C.H. Krishnan & Associates vs Union Of India
1997 Latest Caselaw 754 Del

JUDGMENT

C.M. Nayar, J.

(1) The present suit has been filed by the plaintiff for recovery of Rs. 4,71,736.74. The facts as enumerated in paragraphs 2,3,4 and 5 of the plaint may be reproduced as follows :

"2.Under a tripartite agreement entered into by and between the plaintiff, the President of India (Government of India), through the Planning Commission, New Delhi (hereinafter called "The Planning Commission') and the Inter-data Inc. (a company incorporated under the laws of United States of America; hereinafter called 'the manufacturer'), the plaintiff was obliged to supply, install, service and upkeep a computer equipment manufactured by the manufacturer as per the terms thereof.

3.As per the terms of the said agreement, the title to the equipment was to pass on to the Planning Commission upon air-freighting of the equipment at the U.S. International Airport and the price for the Computer equipment was U.S. $410,130.00 being F.O.B. International U.S. Airport value payable by confirmed and irrevocable Letter of Credit against shipping documents. The Planning Commission undertook to pay all air freight and other transportation charges for carriage of equipment to the installation site, all customs duties and any other applicable taxes and duties in India and insurance of equipment from the point and time of delivery at the international airport in U.S.A. to destination in India.

4.Under the said contract, the plaintiff warranted that the articles delivered under the agreement should conform to the equipment specification and should be i of good material components, workmanship and of the latest manufacture and free from defect for a period of one year after acceptance of equipment and successful working thereof. The sole and exclusive remedy of the Planning Commission in the I event of any defect of material or workmanship was expressly limited to the I correction of such defect whether by adjustment, repair or replacement at the plaintiff's election and sole expense within one month of receipt by the plaintiff of a written notice and an explanation of circumstances concerning any claim that the equipment had proved defective in material or workmanship. If there was any delay in repair/replacement beyond 24 hours of receipt of written notice from the Planning Commission, the warranty period would be extended by the period of such delay. Except as specifically provided therein, there were no other warranties, expressed or implied, including any implied liabilities of merchant ability or fitness for a particular purpose. The plaintiff's furnishing of maintenance service did not include assumption by the plaintiff of liability to repair any damage to the equipment caused by causes external to the equipment, such as electrical power fluctuations and failures; and failure to maintain environmental conditions in the computer room.

5.The plaintiff's obligation in respect of conclusion of acceptance tests and for due and satisfactory performance by the plaintiff of the aforesaid obligations in accordance with the contract was guaranteed by furnishing a Bank Guarantee dated November 3, 1977 from Canara Bank, G-23, Ndse Part-1, New Delhi, in favour of the Planning Commission, for an amount of Rs. 3 lakhs. Such Guarantee has to be in force till one year from the date of final acceptance of the equipment by the Planning Commission.

