TaxTMI 
TaxTMI 
2024 (7) TMI 179
X X X X Extracts X X X X
X X X X Extracts X X X X
....d to be considered for allotment of temporary licenses on Category „A' trains. With the introduction of the Railway Budget for 2016-17, railway catering services, which were previously provided in a composite mode, were unbundled and primarily separated into distinct functions of food preparation and distribution. Following this restructuring, on 07.09.2016, IRCTC issued a limited tender inviting bids from empaneled parties to provide on-board catering services for Train No. 12951-52/12953-54 (Rajdhani/August Kranti Express) for a six-month period (hereinafter, "tender document"). 4. The respondent participated in the said tender and was successful. It was granted a temporary license through a Letter of Award dated 06.10.2016 (hereinafter, "LOA"). The LOA outlined the amounts payable by the petitioner to the respondent for production charges and service charges for meals (breakfast, lunch, tea, and dinner) provided by the respondent in various A.C. classes on the train. Production charges, which pertained to the cost of actual production of the meal, were inclusive of tax; whereas service charges, which pertained to the cost of serving the meals, were exclusive of tax. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....sion from the respondent, wherein it was stated that unless unconditional acceptance was tendered by the respondent, it would be presumed that the respondent was not interested in extension of the license and then suitable action would be taken by IRCTC. The respondent, vide letter dated 12.04.2017, gave its unconditional consent and sought extension of the temporary license for a further period of six months. 10. The petitioner-IRCTC informed the respondent that since it did not provide welcome drink from 19.12.2016 to 04.03.2017, which then had to be provided by IRCTC, the charges incurred by IRCTC for the same would be adjusted against the bills raised by the respondent upon IRCTC. 11. Vide its letter dated 13.05.2017, the respondent pressed the contention of adjustment of welcome drink charges to its account and asserted that it was not liable for the charges of Rs. 6,97,500/- incurred between the period of 19.12.2016 to 04.03.2017, as it was to provide the welcome drink only from 05.03.2017. It also pressed the issue of non-payment of service tax on service charge for food and drink for the said period, as well as other charges allegedly payable to it. 12. On 07.06.20....
X X X X Extracts X X X X
X X X X Extracts X X X X
....alculation of dues, and the parties agreed that the same were to be made after the Interim Award was passed. As per the Interim Award, the following points remained pending for adjudication: "(i) The amount deducted and the rate at which deduction was made towards welcome drink from the bills raised by the claimant from 19-12-2016 till 04-03-2017, during which the supplies were made by the respondent and also the amount of the service charge and the service tax on the same. (ii) The amount of the cost of welcome drink, at the rate to be indicated in terms of Para- (I) above, for the period 05-03-2017 till 18-06-2017, along with service charge and the service tax, i.e. from the date of start of service of welcome drink by the claimant up to the date of conclusion of the 1st 6 months period of the contract. (iii) The amount of GST on production charges post 01^st July, 2017 till the conclusion of the contract for which the challans were submitted by the claimant to the respondent." 18. On 07.04.2021, the learned Arbitrator decided the remaining issues in favor of the respondent-claimant and passed the Final Award. The operative portion reads as ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he passengers. 21. It is argued that the learned Arbitrator proceeded to grant service charges and service tax on welcome drink even though the Interim Award did not provide for the same. Learned counsel states that it was specifically mentioned that no extra charges were payable to the service provider regarding welcome drinks and the same was accepted by the respondent, and the rate of service charges for providing the welcome drink was neither provided in the agreement nor paid during the currency of agreement. Thus, there was no binding contract regarding the rate of service charge and the same was also admitted by the respondent witness. The learned Arbitrator has, thus, overlooked the explicit contract between the parties and the imposition of rates by him amounted to rewriting the agreement. Reliance is placed upon Section 28 (3) of the Act. 22. It is further submitted that the learned Arbitrator proceeded to grant service tax to the respondent despite the fact that during the pendency of the proceedings, the respondent withdrew its claim for service tax and the learned Arbitrator reframed the issues between the parties on 18.11.2020. The following issues were given up....
X X X X Extracts X X X X
X X X X Extracts X X X X
....g of an issue before the learned Arbitrator and therefore was never placed for adjudication. Once the issues had already been decided and an interim award with respect to it has been passed, the respondent could not be allowed to make new claims towards GST/production charges. The learned Arbitrator cannot give a new interpretation holding production charges to be exclusive of GST. It is stated that the respondent has already received all its legal claims including the GST component as it was included under production charges. 26. Regarding the award on interest, learned counsel argues that there was no provision in the contract for payment of interest to the respondent, nor was any notice given under the Interest Act, 1978 to claim interest by damages, and hence, the award of interest is irrational and illegal. 27. Regarding the award on costs, learned counsel argues that the respondent is not entitled to claim cost as in the letter bearing No. 2011/IRCTC/CO/Legal/App Arbitrator dated 18.10.2019, it is specifically stated that the fee and emoluments to retired officers working as arbitrators on the panel of IRCTC shall be shared equally by both parties. The learned Arbitrato....
