Delhi High Court
Steel Authority Of India ... vs Primetals Technologies India ... on 12 March, 2020
$~
* IN THE HIGH COURT OF DELHI AT NEW DELHI
Date of Decision:- 12.03.2020
+ O.M.P. (COMM) 349/2020 & I.As 1862-64/2020
STEEL AUTHORITY OF INDIA LTD.(SAIL)
..... Petitioner
Through: Mr.Sandeep Sethi, Sr.Adv with
Mr.Puneeth Ganapathy, Ms.Ishita Mathur,
Advs.
versus
PRIMETALS TECHNOLOGIES INDIA PVT. LTD.
(FORMERLY KNOWN AS SIEMENS VAI METALS
TECHNOLOGIES PVT.LTD) ..... Respondent
Through: Mr.P.C.Markanda, Sr.Adv with
Mr.V.K.Sharma, Mr.Rajesh Markanda,
Ms.Reema Soni, Advs.
CORAM:
HON'BLE MS. JUSTICE REKHA PALLI
REKHA PALLI, J (ORAL)
1. The present petition under Section 34 of the
Arbitration and Conciliation Act, 1996 filed by Steel
Authority of India Limited, who was the respondent before
the learned Arbitrator, assails the arbitral award dated
15.10.2019 whereunder the claims of the respondent have
been allowed with actual costs of arbitration and interest @
14% per annum.
2. The brief facts as emerge from the record are that the
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petitioner, which is engaged in the business of inter alia
manufacturing steel, awarded a contract for setting up a
Coupled Pickling Line and Tandem Cold Mill at Bokaro Steel
Plant to a consortium of M/s Siemens VAI Metals
Technologies Pvt. Ltd., M/s Siemens VAI Metal
Technologies GmbH & Co, Austria and M/s McNally Bharat
Engineering Co. Ltd. The parties, therefore, entered into a
contract bearing No. TC/M/AGT-963 on 03.03.2008 which
specified the project commencement date as 03.03.2008 and
the date of completion as 03.09.2010. As per the terms of the
contract entered into between the parties, it was envisaged
that M/s Siemens VAI Metals Technologies Pvt. Ltd.
(hereinafter referred to as 'Siemens') would procure the
items, as set out in the contract, from such manufacturers as
identified by the petitioner and that the price of each item
would include a) Basic price, b) Excise Duty (ED) and c)
Central Sales Tax (CST). The parties had also agreed that
Siemens would pass on a minimum CENVAT credit of
Rs.33,06,70,252/- to the petitioner. On 19.06.2015, the
contract was amended and Siemens was substituted by the
respondent and therefore the respondent also became bound
by the terms of the contract executed between the petitioner
and Siemens on 03.03.2008.
3. While the work under the contract was still underway,
the respondent raised invoices towards the work done
wherein, besides seeking reimbursement of the input sales tax
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paid by it towards purchase of items used for carrying out the
work under the contract, the respondent also sought
reimbursement of sales tax paid by its sub-contactors/vendors
while executing the contractual work. On 04.09.2015, the
respondent raised RA Bill No.34 for a total sum of
Rs.6,66,68,750/- which was subsequently reduced to
Rs.5,93,64,168/- towards 2.5% milestone against the
completion certificate, in accordance with Article 2.1.4 of the
contract. As the CENVAT credit which the respondent
actually passed on to the petitioner was admittedly for an
amount of Rs.19,70,32,185/-, as against the guaranteed
amount of Rs.33,06,70,252/-, the petitioner refused to make
any payments to the respondent until necessary documents
were submitted by the respondent to show that the guaranteed
amount of Rs.33,06,70,252/- towards CENVAT credit would
be passed on to the petitioner. The respondent claimed that in
terms of the price schedule as set out in the contract, it was
entitled to deduct the shortfall in CENVAT credit from the
contract price at serial No.15 of the summary price schedule.
Per contra, the respondent's stand was that deductions to the
extent of shortfall in CENVAT credit could only be made
from the gross contract price at serial No.12 and not the net
contract price at serial No.15. As a result of these contrary
positions, the respondent invoked arbitration and the matter
was referred to the learned Sole Arbitrator by the Hon'ble
Supreme Court vide its order dated 14.09.2018 passed in
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Arbitration Case(C) No.31/2018.
4. Before the learned Arbitrator, the respondent raised
five claims and the petitioner raised two counter claims. The
learned Arbitrator, after noticing that the parties were ad idem
that work had been duly executed in terms of the contract, set
out that the disputes between these parties had to be
adjudicated in the following terms:-
"1) non-reimbursement of Central Sales Tax (CST)
amounting to Rs. 2,83,86,010.53/- to the Claimant by
the Respondent (now reduced to Rs.1,90,56,702.38/-
after the acknowledgement of receipt of
Rs.92,16,537.03 by the Claimant.
