passengers, in the ticket fare. The service provider was to be paid the taxes accordingly, subject to submission of proof of deposit. Therefore, it can be seen that the policy stipulated in CC No. 44/17 is also in consonance with the policy decision which was followed in the CC No. 32/14. 16.3. The contention of....
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.... "5.1 Service Tax is to be paid separately subject to proof of payment which has been calculated at the present rate notified @8.66%. The difference between the charges mentioned in column 2 and 3 above would be available with the Railways for payment of service tax etc. Due to changes in catering charges the license lee must be reassessed and realized as per the guidelines issued vide CC-35/2010 (Catering Policy 2010), CC-82/2012 (correction slip No.2 to Catering Policy-2010) and other instructions issued in this regard by the Board's office from time to time, the catering charges indicated in Para 4.1 above do not include charges for packaged drinking water, newspaper, etc. as they are included in the basic ticket fare. Reimbursement for these services will be made separately as per extant guidelines. 5.2 Any applicable taxes which are notified by Government of India (Ministry of Finance, Deptt. of revenue notifications) or State Governments from time to time are to be collected by the Zonal Railways from the passengers of Rajdhani/Shatabdi/ Duronto trains in the ticket fare. The licensee is to be paid the taxes accordingly subject to proof of payment by the licensee....
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.... of factual position of whether there is an incidence of service in the activity of production or if the nature of service could be held as a composite supply. In fact, the decision of the Delhi Authority for Advance Ruling Advance Ruling No. 02/DAAR/2018 dated 28th March, 2018 (in Application No. 02/DAAR/2017 dated 29th December, 2017)., relied upon by IRCTC, which clarifies the legal position, has been completely misinterpreted and exhibits a misconceived understanding of the dispute. In ground G of the petition, IRCTC contends that: "... the said authority clearly stated that supply/ production of food does not have any element of service and thus no liability of service tax is attracted thereon. It has further been stated that no element of service being thereon, there is no incidence of GST too." (emphasis supplied) 23. This interpretation is wholly misconceived, untenable and is also completely contrary to the holding of the Authority, which expressly states that: "24. In the case of supply of food and beverages (cooked/ MRP/ packed) on board the Mail/Express trains by the applicant directly to the passengers as per the menu/rates fixed by IRCTC/ Railways....