X X X X Extracts X X X X
X X X X Extracts X X X X
....aid, and the respondent-claimant did not claim production charges in the SOC so the same should be calculated on the basis of the amount already paid to the respondent-claimant - has been extensively dealt with by the learned Arbitrator and rejected. 33. It is further stated that the submission is unsustainable as no such plea was taken in the reply to the SOC, nor was it made before the learned Arbitrator and nor is it taken as a ground in the present petition. The only ground with regard to GST taken by the petitioner (that the production charges as claimed by the respondent were inclusive of GST and hence stand already paid to the respondent), has been extensively dealt with and rejected by the learned Arbitrator with reasons. 34. Learned counsel for the respondent argues that no ground as contained in Section 34 of the Act is applicable to the present case, the only argument of the petitioner is factual in nature and rejected by the learned Arbitrator. He places reliance upon Associate Builders v. DDA, (2015) 3 SCC 49 and Delhi Airport Metro Express (P) Ltd. v. DMRC, (2022) 1 SCC 131. Analysis 35. I have heard learned counsel for the parties. Scope of Section 34 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ity must go to the root of the matter and cannot be of a trivial nature. This again is really a contravention of Section 28 (1) (a) of the Act.... .... 42.2 (b) A contravention of the Arbitration Act itself would be regarded as a patent illegality - for example if an arbitrator gives no reasons for an award in contravention of Section 31(3) of the Act, such award will be liable to be set aside. 42.3 (c) Equally, the third subhead of patent illegality is really a contravention of Section 28 (3) of the Arbitration Act.... .... This last contravention must be understood with a caveat. An Arbitral Tribunal must decide in accordance with the terms of the contract, but if an arbitrator construes a term of the contract in a reasonable manner, it will not mean that the award can be set aside on this ground. Construction of the terms of a contract is primarily for an arbitrator to decide unless the arbitrator construes the contract in such a way that it could be said to be something that no fair-minded or reasonable person could do." 37. The position vis-à-vis the scope of Section 34 has been summarized more recently in Delhi Airport Me....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ptible to challenge on this account. The conclusions of the arbitrator which are based on no evidence or have been arrived at by ignoring vital evidence are perverse and can be set aside on the ground of patent illegality. Also, consideration of documents which are not supplied to the other party is a facet of perversity falling within the expression "patent illegality". 30. Section 34(2)(b) refers to the other grounds on which a court can set aside an arbitral award. If a dispute which is not capable of settlement by arbitration is the subject-matter of the award or if the award is in conflict with public policy of India, the award is liable to be set aside. Explanation (1), amended by the 2015 Amendment Act, clarified the expression "public policy of India" and its connotations for the purposes of reviewing arbitral awards. It has been made clear that an award would be in conflict with public policy of India only when it is induced or affected by fraud or corruption or is in violation of Section 75 or Section 81 of the 1996 Act, if it is in contravention with the fundamental policy of Indian law or if it is in conflict with the most basic notions of morality or justice. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t of the matter and does not include mere erroneous application of law or a contravention of law which is unrelated to public policy or public interest. If two views are possible, the Court will not interfere with the view of the arbitral tribunal if it has taken one of the two views. Re-appreciation of evidence is also impermissible. 40. The award can also be set aside on the ground of it being in contravention with public policy of India, the scope of which includes: a) fraud or corruption; b) violation of Sections 75 and 81 of the Act; c) any contravention with the fundamental policy of Indian law; d) violation of the most basic notions of justice or morality, so as to shock the conscience of the Court. 41. With this background, I will deal with the objections raised in this petition. A. On Inclusion/Exclusion of Wet Tissues 42. Before this Court, the petitioner has argued, broadly, that wet tissue and welcome drink are separate items and claim before the learned Arbitrator was only with respect to the welcome drink, thereby he could not have awarded the cost of both to the respondent. It is argued that the petitioner has admitted ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ator's interpretation, based on documentary evidence, to suggest that the welcome drink was inclusive of wet tissue was a plausible one, and not so unreasonable to render the award perverse or patently illegal. 47. Before the learned Arbitrator as well, as before this Court, the petitioner contended that the respondent failed to adduce any evidence to substantiate that the wet tissues were actually provided to the passengers. In this regard, the learned Arbitrator notes that the RW-1 in his cross- examination has admitted to the fact that the claimant served tetra packs and wet tissues to the passengers, and that IRCTC deducted Rs. 7.23 per unit for tetra pack and Rs. 1.35 per unit towards wet tissue for the period from 19.12.2016 to 04.03.2017. 48. The learned Arbitrator further states that the argument of lack of evidence of whether the wet tissue was provided or not is not tenable. The learned Arbitrator held that if the instructions of IRCTC were not complied with by the respondent, IRCTC could have and would have taken necessary action against the respondent, which was not taken. The cross- examination of RW-1 regarding the deductions made by IRCTC for the welcome drink ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....onths. He iterated that the issue is regarding what should be the service charge. 