TaxTMI 
TaxTMI 
TaxTMI 
2023 (5) TMI 424
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....Energy is a private limited company incorporated under the laws of India, having its Registered Office at 207, Chiranjeev Tower, 43 Nehru Place, New Delhi. The petitioner operates as hydro energy generating company. The company specializes in the generation, distribution, management, construction and transmission of hydro-electric power project. The respondent, GE Power (erstwhile Alstom Projects India Ltd. and thereafter Alstom India Ltd.), is a Limited Company, inter alia, engaged in the business of manufacture and supply of Hydro Turbines, Generator, Electro-Mechanical equipment and parts thereof and has its manufacturing unit situated at ERDA Road, Maneja, Vadodara 13, Gujarat. The respondent regularly bids for various power projects in India as well as outside India for supply of plants, equipment, parts, etc. for such projects. 3. The petitioner is a Special Purpose Vehicle for the implementation of Tashiding Hydro Electric Power Project (THEP) located in West Sikkim. The petitioner, after floating tender and inviting bids from various contractors, in which respondent had also participated and succeeded, awarded the contract to the respondent. Accordingly, the Contract Agree....
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.... learned Arbitrator was appointed as the Presiding Arbitrator which was accepted on 27th March, 2019. The Tribunal was, thus, constituted on 27th March, 2019 with the acceptance of the assignment by the Presiding Arbitrator. The parties were directed to file affidavits of their witnesses by 1st August, 2019 and the date of recording the evidence was fixed. The respondent produced one witness namely Mr. Ankur Vinodchandra Nesdi (CW-1) whose affidavit in evidence was filed. He was thoroughly cross examined by the counsel for the petitioner. The petitioner examined two witnesses in support of its case namely Mr. Bimal Agrawal (RW-1) and Ms. Sonia Varma (RW-2). These two witnesses were cross examined by the counsel for the respondent. On the conclusion of evidence, which was completed on 7th October, 2019, the matter was taken up on 22nd October, 2019 and 6th December, 2019. After completion of the submissions on behalf of both the parties, the award was reserved. The parties filed the written submissions on 27th August, 2020. The impugned award was pronounced on 14th October, 2020. 7. The instant petition is filed under Section 34 of the Act has been filed for setting aside the afore....
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.... that the petitioner/employer would have got CENVAT credit with respect of taxes and duties paid by it and therefore, it would not have been at a loss while reimbursing those taxes. It is an admitted fact that no deemed exports benefits were availed by the petitioner/employer in view of the specific withdrawal of the Policy by the Government. 11. It is submitted that as per Article 2 (Contract Price and Terms of Payment) of the Contract and Clause 14 of GCC, the price of the product was to be exclusive of all applicable taxes and duties and levies. It further provides that all taxes and duties as applicable at the time of dispatch, will be reimbursed by the petitioner to the respondent, at actual. 12. The impugned award also failed to correctly interpret the abovementioned clauses, specifically "All taxes and duties applicable". As per the Contract, the reimbursement of applicable taxes, duties and levies which was agreed between the parties, was only applicable on the underlying transaction being the output of the business transaction of respondent and not on the input of the business transaction. In this regard, learned counsel for petitioner submitted that on reading the above....
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....l to determine the liability of the petitioner in this regard as the same has to necessarily be reimbursed on "Actuals", which is not possible without supply of the aforementioned document as a proof. 17. Learned counsel appearing on behalf of the petitioner submitted that as per Section 28(3) of the Arbitration Act, the tribunal was bound by the terms of the Contract i.e. Clauses 2.1 of the Contract read with Clauses 14.1 and 14.4 of the GCC read with 11.4 and 11.5 of the SCC and hence, the Tribunal had to necessarily decide the present dispute on the basis of the provisions of the contract. The Tribunal did not take into account the above clauses and their stipulations and simply ignoring the above clauses awarded the claims in favor of the respondent. Hence, the respondent's claim could not have been awarded by the Tribunal except after verifying strict compliance with the above clauses of the contract. 18. It is submitted that when material evidence is not considered in the award, which would go to the root of the matter, the award cannot be allowed to stand, and has to be set aside. In the present case as well the award allows the claim without considering the vital submissi....