(2) The plaintiff further avers in paragraph 6 that the computer system was handed over to the defendant on February 23,1978; and as such, the guarantee was to cease to have force and the liability of the Bank thereunder had to come to an end on February 22, 1979. The system went out of order due to the failure on the part of the defendant Planning Commission to maintain environmental conditions required for the system and due to heavy condensation inside the computer room and use of card-reader with old cards with rust and dust. The plaintiff is alleged to have brought to the notice of the Planning Commission repeatedly that the system was not being maintained in proper environmental condition required for the system in the computer room. Therefore, it is contended, that the computer system went out of order due to causes external to the equipment because of nonobservance by the Planning Commission of environmental condition required for the system. The defendant requested to get the defective parts repaired/replaced. The plaintiff allegedly informed that the responsibility for the failure and breakdown of the computer system would squarely rest upon the defendant which was refuted. The plaintiff further submits that the defendant never refuted the contentions of the plaintiff and thereby accepted its responsibility for the failure/ breakdown of the computer system. However, the defendant requested the plaintiff to get the defective parts repaired/replaced by the manufacturers. Though not obligatory under the terms of the contract, the plaintiff undertook to carry on replacement/repair of the defective parts. The defective parts were air-freighted to the manufacturer on December 22,1978. The dispute arose between the plaintiff and the defendant with regard to payment of Customs Duty on the return of repaired/ replaced defective parts. Paragraph 9 of the plaint deals with this question and may be reproduced as follows : 9.When the defective parts, duly repaired/replaced, free of cost were brought to India on January 18, 1979 in two consignments, the Planning Commission made a claim on the plaintiff to pay customs duty thereon amounting to over Rs. 3 lakhs, though it was not the liability of the plaintiff to pay Customs Duty on such repaired/replaced items, as per the terms of the contract. The invoices clearly show that the materials mentioned in the invoices were replacement goods under warranty and of no customs value; inasmuch as, the materials returned belonged to the Planning Commission and on which the Planning Commission had paid duty at the time of initial import and these materials were only replaced free of cost. Even otherwise, as per the Customs Tariff and Notifications issued by the Finance Ministry under the Customs Duty Act, all articles when re-imported into India after having been exported for repar is are exempt from so much of the duty of Customs lee viable thereon under the Customs Tariff Act as is in excess of duty of customs which would be leviable if the value of such re-imported goods were made up of the fair cost of repairs carried out (whether such cost was actually incurred or not), insurance and freight charges both ways. Articles and component parts when imported for the replacement of defective articles or components were exempt from whole of the duty of customs leviable if the defective articles were brought into India earlier from places outside India and were private personal properties of the importers. The plaintiff states that there was no liability for payment of the Customs Duty on the re-imported replaced parts and in any case, even if there was such liability to pay Customs Duty, the same was payable by Planning Commission as per the terms of the contract. The plaintiff informed the Planning Commission as a matter of gesture and goodwill, as the computer system was urgently needed by the Government of India, that it would bear the expenses in connection with the export of the defective parts and rampart of replacement part; but the Customs Duty if payable should be borne by the Plaining Commission. The Planning Commission paid the Customs Duty of over Rs. 3 lakhs; the re-imported parts were got released; and the system was repaired."

(3) The defendant, however, made a claim on the plaintiff for payment of Customs Duty of over Rs. 3 lakhs and sought to enforce the Bank Guarantee as referred to above. The Canara Bank in turn pressed the plaintiff for payment of Rs. 3 lacs and was bent upon making the payment to the defendant for alleged payment of Customs Duty as alleged in the plaint. In the above circumstances, the plaintiff on or about June 7, 1979 filed a suit against the defendant for declaration that the plaintiff had not committed any breach of the terms of the said agreement and, as such, was not liable to pay the Customs Duty on the repaired/replaced items and for an injunction restraining the defendant from enforcing the Bank Guarantee. The said suit was registered as suit No. 270/79. After receiving the notice and before replying to the interim application, the defendant allegedly prevailed upon the Canara Bank and fraudulently, maliciously and illegally enforced the Bank Guarantee on June 14,1979. As the amount of Rs 3 lakhs having been paid under the Bank Guarantee the Canara bank started demanding payment of the amount from the plaintiff and threatened the plaintiff to enforce the security furnished by the plaintiff for the said Bank Guarantee to the tune of over Rs. 12 lakhs. In view of the above facts, the plaintiff was constrained to pay under protest Rs. 3,99,776.90 (including interest upto May 13,1981) to Canara Bank vide cheque No. 851459 dated May 13, 1981 in order to save from loss of further interest and for getting the securities released. The suit earlier filed by the plaintiff, it is alleged, had obviously become infructuous and in the facts and circumstances the plaintiff moved an application under Order 23, Rule I read with Section 151, Civil Procedure Code . for permission to withdraw the suit with liberty to institute fresh suit against the defendant in respect of the same subject matter and for consequential relief of claiming refund of the amount paid by the Canara Bank to the defendant alongwith interest. The learned Sub Judge 1st Class, Delhi before whom the said suit was pending vide order dated October, 19, 1981 allowed the application and granted the plaintiff permission in terms of prayer contained therein. Therefore, the present suit has been filed by the plaintiff against the defendant for a claim of Rs. 3,99,776.90 alongwith interest thereon @ 18 per cent per annum. It is further prayed in the suit that the plaintiff has not committed breach of the terms of the agreement dated March 27, 1977 and as such was not liable to pay customs duty on the replaced/repaired parts.

