M/S Angerlehner Structural And ... vs Municipal Corporation Of Greater ...
2022 Latest Caselaw 5088 Bom

                                                                                          exe.appln.54.16.docx




                                    IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ANJALI
TUSHAR
         Digitally signed by
         ANJALI TUSHAR
         ASWALE
         Date: 2022.06.07
                                         ORDINARY ORIGINAL CIVIL JURISDICTION
ASWALE   18:02:52 +0530


                                COMMERCIAL EXECUTION APPLICATION NO.54 OF 2016


                               M/s Angerlehner Structural and
                               Civil Engineering Company                   ..Applicant
                                        Vs.
                               Municipal Corporation of
                               Greater Bombay                              ..Respondent



                               Mr. Firoz Andhyarujina, Senior Counsel a/w Mr. Javed Gaya, Manek
                               Andhyarujina, Vidya Chaudhari, Mona Malvade i/b Chamber of Javed Gaya,
                               for the Applicant.

                               Mr. A. Y. Sakhare, Senior Counsel a/w Jitendra Mishra, Pooja Yadav, for
                               MCGM.


                                                   CORAM:- B. P. COLABAWALLA, J.

Reserved on :- May 4, 2022.

Pronounced on :- June 7, 2022.

P. C.:

1. The above Execution Application is filed for executing the

Arbitral Award dated 23rd June 2014 passed in favour of the Applicant

and against the Municipal Corporation of Greater Mumbai (for short the

"MCGM").

                 Aswale                                                                          page 1 of 26
                                                                     exe.appln.54.16.docx

2. The MCGM was aggrieved by the Award passed by the

Arbitral Tribunal, and therefore challenged the same before this Court

under Section 34 of the Arbitration and Conciliation Act, 1996 (for short

"the Arbitration Act"). However, the said challenge was repelled by a

learned single judge of this Court vide his order dated 27th February 2019.

Even an Appeal filed under Section 37 of the Arbitration Act before the

Division Bench of this Court was dismissed on 8th September 2021. The

order of the Division Bench was thereafter challenged before the Hon'ble

Supreme Court by filing an SLP which was also dismissed on 22nd

November 2021. The Hon'ble Supreme Court granted time to the MCGM

up to 31st March 2022, to make payment to the Applicant.

3. In light of the above factual position, this Execution

Application was moved before me on 9th March 2022. On the said date,

it was pointed out to the Court that the Applicant, being a foreign entity,

does not have a bank account in India (as the contract between the

Applicant and the MCGM was concluded in 2003). The Applicant,

therefore, requested that payment under the Arbitral Award be made by

the MCGM in the name of the Applicant's lawyer and agent who would

credit the same into the Applicant's account in escrow for transfer to the

Applicant in Austria. The Escrow Agreement dated 3rd February 2022

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was produced before the Court on the said date along with a letter dated

29th November 2021 written by the Applicant to the MCGM requesting

them to credit the monies due under the Award to their lawyer's account

to be held in escrow. A copy of the said Escrow Agreement dated 3rd

February 2022 as well as the copy of the letter dated 29th November 2021

addressed by the Applicant to the MCGM were also taken on record and

marked "X" and "X-1" for identification. On the said date, namely, 9th

March 2022, Mr. Sakhare, the learned Senior Counsel appearing on

behalf of the MCGM, fairly stated before the Court that the MCGM was

willing to credit the monies due under the Arbitral Award to the account

of the lawyers of the Applicant. He however submitted that it should be

made clear that once these monies are paid, the MCGM is relieved of their

liability under the Award and the Applicant would thereafter have no

claim whatsoever against the MCGM. In light of the aforesaid

submissions, this Court, on 9th March 2022, directed the MCGM to pay

the amounts due under the Arbitral Award (dated 23rd June 2014) by

crediting Bank Account No.5020035159821 in HDFC Bank Ltd, Nariman

Point, Mumbai 400 021, on or before 31st March 2022. It was made clear

that once the aforesaid payment was made, the liability of the MCGM

under the Award dated 23rd June 2014 would stand satisfied and the

Applicant would have no claim whatsoever against the MCGM (in

relation to the Arbitral Award dated 23rd June 2014). It was also directed

Aswale page 3 of 26 exe.appln.54.16.docx

that the costs of Rs.1 Lakh deposited by the MCGM in this Court shall also

be credited by the Prothonotary and Senior Master in the aforesaid Bank

Account on or before 31st March 2022. Accordingly, the above Execution

Application was placed on Board for compliance and disposal on 5th April

2022.