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.... the actual amount of taxes, duties and levies which the petitioner is obligated to reimburse to the respondent. It is also an admitted position that the petitioner had issued C-Forms acknowledging the actual amounts of taxes, duties and levies on BOP. It is vehemently submitted that this finding has not been challenged by the petitioner. 23. It is trite law that a party is precluded from raising mutually destructive pleas. Before the learned Tribunal, it was argued that the taxes, duties and levies have been deposited by the sub-contractor with the exchequer and the respondent has included these costs. Before this Court, the petitioner has argued that the evidence of payment of these taxes, duties and levies has not been furnished as per Clause 11.4(c) of SCC. Learned counsel for the respondent submitted that both these pleas, being mutually destructive, are impermissible in law. 24. It is submitted that the petitioner's reliance on SCC Clause 11 is erroneous. Clause 11 of the SCC does not deal with the obligation of the petitioner to pay/reimburse tax, duties and levies on BOP at all. This obligation, as correctly held by the Tribunal, is provided in Clause 14 of the GCC wh....
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.... do not act as courts of appeal. The arbitrator is the ultimate master of the quantity and quality of evidence before him. Findings on merits, even if based on little evidence or evidence which does not measure up to the legally trained mind, cannot be interfered with by courts under Section 34 of the Act. It is submitted that the award is unanimous and does not suffer from any patent illegality. Therefore, this Court may not interfere in the impugned award. 31. Learned counsel for the respondent further submitted that the unanimous award is detailed, well-reasoned and based on evidence. The Award does not suffer from any patent illegality or any infirmity whatsoever which would warrant interference therewith under Section 34 of the Act. Hence, the instant petition is devoid of any merit and is liable to be dismissed. FINDINGS AND ANALYSIS 32. I have heard the learned counsel appearing on behalf of the parties and gone through the material on record as well as the arbitral award. 33. Before proceeding further, I find it necessary to briefly revisit the existing position of the law with respect to the scope of interference with an arbitral award in India. 34. As far as, Section....
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....argued that it is not the case of the petitioner that it was not aware that sub-contractors had to deposit the taxes to the Exchequer. It is the case of the petitioner that proof of actual payment of taxes by sub-contractors on BOP sales was not examined by the Arbitral Tribunal while affixing the contractual obligation on the petitioner to reimburse these taxes. This argument has not been taken by the petitioner before the learned Arbitral Tribunal. 38. Before I proceed to deal with the merits of the present case, I find it convenient to refer, in brief, to the principles elucidated in the case laws cited by the learned counsel appearing on behalf of the parties. In my view, the difficulty does not lie so much in gathering or enunciating the principles, but in applying them to a particular situation in hand. The ground on which an award can be challenged and constrained is Section 34 of the Act. 39. There are essentially three areas in which the arbitral award is likely to be challenged before this Court or the Hon'ble Supreme Court. (i) Firstly, an award may be challenged on jurisdictional grounds. (ii) Secondly, an award may be challenged on what may broadly be described a....
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.... present his case. (a) Lack of due process:-procedural irregularity: Certain minimum procedural standards may be observed in the fair and proper conduct of arbitration. These procedural standards are designed to ensure that the Arbitral Tribunal is properly constituted that the arbitral procedure is in accordance with agreement of the parties, and that the parties are given proper notice of the proceedings, hearings and awards. In other words, the aim is to ensure that the parties are treated with equality and are given fare hearing with proper opportunity to present their respective cases. (b) Further Procedural Issues: An award is also at risk of challenge where the composition of the Arbitral Tribunal and the procedure adopted in the arbitration are not in conformity with the agreement of the parties or failing such agreement, with the law. Substantive Grounds 42. If the Tribunal has jurisdiction, the correct procedures are followed and the correct formalities are observed, the award i.e. good, bad or indifferent is final and binding on the parties. It matters not that the Tribunal erred in its review of the evidence or misapplied the applicable law. The question, arises a....
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....pearing in the last row at Page 144, added up to Rs. 1,45, 331, it should be taken & assumed that the said payment was made towards taxes on BOP. Further, for another entry appearing at Page 54 of Annexure A/Ex-RW2, being entry dated 31.10.2016 for an amount of Ra. 17,00,000/- ..... Xxxx 7.26 According to Mr. Khurana, the aforesaid evidence clearly reflected that the respondent had not made any payments of taxes towards BOP at any stage. From that he endeavoured to submit that the parties clearly understood that taxes regarding BOP were not to be reimbursed so far as this contract is concerned, as a result of specific omission of Schedule 7 in the instant contract, the contra-distinct with DANS contract. He submitted that these few factors viz, deletion of Schedule 7 and making of reimbursement of taxes on BOP at all from the very beginning would make it clear that the judgments in DANS case were also not applicable. He extensively read out from those judgments to argue that the conclusion reached by the Arbitral Tribunal as accepted by the courts was influenced by the fact that in the said case, DANS had initially made the payments of taxes towards BOP and later on started d....