(4) The defendant has filed written statement wherein it is reiterated that the system broke down because of lack of spare parts, tools and test equipment which the contractor, plaintiff herein, never even till date procured despite the fact that he was given by the Government of India an import licence for Us $ 50,000.00 as far back as November, 1977, as per Clause 9 I (a) of the agreement. Similarly, as per provisions of Section 4.1 of the agreement it was contractor's obligation and responsibility during the currency of warranty period of one year from February 23, 1978 to February 22, 1979 to set the defect right whether by adjustment, repair or replacement at his own expenses. The defendant also reiterated that the plaintiff had confirmed vide their letter dated December 15, 1978 that the expenses in connection with the export of damaged parts to Usa and subsequent re-import would be borne by them. The plaintiff evaded its obligation to pay Customs Duty on the parts re-imported after repair/replacement. The same was paid by the Government of India for getting the parts released from the authorities in order to get the system restored to its normal functioning. Paragraphs 7, 8 and 9 of the written statement make the following reading :

"7.Para 7 is wrong and hence denied. The-accusations of the plaintiff that the system went out of order on 25.11.1978 due to failure on the part of the Government of India to maintain the environmental conditions, occurrence of heavy condensation in the computer room and use of card-reader with old cards contaminated with dust and rust are entirely wrong. The environmental conditions were provided as per the rigid specifications given by the contractor himself at the time of installation of the system and even thereafter these remained under the constant watch and supervision of the contractor's Engineers during the entire warranty period, who have been invariably present in the computer room throughout. Likewise, the cards were invariably maintained in the proper prescribed environmental conditions and the possibility of their becoming dusty or rusty is entirely ruled out. In fact, the system broke down because of lack of spare parts, tools and test equipment which the contractor, to the knowledge of the defendant, never, even till date, procured despite the fact that he was given by the Government of India an import licence for Us $ 50,000.00 as far back as November, 1977, as per Clause 9.1 (a) of the Agreement.

8.In reply to para 8, it is submitted that the accusations of the plaintiff are utterly wrong and misleading. The system had not gone out of order due to external causes because of non-observance by the defendant of environmental conditions required to be maintained for the system but because of lack of spares, tools and test equipment with the contractor which he never procured despite the fact that he was supplied by the Planning Commission, as per the terms & conditions of Clause 9.1 (a) of the Agreement, import licence for Us $ 50,000.00 as far back as November 1977. The allegations of the plaintiff that he had informed the defendant that the responsibility for the failure and breakdown of the system would squarely rest upon the defendant is also entirely baseless. The question of Planning Commission not refuting this contention of the plaintiff and accepting responsibility for the breakdown of the system simply did not arise. Since as per the provision of Clause 4.1 of the Agreement, it was contractor's obligation and responsibility, during the currency of warranty period of one year (from 23.2.1978 to 22.2.1979) to set the defect right whether by adjustment, repair or replacement, at his own election and expenses. Having failed to set the system right with the help of his Engineers in India, the contractor applied to the Government of India for permission to export the defective parts to the manufacturers in Usa on 15.12.1978 and 16.12.1978 and asked for certain documents in this regard. The contractor firm had confirmed vide their letter dated 15.12.1978 that the expenses in connection with export of damaged parts to Usa and their subsequent re-import would be borne by them. All the desired documents were made available to him by the Government of India between December 16th and 20th, 1978. The contractor was also informed that the Government of India had noted that the entire expenditure involved in export/re-import of defective parts for repair/replacement during warranty period would be borne by him and the Government of India would not be asked to meet any expenditure whatsoever. There was, thus, absolutely no delay on the part of Government of India to supply to the plaintiff whatever documents were asked for, for exporting the defective parts of the manufacturers in USA. The allegation of the plaintiff that the Planning Commission wasted 27 days in allowing the export of defective parts to Usa is, therefore, entirely false, and misleading.

9.In reply to Para 9 it is submitted that the contention of the plaintiff that it was not his liability to pay Customs Duty on the re-import of repaired/ replaced parts is utterly wrong. Clause 4.1 of the Agreement lays down clearly that it is the liability of the contractor to meet all expenses on repair/ replacement of defective parts during the warranty period. The term 'expenses' also obviously implied the payment on account of Customs Duty leviable, if any. Moreover the plaintiff firm had confirmed beforehand, vide their letter dated 15.12.1978, that all the expenses involved in export and subsequent re-import of the damaged parts would be borne by them. However, the contractor evaded his obligation to pay the Custom Duty on the parts re-imported after repair/replacement. The Custom Duty was thereafter paid by the Government of India for getting the parts released from the Custom Authorities in order to get the system restored to its normal functioning. Since, it was the plaintiff who had exported the defective parts to Usa for repair/replacement, during warranty period, as per Clause 4.1 of the Agreement, the question of claiming any drawback by the Government of India simply could not have arisen as the Government of India were not the exporters. Only the exporter who ws the contractor in this case could claim the drawback.