4. When the matter came up on 5th April 2022, it was pointed

out to the Court that the amounts deposited in the aforesaid Bank

Account was not the entire amount due and payable under the Award but

after withholding an amount of Rs.67,94,965.02 allegedly towards

payment of the Goods and Services Tax ("GST"), and which according to

the MCGM, was the liability of the Applicant. It was pointed out that as

per the Arbitral Award, the principal amount due was Rs.6,83,55,000/-

and the interest amount due was Rs.4,45,44,770.69/-. Hence, the total

amount payable under the Arbitral Award was Rs.11,28,99,770.69/-.

However, the MCGM had credited only an amount of Rs.10,61,04,805.67

on 31st March 2022. The differential amount of Rs.67,94,965.02 was not

deposited as the same was withheld by the MCGM towards liability of

GST payable by the Applicant. This deduction was made by the MCGM

because of the provisions of Section 15(2)(d) of The Central Goods and

Services Tax Act, 2017 (for short the "CGST Act") read with Section 20

Aswale page 4 of 26 exe.appln.54.16.docx

of the Integrated Goods and Services Tax Act, 2017 (for short the "IGST

Act").

5. Thereafter, the matter was adjourned to 18th April 2022

when I heard the learned Senior Counsel for the parties. Being aggrieved

by the action of the MCGM withholding the sum of Rs.67,94,965.02

towards the alleged GST liability of the Applicant, Mr. Firoz

Andhyarujina, the learned Senior Counsel appearing on behalf of the

Applicant, pointed out that the liability towards GST, if any, could not be

foisted upon the Applicant, and therefore, the MCGM ought to be

directed to pay the amount of Rs.67,94,965.02 to the Applicant. To

substantiate this argument, the submissions made by Mr. Andhyarujina

were twofold. The first submission was that there is no liability to pay any

GST as the GST law/regime came into force much after the contract

between the Applicant and the MCGM was concluded (i.e. in the year

2003) and even the Arbitral Award was passed long before the GST

law/regime was brought into force. In this regard, Mr. Andhyarujina

submitted that the Award is dated 23rd June 2014 and the GST law was

brought into force sometime in the year 2017. He submitted that this

being the case, the GST law had no application to the facts of the present

case as it does not have any retrospective effect. The second submission

canvassed by Mr. Andhyarujina was that under the CGST Act as well as

Aswale page 5 of 26 exe.appln.54.16.docx

under the IGST Act, there was a Reverse Charge Mechanism ("RCM")

under which it was the liability of the MCGM to make payment of the

GST, if any. He, therefore, submitted that in any event, the liability

towards payment of GST could not be foisted on the Applicant.

6. On the other hand, Mr. Sakhare, the learned Senior Counsel

appearing on behalf of the MCGM, contended that the Applicant's

argument that the GST law is not applicable, is contrary to the provisions

of the CGST Act and the IGST Act. In this regard, Mr. Sakhare submitted

that the GST regime came into effect in the year 2017 and it is true that it

was not in existence at the time when the Arbitral Award was passed on

23rd June 2014 (which determined the amounts due to the Applicant

along with interest). However, the said Award was under challenge, and

during the period of such challenge, the GST regime was introduced. In

this regard, Mr. Sakhare drew my attention to Section 15 of the CGST Act

read with Section 20 of the IGST Act and contended that the said

provisions stipulate that the value of supply of goods or services or both,

shall be the transaction value, which is the price actually paid or payable

for the said supply of goods or services or both, where the supplier and

the recipient of the supply are not related, and the price is the sole

consideration for the supply. He submitted that what is to be included in

the value of supply is enumerated in sub-clauses (a) to (e) of sub-section

Aswale page 6 of 26 exe.appln.54.16.docx

(2) of Section 15 of the CGST Act. He submitted that Section 15(3)

provides for what would not be included in the value of supply. Mr.