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....nal is of the view that since Clause 14 of GCC, which is the relevant clause to decide this issue, needs to be interpreted in the first instance to find an answer to the main issue. 8.2 Though this clause has already been reproduced in the beginning while taking note of the relevant clauses of the agreement as well as GCC and SCC, for the sake of continuity in discussion, we would like to reproduce the clause once again, which reads as under: 14. Taxes and Duties: (Page 503 (Volume 2A-GCC) 14.1 All Taxes and Duties (Excise Duty, Central Sales Tax, Customs Duty and Service Tax) applicable are indicated in Schedule 7 and will be paid/reimbursed by the Employer at actual. All State and local (State Government, Municipal, etc., such as Entry Tax / Octrol / VAT / Works Contact Tax/any other local taxes, duties, levies, ete. which are not Included in Schedule 7, if levied on the Contract, shall be paid/ reimbursed by the Employer on actual. However, the Income Tax, whenever applicable on the contractor or the Expatriates deputed by him for the Project, under the purview of this contract shall be borne by the contractor. 14.2 Notwithstanding GCC Sub-clause 14.1 above, the Employe....
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....ce specified in Article 2 (Contract Price and Terms of Payment) of the Form of Contract Agreement is based on the taxes, duties, levies and charges prevailing on the date of signing of Contract (hereinafter called 'Tax' in this GCC Sub-clause 14.4). If any rates of Tax are increased or decreased, a new Tax is introduced, an existing Tax is abolished, or any change in interpretation or application of any Tax occurs in the course of the performance of Contract, which was or will be assessed on the Contractor, in connection with performance of the Contract, an equitable adjustment of the Contact Price shall be made to fully take into account any such change by addition to the Contract Price or deduction therefrom, as the case may be, in accordance with GCC Clause 36 (Change in Laws and Regulations) hereof. 8.3 It is trite position in law, which position is accepted by both the parties that by Agreement, the parties may agree as to which party is to bear the burden of taxes and duties. Excise Duty and CST were payable to the Department by the claimant. Vide aforesaid clause, it was agreed that such taxes and duties will be reimbursed by the respondent. Clause 14.1 of GCC in this beh....
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....not without the purpose. It is stated therein that the employer shall be eligible for Deemed Export benefits because of the said policy; albeit, the responsibility for receiving such benefits is cast on the employer. In the form of these Deemed Export benefits, the employer would have got CENVAT credit in respect of taxes and duties paid by it and was therefore, not to be a loser while reimbursing these taxes and duties to the contractor. The obligation to pay/reimburse all taxes and duties was, thus, devised keeping in view the aforesaid scheme and that is more than obvious. 8.7. Clause 11 of the SCC specifically deals with Deemed Export Benefit. Clause 11.1 thereof, mentions that the contract is for "supply" of power generation equipment and the term "supply" includes all supplies for the contract i.e., manufactured as well as BOP. Further, Clause 11.2 puts an obligation on the claimant as the contract to maintain all documents to enable the employer/respondent to claim excise/custom duty paid on the inputs to the project. We are of the opinion that the expression "inputs to the project" which would qualify for Deemed Export benefits would include BOP as well. The argument of ....
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....the respondent predicated on the provision of CST Act cannot be countenanced. In view of the aforesaid interpretation given by us to Clause 14.1 of GCC (when read in conjunction with other clauses of the contract), judgment of Guwahati High Court in Pradip Kumar Roy's case cited by the respondent would be of no avail. That apart, the judgment of the Guwahati High Court was rendered in altogether different fact situation. Admittedly, in the said case, the tendered rates were to be inclusive of all taxes and levies payable under the respective statutes. Position herein is just the opposite as the bida were to be submitted exclusive of taxes and duties. DHC judgment. 8.11 Ld. Counsel for the respondent had also taken umbrage under the term "at actual" to contend that this term signified the taxes actually paid by the claimant and does not refer to the taxes paid by the sub-contractors. This again has to be rejected in view of our aforesaid detailed analysis. It is stated at the cost of repetition that none of the contractual provisions quality for the respondent's obligation as confining to manufactured products only. On the contrary, the language in wide and all encompassin....