(5) In paragraph 11 relating to the breaches of the terms of the agreement the defendant reiterates as under : 11.In reply to para 11 it is submitted that since the plaintiff had committed numerous breaches of his contractual obligations, as per Clauses 4.1 and 9.1 of the Agreement, which were duly brought to his notice from time-to-time vide planning commission letters No. PEO/41/78-OSD, dated 3.6.1978, 19.7.1978, 28.8.1978, 18.10.1978, 4.11.1978, 6.12.1978, 20.2.1979, 16.3.1979, 28.5.1979 and No. PEO/11/79-CSD, dated 6.2.1979 and 20.2.1979 the Planning Commission wrote to the Manager, Canara Bank, South Extension, New Delhi vide Secretary, Planning Commission letter No. PEO/11 /79-CSD dated 21.2.1979 claiming the sum of Rs. 3 lakhs to be paid to the Planning Commission in terms of the Bank Guarantee 9/77 dated 3.11.1977 executed by the Bank on behalf of the Contractor firm. Averments contrary to what is stated in the para under reply are denied."

(6) Replication was filed to the written statement of the defendant where the averments made in the plaint were reaffirmed. The following issues were framed on February 14, 1985 :

1. Whether the written statement is verified properly ? If not, its effect ? Opp

2.Whether the defendant had maintained proper and requisite environmental conditions in the computer room to avoid any condensation and proper cards were maintained/used in the card-reader ? Opd

3.Whether the plaintiff's furnishing of maintenance service would include liability to repair any damage to the equipment caused by causes external to the equipment such as electrical power fluctuations and failures; and failure to maintain environmental conditions in the computer room ? Opd

4.Whether the title and property in computer equipment was passed on to the Planning Commission upon air-freighting of the equipment at U.S. International airport ? Opp

5.Whether the Customs Duty on the repaired/replaced parts, when brought to India on January 18, 1979, was payable? If so, by whom as per the terms of the contract ? Opp & Opd

6.Whether the defendant had claimed Customs Duty drawback at the time of air-freighting defective parts for repair/replacement by the manufacturer ? If not, what is the effect ?

7.Whether enforcement of Bank Guarantee for the claims for customs duty on the repaired / replaced parts, was proper and legal ? Opd

8.Whether the plaintiff is entitled for refund of Rs. 3,99,776.70 paid to the Canara Bank under protest with interest at the rate of 18% per annum from the date of payment ?

9.To what relief the plaintiff is entitled for ? Opp Issue No. 1

(7) This issue was not pressed by learned Counsel for the plaintiff at the time of hearing. Therefore, no finding on this issue is necessary. Issues No. 2 & 3

(8) The learned Counsel for the plaintiff has vehemently argued that the defendant had not maintained proper and requisite environmental condition in the computer room to avoid any condensation and proper cards were not maintained/ used in the card-reader. The defendant denied these averments and it is argued that the system broke down because of the lack of spare parts, tools and test equipment which the plaintiff never procured. It was further denied that the system went out of order due to failure on the part of the defendant to maintain environmental condition and due to occurrence of heavy condensation inside the computer room and by usage of card-reader with old cards contaminated with dust and rust.

(9) Public Witness 1 Shri C.H. Krishnan has stated in his evidence that the reasons for the breakdown were due to high condensation and inability of the defendant to control the environmental conditions in the plant room as agreed upon in the Agreement. The system was working satisfactorily so long as the environmental conditions were maintained and the causes for breakdown were external to the equipment. He has stated in his testimony that in any case when the defective parts of the equipments were brought back to India after repairs/replacement. Customs Duty of Rs. 3 lakhs on the replaced items sent free of charge under warranty was wrongly paid by the defendant and the same was, therefore, wrongly claimed from the plaintiff. In this background, the defendant illegally invoked the Bank Guarantee against demand for the payment of Customs Duty on the replaced and repaired parts.