Sakhare submitted that for the purposes of the present dispute, Section

15(2)(d) of the CGST Act [read with Section 20 of the IGST Act] is

relevant, which inter-alia provides that the value of supply shall include

interest or late fees or penalty for delayed payment of any consideration

for any supply. He, therefore, submitted that GST is payable on the

interest component under the Arbitral Award as the same is awarded in

favour of the Applicant because of the delay on the part of the MCGM to

make payment. Mr. Sakhare submitted that considering that interest is

being paid after the GST regime was brought into force, GST would be

applicable on the interest component of the Arbitral Award, and which

would have to be paid to the Government.

7. On the second contention of the Applicant, namely, that

under the CGST Act as well as under the IGST Act, there was a Reverse

Charge Mechanism ("RCM") under which it was the liability of the

MCGM to make payment of the aforesaid GST liability, Mr. Sakhare

submitted that under clause 3 of the Contract between the parties, it was

agreed that all taxes were to be borne by the Applicant. He, therefore,

submitted that notwithstanding the Reverse Charge Mechanism

(provided under the CGST Act and the IGST Act), the GST liability could

Aswale page 7 of 26 exe.appln.54.16.docx

not be foisted on the MCGM and would be payable solely by the

Applicant.

8. In support of their respective submissions, both learned

Senior Counsel also tendered to the Court their written

submissions/notes of arguments. I therefore heard the parties at length

on 18th April 2022 and placed the matter on board on 4th May 2022 for

passing orders. On 4th May 2022, I pointed out to Mr. Andhyarujina that

if he is pressing the argument regarding the applicability of the GST

regime/law to the present dispute (his first contention), then I would

have to hear the Union of India. In answer to this, Mr. Andhyarujina, on

instructions, stated that the aforesaid argument is not being pressed and

I should proceed to decide the matter only on the second point canvassed

by him, viz. that in any event, the Applicant is not liable to pay any GST

because the Applicant is a foreign entity and by virtue of a Notification

issued by the Government of India dated 28th June 2017 [under Section

5(3) of the IGST Act], it would be the liability of the MCGM to pay the

GST. In other words, the argument was that by virtue of this Notification,

the MCGM, being the recipient of the service, would have to bear the

liability of GST under a Reverse Charge Mechanism. Since this was the

stand now taken by the Applicant, I was of the opinion that there was no

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need to join the Union of India and thereafter reserved judgement due to

paucity of time.

9. In view of the statement made by Mr. Andhyarujina

(recorded earlier), I am now only deciding the second point canvassed by

him, namely, that under the CGST Act as well as under the IGST Act there

was a Reverse Charge Mechanism ("RCM") under which it was the

liability of the MCGM to make payment of the GST. In support of this

argument, Mr. Andhyarujina submitted that in the case of normal taxable

supply, the supplier issues a tax invoice to the recipient of the goods or

services and receives the amount from the recipient along with the GST

and then discharges his GST liability to the Government. This is referred

to be as the "forward charge". In case of a "reverse charge" the

supplier of the services or goods does not charge GST on the invoice and

receives the amount from the recipient without any GST. Further, the

liability to pay the GST is on the recipient of the goods or services instead

of the supplier of such goods or services in respect of notified categories

of supply. Mr. Andhyarujina submitted that the objective of shifting the

burden of paying GST to the recipient is (i) to widen the scope of levy of

tax on various unorganized sectors, (ii) to exempt specific classes of

suppliers and (iii) to tax the import of services (since the supplier is based

outside India). To substantiate this argument, Mr. Andhyarujina relied

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upon Sections 9(3), 9(4) and 9(5) of CGST Act and Sections 5(3), 5(4) and

5(5) of the IGST Act. Mr. Andhyarujina submitted that these provisions

govern the Reverse Charge Mechanism for intra-State and inter-State

transactions, respectively. Mr. Andhyarujina then pointed out that in

exercise of the powers conferred by sub-section (3) of Section 5 of the

IGST Act, the Government has notified the categories of supply in which

the specified recipient of the services is liable to pay the GST under the

RCM (Reverse Charge Mechanism). In this regard, the learned Senior

Counsel relied upon Notification No. 10 of 2017-Integrated Tax (Rate)

issued by the Government of India, Ministry of Finance (Department of

Revenue), dated 28th June 2017. The relevant portion of this Notification

reads thus:-

GSR...(E)-In exercise of the powers conferred by sub-section (3) of section 5 of the Integrated Goods and Services Tax Act, 2017 (13 of 2017), the Central Government on the recommendations of the Council hereby notifies that on categories of supply of services mentioned in column (2) of the Table below, supplied by a person as specified in column (3) of the said Table, the whole of integrated tax leviable under section 5 of the said Integrated Goods and Services Tax Act, shall be paid on reverse charge basis by the recipient of the such services as specified in column (4) of the said Table:-