2) non clearance of RA Bill No. 34 dated 04-09-
2015 of the Claimant, for an amount of
Rs.6,66,68,750/- (now reduced to Rs.5,93,64, 168/- in
view of the Interim Award dated 06-03-2019 pursuant
to which Rs. 73,04,582/- had been paid by the
Respondent on 12-04-2019) pertaining to
commissioning activities, on account of difference in
interpretation of the Contract covenants relating to
shortfall in Minimum Guaranteed CENVAT Credit.
3) non clearance of RA Bill No. 43 dated 20-03-
2017 of the Claimant of Rs 1,07,75,482.06/- (now
reduced to Rs. 2,93,293.29/-, in view of payment of
Rs.1,04,82,088.77/- on 05-12-2018 by the Respondent)
pertaining to capital goods on account of difference in
interpretation of the Contract covenants relating to
shortfall in Minimum Guaranteed CENVAT Credit.
4) Interest
5) Cost"
5. Before the learned Arbitrator, the plea of the
respondent was that once the summary price schedule
provided for two separate contract prices; one including the
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minimum guaranteed CENVAT credit ('gross price') and the
other net of CENVAT and Input Tax Credit (ITC) on
VAT/Entry Tax ('net price'), the petitioner could make
deductions only out of the gross price at serial No.12 and not
from the net price at serial No.15, which did not include the
components of CENVAT credit and ITC. The respondent's
plea thus was that the shortfall of Rs.5,01,47,631/- in
CENVAT credit could be deducted only from the figure of
Rs.305,06,47,252/-, i.e., the gross price, and not from the net
price of Rs.271,99,77,000/-. The respondent also claimed
before the learned Arbitrator that once clause 11.2.1 of the
contract clearly provided for the reimbursement of all duties,
taxes & levies etc. to the respondent by the petitioner, subject
to a ceiling prescribed under the price schedule, the petitioner
could not refuse to reimburse the Central Sales Tax paid by
the respondent's sub-contractors/vendors for procurement of
material for execution of the contract which had been borne
by the respondent.
6. On the other hand, the petitioner opposed the
respondent's claims by urging that once the respondent had
admittedly failed to fulfil its obligations under the contract by
not passing on the minimum guaranteed amount of CENVAT
credit to the respondent, the petitioner was fully justified in
making deductions from the net contract price of
Rs.271,99,77,000/- on this ground. It was further claimed by
the petitioner that the CST was reimbursable to the
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respondent only to the extent of the amount directly paid by
the respondent; reimbursement of the taxes paid by its sub-
contractors/vendors was not envisaged under the contract.
7. In support of their respective stands, both parties led
evidence before the learned Arbitrator who, after considering
the pleadings, evidence and submissions of the parties, passed
the impugned award. The learned Arbitrator, while accepting
the respondent's claims and rejecting the petitioner's counter
claims, granted pre-award, pendente lite and post award
interest @ 14% per annum on the awarded sum, besides
directing the petitioner to pay the entire costs of arbitration to
the respondent. The relevant directions of the learned
Arbitrator in the impugned award read as under:-
"a) the claim of the principal amount
Rs.2,82,73,811.35/- by way of reimbursement of CST
is allowed. The sum of Rs.92,16,537.03/-, already
paid by the Respondent on being adjusted against this
amount, the Claimant is entitled to the payment of the
balance amount of RS.1 ,90,56,702.38/- together with
interest thereon @ 14% per annum, from the date on
which it had fallen due in terms of Clause 12.1.6 of
the GCC, till the date of actual payment. The counter
claim of the Respondent for Rs.92,16,537.03/- is
rejected.
b) the Claimant's claim of the principal amount
Rs.6,66, 13,750/- against its RA Bill NO.34 dated
04.09.2015 is allowed, together with interest thereon
@ 14% per annum from 23.10.2015 till 12.04.2019.
Further, the Claimant is also entitled to interest @
14% per annum on the balance principal amount of
Rs.5,93,64,168/- from 12.04.2019 till the date of
actual payment. The counter claim of the Respondent
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for Rs.5,01 ,47,637/- is rejected.
c) the Claimant's claim of the principal amount
of Rs.1,07,75,482.06/- against its RA Bill No.43 dated
20.03.2017 is allowed together with interest @ 14%
per annum thereon from 04.05.2017 till 05.12.2018.