(10) In cross-examination, he has reiterated that two Engineers of his firm used to remain present in the computer centre for the maintenance purposes during the warranty period and a complete report about the complaints of non-maintenance by the defendant of the environmental condition, as required in the computer room, was sent. It is admitted that the system actually collapsed on November 25, 1978 and the complaint for the breack down of the system due to condensation was recorded in the register maintained by the Planning Commission. However, in his cross-examination on March 17, 1994 the following facts were brought on record which may be reproduced as follows : "WE gave complaint on 1st December, 1978 which is entered in day book to the Planning Commission. It is correct that the record maintained by me does not bear the signature of any one. It is also correct that the register does not have the page numbering. It is correct that the report written on 1.12.1978 does not mention about condensation. In this book no other entry after 1.12.1978 has been made. No carbon copy of this complaint has been made. It is correct that it does not bear any indication that the same was communicated to the Planning Commission. Voluntarily he states that the same was communicated to the Planning Commissioner by a separate letter. I will go through the record and produced the letter."

(11) The above communication dated December 1, 1978 was not produced. It was also accepted by this witness that import licence worth Us $ 50,000.00 was granted for import of test equipment, spare parts for the maintenance of the system during warranty period. No other witness was examined by the plaintiff.

(12) The defendant examined Shri R.K. Pruthi, Technical Director on August 1-2, 1996. The said witness stated that the parties signed the contract on May 27, 1977 for procurement, installation and maintenance of the computer system during the warranty period of one year which commenced after completion of the acceptance tests to the satisfaction of Government of India, defendant herein. The warranty period started from February 23, 1978. The import licence for Us $ 50,000 was provided to the plaintiff for initial importation of start-up spares for one year and tools and test equipment for maintenance of the system during the warranty period. The Bank Guarantee for Rs. 3 lakhs was furnished by the contractor in November, 1977. There was one complaint made by the contractor for no maintenance of environmental condition on June 12, 1978 which happened 5" months before the collapse of the system on November 25, 1978. The plaintiff, however, ensured that the environmental conditions were maintained by keeping two of his engineers invariably in the computer centre. The system was finally set right on April 28,1979 by the manufacturer's Engineers who specially came for this purpose from USA. The system remained out of order for five months. The warranty period was extended by three months beyond April 28, 1979. It was reiterated by this witness that the environment provided in the computer centre was centrally air-conditioned and absolutely dust-free. The following statement from the evidence of this witness may be referred to : "THE environment provided in the computer centre was centrally air-conditioned and absolutely dust-free. For entering the computer centre one has to pass through four self-closing glass doors and remove his shoes. The false flooring and false ceiling was also provided. The system was not being maintained properly by the contractor. In this connection several letters were written to the contractor, out of which letter dated 6.12.1978 is on record. It was mainly because the contractor had not stocked the spares, tools and test equipment against the import licence provided to him by the Government of India as per Clause 9.1-A of the Agreement. The sole remedy available to Goi was expressly limited to correction of such defect whether by adjustment, repair/replacement at contractor's election and expenses. The defective parts were exported on 22.12.1978. The export and subsequent re-import of the defective parts were done by the contractor as he had undertaken to do so as per letter dated 15.12.1978. It was contractor's responsibility to pay the Custom Duty. The system went out of order during the warranty period. The Custom Duty was paid by Government of India on 28.3.1979. The Government of India paid the Customs Duty because the contractor was not willing to pay the Customs Duty and the GOI's work was suffering."