Table

Sl. Category of Supply of Supplier of service Recipient of Service No. Services (1) (2) (3) (4) 1 Any service supplied by Any person located Any person located in the

Aswale page 10 of 26 exe.appln.54.16.docx

any person who is in a non-taxable taxable territory other located in a non-taxable territory than non-taxable online territory to any person recipient.

other than non-taxable online recipient.

10. Relying upon the aforesaid Notification, Mr. Andhyarujina

submitted that this Notification clearly casts the liability on the MCGM

to pay the GST, if applicable, as admittedly the Applicant is a person who

is located in a non-taxable territory and the recipient of the service (the

MCGM) was a person located in the taxable territory. This being the

factual position, it is the recipient of the service (in India) who would have

to pay the GST, was the submission of Mr. Andhyarujina.

11. Mr. Andhyarujina further submitted that under the

provisions of the GST regime, the recipient of the service (in the present

case MCGM) can avail of Input Tax Credit for the GST paid under the

Reverse Charge Mechanism. The only condition is that the goods and

services are used or will be used for business or furtherance of business.

Hence, looking to the overall facts of the matter, Mr. Andhyarujina

submitted that there is absolutely no justification for the MCGM to

withhold the amount of Rs.67,94,965.02 towards the alleged liability of

GST from the Applicant. Mr. Andhyarujina submitted that if the amount

of Rs.67,94,965.02 is allowed to be retained by the MCGM (which

Aswale page 11 of 26 exe.appln.54.16.docx

belongs to the Applicant) and is thereafter paid over to the Government

towards the liability of GST, it would amount to unjust enrichment on the

part of the MCGM because the MCGM would be entitled to Input Tax

Credit (under Section 16 read with Section 49 of the Central Goods and

Services Tax Act, 2017) even though the MCGM has paid the GST from

the monies due to the Applicant. In other words, this would mean that

the MCGM would be getting Input Tax Credit not for the amounts paid

by the MCGM but for the amounts deducted from the dues payable to the

Applicant. He, therefore, submitted that looking at it from any angle, the

MCGM is wholly unjustified in withholding the amount of

Rs.67,94,965.02 and the MCGM be directed to credit the above-

mentioned Bank Account with the aforesaid amount.

12. On the other hand, Mr. Sakhare, the learned Senior Counsel

appearing on behalf of the MCGM, submitted that there is no merit in the

arguments canvassed by Mr. Andhyarujina. He submitted that it is true

that under the Notification relied upon by Mr. Andhyarujina (referred to

by me above), the liability to pay the GST would be on the MCGM because

admittedly the Applicant is a person who is located in a non-taxable

territory and is supplying services to a person in the taxable territory

(other than a non-taxable online recipient). In such a situation, any

person located in a non-taxable territory, and supplying services to a

Aswale page 12 of 26 exe.appln.54.16.docx

person located in the taxable territory (other than a non-taxable online

recipient), it is the recipient of the service that would be liable to pay the

GST. He has submitted that though this is the law, the burden of tax can

always be shifted by the parties by entering into a contract to the contrary.

In this regard, Mr. Sakhare relied upon a decision of the Hon'ble Supreme

Court in the case of Rashtriya Ispat Nigam Ltd. V/s. Dewan Chand

Ram Saran [(2012) 5 SCC 306] and more particularly paragraphs 4

& 36 to 41 thereof. Mr. Sakhare submitted that in the present case, Clause

3 of the contract between the Applicant and the MCGM clearly stipulated

that the rates and prices bid in the priced Bill of Quantities shall, except

insofar as it is otherwise provided under the contract, include all

constructional plant, labour, supervision, materials, erection,

maintenance, insurance, profit, taxes and duties, together with all general

risks, liabilities and obligations set out or implied in the Contract. He,

therefore, submitted that by reading clause 3, it was clear that the

Applicant had agreed that the rates and prices bid in the priced Bill of

Quantities shall include taxes and duties as well. Mr. Sakhare therefore

contended that in the present case, though the MCGM is the assessee

under the provisions of the GST regime and was liable to pay the GST

under the Reverse Charge Mechanism, since the Applicant had agreed to

bear all the taxes, the MCGM was entitled and justified to deduct from

the Applicant the GST payable by the MCGM. He, therefore, submitted

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that the MCGM was well within its rights to withhold the amount of

Rs.67,94,965.02 towards payment of the GST in view of Clause 3 of the

contract between the parties.