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....dule. This schedule contains Estimated Tax Sheet/Supply". It mentions estimated taxes relating to Custom Duty, Excise Duty, CST, etc. There are four notes appended to the Schedule which are as under: "a) Zero Customs Duty indicated above is based on the basic assumption that Deemed Export benefits will be available for the project and the Purchaser shall make available to the contractor Project Authority Certificate or relevant documents to avail the Advance License Benefits and import of raw materials under zero Custom Duty. In case of non-availability of the above mentioned documents the full custom duty on merit rate basis shall be charged for the imported items. b) The taxes and duties are as per the Notification Nos. (1) 4/2009- Central Excise, Dated: February 24, 2009 and (ii) 8/2009 - ST Dated: February 24, 2009, c) The above taxes and duties and levies are only indicate as applicable as on 1 April 2009. However, the taxes and duties shall be reimbursed as per actual at time of dispatch or execution. Any change in taxes and duties or introduction of new taxes and duties and levies shall be borne by or reimbursed by Purchaser. d) This tax note needs to be read along ....
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.... As per the Price Schedule annexed as Appendix 10 and/or such other sums as may be determined in accordance with the terms and conditions of the contract. The above prices are excluding all applicable and duties and levies. All taxes and duties and levies as applicable at the time of dispatch are to be paid (reimbursed by Employer to the contractor at actual, as per the contract/refer indicative taxes and duties annexed as Appendix 10, Schedule 7, Estimated Taxes & Duties) As per the Price Schedule annexed as Appendix 10 and/or such other sums as may be determined in accordance with the terms and conditions of the contract. The above prices are excluding all applicable and duties and levies. All taxes and duties and levies as applicable at the time of dispatch are to be paid/reimbursed by Employer to the contractor at actual, as per the contract. Xxx 8.17 We therefore, conclude that on the plain interpretation of Clause 14 of GCC, in conjunction with other provisions of the contract, the respondent was obligated to pay/reimburse all taxes and duties including Excise Duty and CST in respect of items manufactured by the claimant itself as well as in respect of BOP. 8.18 Onc....
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....7 May '15 2,49,291 4-Mar -15 Total 20,80,732 20,80,732 June '15 1,45,114 13,27,500 14,72,614 July '15 24,78,000 40,41,500 65,19,500 14,72,614 01.07.16-Rs. 292614 and 27.07.15 Rs. 11,80,000 Aug '15 59,000 61,06,500 61,65,500 65,19,500 19.08.16 Rs. 65,19,500 8.21 The above table reflects that the total amount of taxes, duties and levies for the months of February 2016 till April 2016, i.e., Rs. 20,80,732, was paid by the respondent in two tranches of Rs. 18,31,441 (on 4 March 2015) and Rs. 2,49,291 (on 16 May 2016). It is not in dispute that this was against Debit Note raised in February for a sum of Re. 18,18,935 and in the month of April for Rs. 2,61,797. These include taxes for BOP in a sum of Rs. 1,73,375. Therefore, it can be inferred that the payment of Rs. 20,80,732 include BOP as well as manufactured products. It would be of interest to mention that along with the statement of defence, the respondent has filed Annexure-A which is a chart depicting payments that were made by the respondent. Though it is claimed that these payments are made only towards taxes on goods manufa....
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....ent would have made payment on account of taxes on BOP on 31.10.2016. Xxxx 8.26 One more argument of the Ld. Counsel for the respondent needs to be addressed. It was argued that in case se payments towards taxes on BOP were made, there was no reason for the claimant to claim entire amount of Rs. 3,92,92,680 and even the claimant itself has not excluded/adjusted these payments. However, we find that after making the payment initially, the respondent adjusted this amount while reimbursing taxes against manufactured items. It is for this reason that the claimant has not given adjustment and has Bought to recover the entire amount. 8.27 Re: Limitation: Keeping in mind the aforesaid findings, we advert to the issue of limitation raised by the respondent. In the first instance, the entire argument of the respondent proceeds on the basis that no payments were made to reimburse Excise Duty and CST on BOP, which is not found to be correct. Payment on that account was made on 11.02.2015 at least. 8.28 The claimant has produced on record letter dated 06.10.2010 wherein it had requested the respondent to release the outstanding payments on account of taxes. A figure of Rs. 5,62,73,....
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....BOP supplies was not permissible in terms of the contract. The claims are raised within a period of three years therefrom and therefore, are not time barred. 8.32 Argument of the respondent that limitation should start after the expiry of 15 days from the date of invoices, in view of the above discussions, cannot be accepted. We thus hold that the entire claim made by the claimant is within the period of limitation. 8.33 Re: Judgment in DANS Energy Pvt Ltd: It is undisputed that the instant contract and the contract between the claimant and DANS have identical terms. The only difference was that in the present contract, there is absence of Schedule 7. However, we find that omission of Schedule 7 has not made any impact so far as the issue of payment/reimbursement of Excise Duty and CST on BOP is concerned. We have also returned the finding that the respondent had made reimbursement taxes on BOP supplies as well in the beginning. These were the only two reasons which were hammered by the respondent in distinguishing the instant case from the judgment in DANS. That apart, a reading of judgment of Ld. Single Judge as well as Division Bench, categorically makes out that Clause 14....