Further, the Claimant is also entitled to interest @
14% per annum on the balance principal amount of
Rs.2,93,293.29/- from 05.12.2018 till the date of
actual payment.
d) costs as above."
8. Assailing the award, Mr.Sandeep Sethi, learned
Senior Counsel for the petitioner, besides reiterating the
submissions made before the learned Arbitrator qua the issue
of deduction of CENVAT credit and reimbursement of CST,
contends that the award of interest @ 14% per annum and
actual costs is wholly unwarranted.
9. He submits that the learned Arbitrator, while allowing
the respondent's claim for release of the amount withheld by
the petitioner on account of its admitted failure to pass on the
guaranteed amount of CENVAT credit to the petitioner, has
re-written the terms of the contract and has in fact rendered
important clauses thereof absolutely redundant. He submits
that the learned Arbitrator has failed to appreciate that in
terms of the specific note at the bottom of the summary price
schedule, in lieu of the respondent's failure to provide the
guaranteed CENVAT credit to the petitioner under the
contract, the petitioner was entitled to deduct the amount due
from the net contract price. The respondent's failure to abide
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by the terms of the contract could not simply be condoned by
directing that the said amount be deducted/reduced from the
CENVAT amount at serial No.15 of the summary price
schedule appended to the contract. As a consequence of the
respondent's failure to comply with the contractual terms, the
petitioner was entitled to make the requisite deductions from
the net contract price of Rs.2,71,99,77,000/- at serial No. 15.
He submits that since the note in the summary price schedule
clearly stated that deductions were to be made from the gross
contract price at serial no. 12, a necessary corollary thereof
would be that the deduction had to also be made from the net
contract price at serial No. 15. He thus contends that the
Arbitrator, having misread the unambiguous terms of the
Contract Agreement and the GCC, has interpreted the same in
a totally alien manner to pass the impugned award, which
violates public policy and is liable to be set aside.
10. Mr.Sethi further submits that the learned Arbitrator's
directions to the petitioner to reimburse the CST paid by the
respondent's sub-contractors/vendors was beyond the terms
of the contract. By drawing my attention to clause 11.2.1 of
the GCC, he submits that the taxes which were reimbursable
to the respondent were only those which had been directly
paid by the respondent and not those paid by its sub-
contractors/vendors. He further submits that as per the
contract, it was for the contractor to bear the taxes payable by
its sub-contractors/vendors. Thus, in essence, the contention
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of Mr.Sethi is that the contract envisaged reimbursement of
only those taxes which were levied on the direct transactions
between the respondent and the petitioner and not those
which were levied on the respondent's transactions with third
parties, irrespective of whether those transactions were for the
purpose of executing any work under the contract; the
Arbitrator could not have awarded the same to the respondent
by blatantly overlooking the specific terms of the contract.
11. Next, Mr.Sethi contends that even the award of
interest @ 14% per annum was wholly unjustified and unduly
harsh. He submits that the said rate is highly exorbitant and is
not in consonance with the prevailing rate of interest. By
placing reliance on the decision of the Supreme Court in
Vedanta Ltd. v. Shenzhen Shandong Nuclear Power
Construction Co. Ltd. (Civil Appeal No.10394/2018), he
prays that the rate of interest be reduced to 9 % per annum.
12. Assailing the award of costs, Mr.Sethi submits that
the learned Arbitrator, while awarding an amount of
Rs.64,57,107/- towards costs of arbitration as claimed by the
respondent, has not only failed to give any reasons therefor
but has also failed to appreciate the plausibility of the
petitioner's defence by deeming it frivolous. He, therefore,
contends that the learned Arbitrator was not justified in
awarding the entire costs of arbitration in favour of the
respondent.
13. Mr.Sethi finally submits that even though, as on date,
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the total amount claimed by the respondent besides the
amount of Rs. 19,70,32,185/- towards CENVAT credit is
about Rs.267,09,84,999/-, the respondent is likely to raise
further claims towards escalation. This would not be
permissible in view of the prohibition contained in Article 4.2
of the contract which stipulates that in case the actual physical
quantities of civil work and weights of the mechanical
equipment differ from those indicated in the contract, the
contractor would not be entitled to get any additional price.
He, therefore, urges this Court to clarify that the respondent
will not be entitled to raise any further claims in this regard.
14. On the other hand, Mr.P.C.Markanda, learned Senior
counsel appears on advance notice on behalf of the
respondent and supports the impugned award. He submits that
the claims made by the respondent before the learned
Arbitrator were strictly in accordance with the terms of the
contract and the GCC and have, therefore, been rightly
allowed under the impugned award. He submits that once the
contract and GCC provided a separate head for CENVAT
credit and specifically stipulated that the shortfall therein
would be deductible from the gross contract price of
Rs.305,06,47,252/- at serial No.12 of the summary price
schedule and not from the net contract price of Rs.