13. As far as the argument of Mr. Andhyarujina regarding the

Input Tax Credit is concerned, Mr. Sakhare submitted that the aforesaid

argument has no merit because firstly the MCGM has not claimed any

Input Tax Credit on the amount of Rs.67,94,965.02 and therefore there

is no question of a double benefit or unjust enrichment on the part of the

MCGM. Secondly, Mr. Sakhare submitted that in any event, MCGM's

output liability towards payment of GST is miniscule as the MCGM is

providing most of the services which are exempt from tax and no Input

Tax Credit can be availed on exempted services. For all the aforesaid

reasons, Mr. Sakhare submitted that it would be totally incorrect on the

part of this Court to direct the MCGM to credit the Bank Account of the

lawyer of the Applicant with the amount of Rs.67,94,965.02, which has

been legitimately withheld by the MCGM towards the payment of GST.

14. I have heard the learned Senior Counsel for the parties at

length and have perused the papers and proceedings in the above

Execution Application. As mentioned earlier, both parties also tendered

written submissions/notes in support of their arguments. It can hardly

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be disputed that in case of a normal taxable supply, the supplier issues a

tax invoice to the recipient of the goods and services and receives the

amount from the recipient along with the GST and then discharges its

GST liability to the Government. This, as Mr. Andhyarujina puts it, is a

"forward charge". Then a concept of "Reverse Charge" is also

introduced in the GST regime. In the case of a Reverse Charge, the

supplier of the services or goods does not charge GST on the invoice and

receives the amount from the recipient without adding GST to his invoice.

This is because under the Reverse Charge Mechanism, the liability to pay

the GST is on the recipient of the goods or services instead of the supplier

of such goods or services. This is however only in respect of the categories

notified under Sections 9(3), 9(4) & 9(5) of the CGST Act and Sections

5(3), 5(4) and 5(5) of the IGST Act. There are similar provisions, namely,

Sections 9(3), 9(4) & 9(5), even in the Maharashtra Goods and Services

Tax Act, 2017 (the State Goods and Services Tax Act). The object of

shifting the burden of payment of GST to the recipient is not only to widen

the scope of levy of tax on various unorganised sectors, but also to exempt

specific classes of suppliers and to tax the import of services. This is

apparent from Sections 9(3), 9(4) and 9(5) of the CGST Act, Sections 9(3),

9(4) and 9(5) of the Maharashtra Goods and Services Tax Act, 2017 as

well as Sections 5(3), 5(4) & 5(5) of the IGST Act. Sections 9(3), 9(4) &

9(5) of the CGST Act read as under:

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                                                                      exe.appln.54.16.docx




         "9. Levy and collection--- (1) .............

         (2) ....................

(3) The Government may, on the recommendations of the Council, by notification, specify categories of supply of goods or services or both, the tax on which shall be paid on reverse charge basis by the recipient of such goods or services or both and all the provisions of this Act shall apply to such recipient as if he is the person liable for paying the tax in relation to the supply of such goods or services or both.

(4) The Government may, on the recommendations of the Council, by notification, specify a class of registered persons who shall, in respect of supply of specified categories of goods or services or both received from an unregistered supplier, pay the tax on reverse charge basis as the recipient of such supply of goods or services or both, and all the provisions of this Act shall apply to such recipient as if he is the person liable for paying the tax in relation to such supply of goods or services or both.

(5) The Government may, on the recommendations of the Council, by notification, specify categories of services the tax on intra-State supplies of which shall be paid by the electronic commerce operator if such services are supplied through it, and all the provisions of this Act shall apply to such electronic commerce operator as if he is the supplier liable for paying the tax in relation to the supply of such services:

Provided that where an electronic commerce operator does not have a physical presence in the taxable territory, any person representing such electronic commerce operator for any purpose in the taxable territory shall be liable to pay tax:

Provided further that where an electronic commerce operator does not have a physical presence in the taxable territory and also he does not have a representative in the said territory, such electronic commerce operator shall

Aswale page 16 of 26 exe.appln.54.16.docx

appoint a person in the taxable territory for the purpose of paying tax and such person shall be liable to pay tax."