(13) The reading of the plaint as well as evidence which is brought on record will reveal that the averments that the system went out of order as the defendant had not maintained proper and requisite environmental condition in the computer room cannot be substantiated by cogent evidence. These averments are controverted by the defendant and it is reiterated that all proper care was taken and the system broke down because of the lack of spare parts, tools etc. which the plaintiff failed to supply. There was no failure to maintain environmental condition and occurring of heavy condensation in the computer room was denied. The environmental condition was provided as per the instructions given by the plaintiff himself at the time of installation. Therefore, there was no negligence on the part of the defendant to maintain the instrument. In the above background the plaintiff itself had confirmed that the expenses in connection with the export of damaged parts to Usa and subsequent re-import would be borne by the company. The plaintiff has produced only one witness who has not been categorical to establish the negligence on the part of the defendant. The system was in any case within the warranty period and it was the duty of the plaintiff to maintain the same and in case it was found that the environment was not proper, the same could have been rectified by the plaintiff. The specialist was also not examined by the plaintiff who could firmly establish that the fault lay with the defendant in proper maintenance of the system. The system was subsequently set right by the manufacturer's Engineers from Usa after it remained out of order for about 5 months. The plaintiff in view of the above has not established that the system broke down due to lack of proper maintenance and requisite environmental condition in the computer room on the part of the defendant. Issues 2 and 3 are accordingly decided against the plaintiff as it is held that the defendant maintained proper and requisite care and environmental condition for the maintenance of the system and the plaintiff was liable for repair/replacement of parts of the equipment on the facts as stated above. Issue No. 4

(14) This issue was not seriously pressed at the time of arguments as it was sought to establish that the system broke down due to negligence on the part of the defendant. In any case, the system went out of order during the warranty period and it is not necessary to record any finding in respect of this issue. Issues No. 5 & 6

(15) The question as to whether Customs Duty on the repair and replaced parts which were brought to India on January 18, 1979 was payable and, if so by whom as per the terms of the contract may now be examined. The initial agreement entered into between the parties provided that the payment of all air freight and other transportation charges including Customs Duty shall be payable by the defendant. Clause 3.7 of the agreement may be reproduced as follows : "3.7The Contractor shall undertake the following : (a) to arrange air shipment of the equipment from the country of manufacture by Air India (failing which with the consent of Goi, by any other airline) to a local International Airport nearest to the Goi installation site; (b) obtain release of the equipment from Customs; (c) transport the equipment from the local international airport to Goi premises for installation; (d) carry out the on-site unpacking and positioning of the equipment for installation; (e) inspect the equipment for assessing damage in transit if any for making necessary insurance claims, and giving notice thereof to Goi promptly; (f) inspect the equipment to determine conformity with specifications as mentioned in Schedule I hereto. Goi shall undertake the following : (i) provide all necessary documentation and render necessary cooperation to enable the Contractor to complete the work in (a) to (f) above; (ii) payment of all air freight and other transportation charges for carriage of the equipment to the installation site, all Customs Duties and any other applicable taxes or duties in India."

Therefore, it was agreed upon between the parties that the initial Customs Duty was payable by the defendant. This duty was indeed paid by the defendant. The sum of Rs. 14,94,674.80 was held payable from the defendant. When the defective parts were repaired/replaced and were returned to India the Authority claimed duty for the sum of Rs. 3,11,807.30 which was paid by the defendant to the Customs Authorities. The plaintiff on his own wrote a communication dated December 15, 1978 (Exhibit R4) wherein it was stated as follows : "WE confirm once again that the expenses in connection with the export of the damaged boards and subsequent re-import of the repaired/replaced boards will be borne by us."

Some time on December 16, 1978 (Exhibit R-5) the defendant wrote a letter to the plaintiff accepting the offer in paragraph 3 as follows : "THE Government have taken note that the entire expenditure on this account will be borne by you and that the Government of India will not be asked to meet any expenditure whatsoever."

(16) The plaintiff also wrote communication dated December 6, 1978 to the defendant which is marked as Exhibit P-XII indicating the details of the spare parts which were required to put the system in order and stated that the steps are being taken for the materials ordered to be shipped. Therefore, the responsibility was accepted by the plaintiff. Similarly, in the Minutes of meeting held on December 7, 1978 between the parties took note of the breakdown of the condition of the computer system and suggested suitable remedy for getting the same in working order at the earliest. The reading of paragraphs 1 (3) and (2) of the minutes will show that no fault could be attributed to the defendant for the non-working of the system. These paragraphs may be reproduced as follows : "3.Spares for the C.P.U. at component level and test aids have been ordered from M/s. Inter-data. But since the fault in the C.P.U. cannot be rectified without test aids and since test aids are yet to come, C.P.U. spares at board level have to be obtained. M/s. Inter-data quote a price of $ 45,650 for the complete set of C.P.U. boards. Again, the cost breakup is not known at board level and since his total licence is only for $ 50,000 he cannot procure the complete set of C.P.U. boards. However, he has sent an urgent Telex message to M/s. Inter-data to send these boards on loan considering the dire urgency of the situation and the national importance of the work held up on account of the breakdown. When these boards arrive they can be fixed in the C.P.U. to make it operational and the fault in the boards can be rectified in due course. 2. Director (CSD) also sent a Telex message to M/s. Inter-data impressing upon them the extreme urgency of the situation and to expedite delivery of spares and loaning of C.P.U. boards to tide over the immediate crisis. Mr. Krishnamurthi, C.M.C. said that it was surprising that even test aids and equipment for the systems were not available even nearly a year after installation and any kind of diagnosis and preventive maintenance would be impossible without them. He also suggested that a hardware engineer from M/s. Inter-data should be called to fix the fault, alongwith spares so that no time would be lost in getting the system functioning."