53. The learned Arbitrator held that the respondent, in its response to the letter dated 10.02.2017, specifically mentioned that it agreed to the supply of services (welcome drink and wet tissue) against the production and service charges quoted separately. Vide letter dated 02.03.2017, the respondent also stated that it would be claiming charges for the aforesaid services at an appropriate time. The learned Arbitrator noted that the petitioner did not respond to the said letter of the respondent either before or after the supply of the services were started by the respondent and this amounted to implied consent. Based on this and as per the bid documents, the learned Arbitrator found force in the contention of the respondent that the service charges stipulated in the contract ranged from 20-30% and since, admittedly, no rate of service charges for providing the welcome drink was provided in the agreement, the learned Arbitrator held that rate claimed by the respondent being less than 17% was therefore reasonable. 54. The learned Arbitrator further held that there was no force in the argument of....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e reframed on 18.11.2020, as contended by the petitioner. It is only that certain issues were dropped (as mentioned above) and the remaining issues were left to be decided in the original form. 58. I find no infirmity with this finding. There was no specific issue framed (or subsequently dropped) on the inclusion of service tax as far as the welcome drink was concerned. Since the dues on welcome drink were yet to be decided at the passing of the Interim Award, it is not unreasonable of the learned Arbitrator to hold that service tax was also payable by the petitioner on the welcome drink since there was no contract between the parties regarding the said services for the initial period of 6 months, and post that, the petitioner had impliedly agreed to being charged for the said services. Merely because a few issues were dropped regarding service tax on specific items/services, the learned Arbitrator is not unreasonable in holding that no general issue on payment of service tax has been dropped by the respondent. Hence, the finding of the learned Arbitrator does not warrant interference by this Court. D. On GST 59. Before this Court, the petitioner has contended that: a) GST....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ised by the respondent from time to time, and it is these sums deducted by the petitioner which have been claimed in the SOC. In the annexures to the SOC as well, summary of short payment is given, and net difference is claimed. He held that it is not correct to state that part of the GST has already been paid by the petitioner and only the difference is payable when the production charges were bifurcated by the petitioner with the assumption that the GST was inclusive of production charges. The petitioner's argument before this Court i.e. that GST has already been paid and that the respondent has not even claimed reverse production charges is untenable since the learned Arbitrator has already dealt with this ground and I find no infirmity in his reasoning. 64. The learned Arbitrator states that the accepted rates which constitute the contract between the parties have been given in the letter dated 06.10.2016 and a false impression has been created in the mind of the petitioner that GST has already been paid as it is included in the charges and as no claim has been made by the respondent separately. The learned Arbitrator has noted the testimony of RW-1 who admitted that the pet....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t a reasonable post-award interest. 68. The learned Arbitrator further stated that in the present case, there is no clause in the agreement for non-payment of any interest to the respondent. However, since welcome drink was found not to be a part of the contract, the learned Arbitrator found it equitable to grant interest over and above production charges. Referencing to Section 31 (7) of the Act, as well as Section 2(b) of the Interest Act, 1978, it held that since the maximum rate of interest being paid by banks is about 7% per annum, the respondent is entitled to 9% per annum interest on the award amount from 01.11.2018, when the arbitration was initiated, till the date of payment appeared to be reasonable. I find no infirmity with the findings of the learned Arbitrator. F. Regarding Costs 69. The learned Arbitrator has acknowledged the letter bearing No. 2011/IRCTC/CO/Legal/App Arbitrator dated 18.10.2019 wherein it is stated that the fee and emoluments to retired officers working as arbitrators on the panel of IRCTC shall be shared equally by both parties. However, it has referenced to Section 31A of the Act to state that the arbitral tribunal has the discretion to de....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e, while costs, in general, are to be decided at the discretion of the tribunal or the Court because they involve a claim that one party has against another relating to resolution of a dispute arising from the arbitration agreement, fees of the arbitrators are not a claim to be decided between the parties. Rather, it is an independent claim that the arbitrator(s) have against the parties [Paras 110-111 of this judgment.] . It will be for the Court to decide whether the claim of the arbitrator(s) regarding their remuneration is reasonable...." (emphasis supplied) 71. The letter bearing No. 2011/IRCTC/CO/Legal/App is regarding the fees payable to the arbitrator. It states that the fee of the arbitrator shall be shared equally by both parties. This does not amount to an agreement regarding costs. As held in ONGC v. Afcons Gunanusa JV (supra), fees and costs are two different concepts and fees can form part of the costs payable by the losing party. Hence, the letter bearing No. 2011/IRCTC/CO/Legal/App has no bearing on the costs granted by the learned Arbitrator and is thus irrelevant for the imposition of such costs in the present case. 72. Imposition of costs is a disc....