15. Similarly, Sections 5(3), 5(4) and 5(5) of the IGST Act read

thus:

"5. Levy and collection ---- (1) ...........

(2) ...........

(3) The Government may, on the recommendations of the Council, by notification, specify categories of supply of goods or services or both, the tax on which shall be paid on reverse charge basis by the recipient of such goods or services or both and all the provisions of this Act shall apply to such recipient as if he is the person liable for paying the tax in relation to the supply of such goods or services or both.

(4) The Government may, on the recommendations of the Council, by notification, specify a class of registered persons who shall, in respect of supply of specified categories of goods or services or both received from an unregistered supplier, pay the tax on reverse charge basis as the recipient of such supply of goods or services or both, and all the provisions of this Act shall apply to such recipient as if he is the person liable for paying the tax in relation to such supply of goods or services or both.

(5) The Government may, on the recommendations of the Council, by notification, specify categories of services, the tax on inter-State supplies of which shall be paid by the electronic commerce operator if such services are supplied through it, and all the provisions of this Act shall apply to such electronic commerce operator as if he is the supplier liable for paying the tax in relation to the supply of such services:

Provided that where an electronic commerce operator does not have a physical presence in the taxable territory, any person representing such electronic commerce

Aswale page 17 of 26 exe.appln.54.16.docx

operator for any purpose in the taxable territory shall be liable to pay tax:

Provided further that where an electronic commerce operator does not have a physical presence in the taxable territory and also does not have a representative in the said territory, such electronic commerce operator shall appoint a person in the taxable territory for the purpose of paying tax and such person shall be liable to pay tax."

16. It is not in dispute that the services rendered by the

Applicant to the MCGM would be governed by the IGST Act as the same

are in relation to inter-State supply of services. It is also not in dispute

that the Government of India, Ministry of Finance [Department of

Revenue] has issued Notification No. 10 of 2017-Integrated Tax (Rate)

dated 28th June 2017 under which, the Government, in exercise of powers

conferred by sub-section (3) of Section 5 of the IGST Act, has notified that

on categories of supply of services mentioned in column (2) of the Table

appended to the said Notification and supplied by a person as specified

in column (3) of the said Table, the whole of the integrated tax leviable

under section 5 of the IGST Act, shall be paid on a Reverse Charge basis

by the recipient of the such services as specified in column (4) of the said

Table. As far as the present matter is concerned, the relevant entry of the

table is at Serial No. 1 and reads as under:

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                                                                             exe.appln.54.16.docx


         Sl.         Category of Supply of    Supplier of service      Recipient of Service
         No.               Services
         (1)                  (2)                     (3)                      (4)
         1         Any service supplied by any Any person located Any person located in the

person who is located in a in a non-taxable taxable territory other than non-taxable territory to territory non-taxable online recipient. any person other than non-

taxable online recipient.

17. From the aforesaid Notification, it is clear that any service

supplied by any person, who is located in a non-taxable territory to any

person located in the taxable territory [other than a non-taxable online

recipient], it is the recipient of the service who would be liable to pay the

GST on a Reverse Charge basis. In the present case, it is not in dispute

that the Applicant was the supplier of services who is located in a non-

taxable territory. The MCGM is a person located in the taxable territory

and is not a non-taxable online recipient. This being the case, by virtue of

the aforesaid Notification, it would be the MCGM [the recipient of the

service] who would be liable to pay the GST on a Reverse Charge basis as

contemplated under Section 5(3) of the IGST Act.

18. I must mention that this position has even been conceded by

the MCGM, not only in oral arguments, but also in the written note

submitted by the MCGM. In this note, it is specifically stated that though

the MCGM is the assessee under the provisions of law and is liable to pay

Aswale page 19 of 26 exe.appln.54.16.docx

the GST under the Reverse Charge Mechanism, since the Applicant has

agreed to bear all the taxes (under the contract), the MCGM is entitled to

deduct the GST (i.e. Rs.67,94,965.02) from the payment to be made to

the Applicant [see paragraph No.16 of the note].