A subsequent meeting was held on December 12, 1978 reiterating the need for replacement of defective parts during the warranty period. Clause 4.1 of the agreement may now be reproduced : "4.1The contractor/manufacturer warrants that the articles delivered here under shall conform to the equipment specifications in Schedule I and shall be of good material, components, workmanship and of the latest manufacture and free from defect for a period of one year after acceptance of equipment and successful working thereof. Written notice and an explanation of circumstances concerning any claim that the equipment has proved defective in material of workman ship shall be given by Goi to the contractor. The sole and exclusive remedy of Goi in the event of any such defect is expressly limited to the correction of such defect whether by adjustment, repair or replacement at the contractor's election and expenses within one month of receipt by the contractor of such written notice. Contractor shall replace the defective part(s) as soon as possible. In case there is any delay beyond the period of 24 hours, the free warranty period will be extended by the period of such delay."

(17) The reading of the above clause will clearly establish that it was the obligation and responsibility of the plaintiff during the warranty period of one year to set the defects right, whether by adjustment, repair or replacement at his own expense. The system went out of order during the warranty period and it had to be put in order by the plaintiff who took up the matter with the manufacturer. These issues are, accordingly, decided in favour of the defendant and against the plaintiff. It will, however, be open for the plaintiff to take up with the Customs Authorities to reiterate and submit that no Customs Duty was payable on repaired/replaced parts as the same had been paid at the time of initial import. Issue No. 7

(18) In view of the fact that the Customs Duty due on the repaired/replaced parts has since been paid by the defendant and as the plaintiff had given Bank Guarantee in accordance with the contract it was quite within the jurisdiction of the defendant to enforce the same when the equipment went out of order and its defective parts had to be repaired and replaced during the warranty period.

(19) For the aforesaid reasons, particularly, in view of the fact that the system went out of order during the warranty period and the defendant rightly enforced the Bank Guarantee as submitted by the plaintiff, the plaintiff is not entitled to refund of the same from the defendant. The present suit is, accordingly, dismissed. The parties shall bear their own costs.

(20) The learned Counsel for the plaintiff has referred me to the notification dated August 29, 1970 which may be reproduced as follows :

Exhibit D "CUSTOMS TARIFF-1978 Note 37 Articles imported as replacement for defective articles. Notification 80. Dated 29.8.1970 Articles and Components parts thereof when imported respectively for the replacement of defective articles or of component. Parts thereof are exempt from the whole of the duty of Customs leviable thereon, subject to the following conditions, namely:

(I)The defective articles were brought into India earlier from places outside India and are private personal properties of the importers.

(II)The articles or components parts thereof, as the case may be, are imported within the warranty period and are supplied free of charge by the foreign manufacturers in terms of the warranty given by the manufacturer in accordance with the established trade practice pertaining to the articles;

(III)The repairs including replacement of the defective parts are done free of charge by the manufacturer through his agent or branch in India; and

(IV)The defective articles or components parts thereof if not re-exported, are destroyed or surrendered to customs."

(21) The plaintiff on the basis of the above averments shall be at liberty to pursue the remedy with the Customs Authorities to reiterate that no Customs Duty was payable on the replacement of defective parts which was done free of charge by the manufacturer. In case the plaintiff approaches for the refund of Customs Duty the Authorities will not decide the issue merely on the ground that the claim, if any, is time-barred. The matter will be examined on merits.