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.... to contend that only a registered dealer can collect tax in respect of sale of goods in the course of inter-State trade or commerce. Further relying upon the judgment of the Supreme Court in T. STanes & Co Ltd vs. State of T.N. (2006) 9 SCC 305, it is submitted that if there is a bar to collect tax, it cannot be recovered in form of purported recoupment or recovery. 16. Though, the legal principle contended by the learned counsel for the petitioner is not disputed, it would have no application to facts of the present case. The Arbitral Tribunal in paragraph 32, 40 and 21 of the Impugned Award has rejected the above argument on the ground that the same were raised without there being any supporting pleading in that regard. It is not argued before me that the said finding of the Arbitral Tribunal in incorrect." 8.36 To sum up, we pass an Award in the sum of Rs. 3,89,62,930 along with interest @ 6% p.a. from 18.02.2019 when the arbitration was invoked, The claimant has filed the Bill of Cost showing the cost incurred towards arbitrators' fee, lawyers' fee and administrative and secretarial expenses. However, we are not awarding the entire cost and are of the opinion that the....
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....ayment of tax by the Sub-Contractor on supply made to the Claimant. iv. Further, and most pertinently the Contract envisages that the Contract Price is based on the taxes and duties, which was or will be 'assessed on the Contractor.' On a combined reading of the aforesaid Clauses pertaining to following three key aspects of the Contract viz. i. Parties to the Contract; ii. 'Contract Price' payable by the Employer to the Contractor; and iii. Taxes applicable 011 'Contract Price'. It is apparent that the Contract envisaged the payment of 'applicable taxes' only with respect to the 'Contract Price' i.e. as applicable on the Contract Price payable by Employer to Contractor with respect to supply under the Contract. (h) It is submitted that taxes borne by the Claimant became part of its cost. In that event, allowing the Claimant to again recover such taxes once again under the umbrella of tax clause would mean double recovery of taxes paid. This is clearly a case of unjust enrichment, which is against the public policy and, therefore, should not be allowed. With respect to the aforesaid, it would be relevant to mention herein t....
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....y manufactured by the respondent. The invoices in this aspect were raised as the consignee invoice to the respondent. The sub-contractor supplies the BOP along with invoice and after that the respondent sales in transit to the applicant takes places in accordance with Section 6(2) of the CST Act, 1956. The Excise Duty and CST were charged on such BOP goods supplied. The dispute between the parties arose, when the applicant did not pay an amount of Rs. 3,89,92,930/- in respect of the taxes, levies and duties paid by the respondent. The genesis of the dispute is to determine whether the petitioner was contractually liable to pay aforesaid amount i.e. Rs. 3,89,92,930/- in respect of the taxes, levies and duties towards BOP to the respondent. 47. The learned Arbitral Tribunal, while interpreting the Clause 14 of the Contract, reached on the conclusion that the petitioner is obligated to pay the taxes and duties and there is no difference between the payment of taxes and duties in respect of manufactured goods and BOP. Taking view of the reason assigned in the interpretation as quoted in the foregoing paragraphs, I do not find any error or illegality in the said interpretation of the l....
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....al rightly reached on the conclusion and passed the impugned award, while considering the entire evidence on the record, the statement of claim, the statement of defence and written arguments filed and had given the detailed reasons. As it is a settled law while considering a challenge to an arbitral award where private parties are involved, the Court need not examine the validity of the findings or the reasoning behind the findings given by an Arbitrator. The extent to which a Court may exercise supervisory power in this respect is limited to examining whether the award and the conclusion drawn therein is supported by findings and not whether the findings themselves are erroneous or sound. The Court shall not conduct a roving enquiry into the facts and evidence of the matter and neither shall the Court sit in appeal against the award of the Arbitrator. 51. In UHL Power Company Limited vs. State of Himachal Pradesh, 2022 4 SCC 116, the Hon'ble Supreme Court reiterated the narrow scope under Section 34 of the Act and held as under: "16. As it is, the jurisdiction conferred on courts under Section 34 of the Arbitration Act is fairly narrow, when it comes to the scope of an appeal ....