19. In light of this argument canvassed on behalf of the MCGM,

I would now have to examine whether, in fact, the parties have agreed

that the liability to pay the GST is shifted to the Applicant. If I find that

the contract does provide for such a contingency then the MCGM would

be correct in its submission that they are entitled to withhold the amount

of Rs.67,94,965.02 towards the GST liability. I say this because the

Hon'ble Supreme Court in the case of Rashtriya Ispat Nigam

Limited [Supra], has clearly held that as far as indirect taxes are

concerned, an assessee can enter into a contract to shift its liability on the

other party. The relevant portion of the Supreme Court Judgment reads

thus:

"4. Clause 9.3 thereof reads as follows:

"9.3. The contractor shall bear and pay all taxes, duties and other liabilities in connection with discharge of his obligations under this order. Any income tax or any other taxes or duties which the company may be required by law to deduct shall be deducted at source and the same shall be paid to the tax authorities for the account of the contractor and the company shall provide the contractor with required tax deduction certificate."

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                                                                      exe.appln.54.16.docx



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36. It was submitted on behalf of the respondent that Clause 9.3 and the contract must be read as a whole and one must harmonise various provisions thereof. However, in fact when that is done as above, Clause 9.3 will have to be held as containing the stipulation of the contractor accepting the liability to pay the service tax, since the liability did arise out of the discharge of his obligations under the contract. It appears that the rationale behind Clause 9.3 was that the petitioner as a public sector undertaking should be thereby exposed only to a known and determined liability under the contract, and all other risks regarding taxes arising out of the obligations of the contractor are assumed by the contractor.

37. As far as the submission of shifting of tax liability is concerned, as observed in para 9 of Laghu Udyog Bharati [(1999) 6 SCC 418] , service tax is an indirect tax, and it is possible that it may be passed on. Therefore, an assessee can certainly enter into a contract to shift its liability of service tax.

38. Though the appellant became the assessee due to amendment of 2000, his position is exactly the same as in respect of sales tax, where the seller is the assessee, and is liable to pay sales tax to the tax authorities, but it is open to the seller, under his contract with the buyer, to recover the sales tax from the buyer, and to pass on the tax burden to him. Therefore, though there is no difficulty in accepting that after the amendment of 2000 the liability to pay service tax is on the appellant as the assessee, the liability arose out of the services rendered by the respondent to the appellant, and that too prior to this amendment when the liability was on the service provider.

39. The provisions concerning service tax are relevant only as between the appellant as an assessee under the statute and the tax authorities. This statutory provision can be of no relevance to determine the rights and liabilities between the appellant and the respondent as agreed in the contract between the two of them.

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There was nothing in law to prevent the appellant from entering into an agreement with the respondent handling contractor that the burden of any tax arising out of obligations of the respondent under the contract would be borne by the respondent.

40. If this clause was to be read as meaning that the respondent would be liable only to honour his own tax liabilities, and not the liabilities arising out of the obligations under the contract, there was no need to make such a provision in a bilateral commercial document executed by the parties, since the respondent would be otherwise also liable for the same.

41. In K. Mohandas case [(2009) 5 SCC 313 : (2009) 2 SCC (L&S) 32 : (2009) 2 SCC (Civ) 524] one party viz. the bank was responsible for the formulation of the voluntary retirement scheme, and the employees had only to decide whether to opt for it or not, and the principle of contra proferentem was applied. Unlike the VRS scheme, in the present case we are concerned with a clause in a commercial contract which is a bilateral document mutually agreed upon, and hence this principle can have no application. Therefore, Clause 9.3 will have to be read as incorporated only with a view to provide for contractor's acceptance of the tax liability arising out of his obligations under the contract.

(emphasis supplied)

20. It is therefore clear that the MCGM, even though being the

assessee, can always contract to shift its liability to pay GST on the

Applicant.

21. Having said this, I shall now examine the contract between

the parties. According to Mr. Sakhare, the contract entered into between

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the parties, clearly contemplates that it is the Applicant who would have

to pay all taxes and duties together with all general risks, liabilities, and

obligations set out or implied in the contract. In this regard, Mr. Sakhare

relied upon Clause 3 of the contract which reads thus:

"3. The rates and prices bid in the priced Bill of Quantities shall, except insofar as it is otherwise provided under the Contract, include all Constructional Plant, labour, supervision, materials, erection, maintenance, insurance, profit, taxes, and duties together with all general risks, liabilities, and obligations set out or implied in the Contract."

(emphasis supplied)

22. What the aforesaid clause contemplates is that the rates and

prices bid in the priced Bill of Quantities shall include all constructional

plant, labour, supervision, materials, erection, maintenance, insurance,

profit, taxes, and duties. In other words, if any taxes or duties are leviable,

the same would have to be included in the rates and prices bid and would

have to be borne by the Applicant. This clause does not contemplate the

payment of any taxes that have arisen on account of payment of interest

because of a default on the part of the MCGM to make payment in a timely

manner. This is something that could have never been contemplated

when the Applicant submitted its rates and prices bid in the priced Bill of

Quantities under Clause 3 of the Contract. In the present case, the liability

to pay GST has arisen because there were disputes between the Applicant

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and the MCGM on the amounts payable by the MCGM to the Applicant.

Since, the MCGM did not make those payments, the Applicant invoked

Arbitration which finally culminated into an Arbitral Award dated 23rd

June 2014. Since the Arbitrator found that there were monies due and

payable by the MCGM to the Applicant and which were not paid, the

Arbitral Tribunal awarded interest on the aforesaid amounts at the rates

more particularly mentioned in the Arbitral Award. This Award was

subjected to a challenge all the way upto to the Supreme Court without

any success (the SLP was dismissed on 22nd November 2021). Whilst this

challenge was pending, the GST law was brought into force. It is the

interest granted under the Arbitral Award that is subjected to the levy of

GST under the provisions of Section 15(2)(d) of the CGST Act read with

Section 20 of the IGST Act. This liability of GST (taxes) was certainly not

in contemplation of the parties when they entered into the contract in the

year 2001. The rates and prices bid submitted by the Applicant in the

priced Bill of Quantities and which were to include all taxes and duties

would certainly not have taken into consideration that the MCGM would

not make payment in a timely manner, raise disputes, which would then

make them liable to pay interest and which would be subjected to the levy

of GST. This, according to me, is also made clear from clause 4, which

stipulates that the rate of price (which is to include all taxes and duties)

shall be entered against each item in the priced Bill of Quantities whether

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quantities are stated or not. The costs of item against which the

contractor has failed to enter a rate of price shall be deemed to be covered

by other rates and prices entered in the Bill of Quantities. When one reads

clauses 3 & 4 of the contract in conjunction with each other, the

inescapable conclusion is that the "taxes and duties" referred to in clause

3 did not in any way contemplate the liability of GST that may arise due

to payment of interest for delayed payment of any consideration for the

supply of the services. This, according to me, was never in contemplation

of the parties when they entered into the contract. I am therefore of the

opinion that clause 3 of the contract does not come to the assistance of

the MCGM to deduct the GST of Rs.67,94,965.02/- from the Applicant.

It is the MCGM, under Notification No.10 of 2017 - Integrated Tax (Rate)

issued by the Government of India, Ministry of Finance (Department of

Revenue), dated 28th June 2017, read with the provisions of Section 5(3)

of the IGST Act, who would be liable to pay the GST to the Government

on a Reverse Charge basis and the same cannot be deducted from the

dues payable to the Applicant.

23. In view of the foregoing discussion, it is directed that the

MCGM shall credit Bank Account No.5020035159821 in HDFC Bank

Limited, Nariman Point, Mumbai - 400 021 with the sum of

Rs.67,94,965.02 on or before 30th August 2022. Once this amount is

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credited in the aforesaid Bank Account, the Arbitral Award dated 23rd

June 2014 shall be marked as fully satisfied and the Applicant would

thereafter have no claim whatsoever against the MCGM. Consequently,

the above Execution Application shall also stand disposed of once the

amount of Rs.67,94,965.02 is credited in the abovementioned Bank

Account.

24. The Execution Application is disposed of in the aforesaid

terms. Place the above Execution Application on board on 5th September

2022 only for the purpose of compliance.

25. This order will be digitally signed by the Private

Secretary/Personal Assistant of this Court. All concerned will act on

production by fax or email of a digitally signed copy of this order.

                                   [ B. P. COLABAWALLA, J.            ]




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