271,99,77,000/-, the petitioner could not arbitrarily and
unilaterally elect to deduct the same from the net contract
price. He thus contends that the learned Arbitrator has
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therefore rightly held that the deduction on account of
shortfall in CENVAT credit could be made only from the
gross contract price.
15. Mr.Markanda takes a similar plea in respect of the
award of CST in favour of the respondent and submits that
under clause 11.2.1 of the GCC, though the respondent was
liable to bear the initial burden of the sales tax payable by its
sub contractors/vendors, the same had to be ultimately
reimbursed by the petitioner. Insofar as the grant of interest
at the rate of 14% per annum under the impugned award is
concerned, he submits that since the learned Arbitrator
exercised his discretion in this regard after considering the
entire facts and circumstances of the case, this Court ought
not to interfere with the same. With respect to the award of
actual costs of arbitration in favour of the respondent, he
contends that even though the same was fully justified, the
respondent is agreeable to modification of this direction to the
extent that instead of full costs, 50% of the costs be paid to
the respondent.
16. I have heard learned counsel for the parties. It is well
settled that the scope of interference by this Court in a
petition under Section 34 of the Arbitration Act is extremely
limited, especially when the objections raised therein
primarily hinge on contractual interpretation. However, since
both parties have made extensive references to various
clauses of the contract, summary price schedule appended
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thereto and the GCC, I have carefully examined the same at
their instance. Therefore, before dealing with the rival
contentions of the parties, it would be appropriate to
reproduce the relevant contractual clauses which read as
under:-
Contract dated 03.03.2008
"4.2
Should the actual physical quantities and weight
differ from the indicated ones, neither the Contractor
shall be entitled to get any additional price from the
Employer not the Employer is entitled to deduct any
amount from the Contract Price due to variation in
physical quantities and weight.
...
11.2. The Contract Price shall comprise basic price
(base price), Excise Duty, Sales Tax/VAT (including
Sales Tax/VAT on Works Contract/works Contract
Tax) for the Erection & Civil Work portion of the
contract only, Octroi, Turn Over Tax (TOT), Service
Tax, Education Cess and any other duties, taxes and
levies, as may be applicable and prevailing on base
date of the Contract. While the basic price will
constitute the consideration under the Contract, the
payment of duties, taxes, levies, etc., will be
reimbursed (on actuals) against documentary
evidence (except freight and Insurance which shall be
paid limited to quoted amount incorporated in the
Contract) to be produced by the Contractor, subject
to a ceiling indicated in Price Schedule given in
Appendix 1.
In no case the reimbursement towards duties and
taxes, etc. shall exceed the amount indicated in
Appendix 1 towards duties, taxes, levies, etc. except
as indicated in Sub-Clause 14.6.1, hereof.
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This clause is applicable for the portion for which
prices have been quoted in Indian Rupees.
Entry Tax:
Entry Tax shall not be payable by the Contractor.
Service Tax and Excise Duty shall mean to cover
applicable Education Cess any other surcharge
thereon as applicable.
14.1 Except as otherwise specifically provided in the
Contract, the Contractor shall bear and pay all taxes,
duties, levies and charges assessed on the Contractor,
its sub-contractors or their employees by Municipal
State or Central Government Authorities.
However subject to stipulations of the Contract, the
payment of duties taxes, levies etc, will be reimbursed
(on actual) against documentary evidence to be
produced by the Contractor, subject to a ceiling
indicated in price schedule(s) of the Contract. In no
case the reimbursement towards duties and taxes etc,
shall exceed the amount indicated in price schedule(s)
of the contract towards duties, taxes, levies etc, except
on account of statutory variation in Taxes & Duties
and/or imposition of new taxes and duties.
All taxes & duties payable outside India in respect of
performance of the Contract shall be borne & paid by
the Contractor. The Employer shall have no liability
whatsoever on this account.
Entry Tax:
Entry Tax shall not be payable, by the
Contractor.
14.5.3
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Excise invoices for all indigenous plant, equipment &
materials shall be made consigned to Steel Authority
of India Limited - BOKARO Steel Plant for availing
CENVAT Credit under relevant Rules and shall be
furnished by the Contractor to the Employer for
availing CENVAT credit.
14.5.6
Contactors to indicate Minimum Guaranteed
CENVAT Credit that can be availed by the Employer
against materials supplies for subject work. In case of
any shortfall in CENVAT Credit from that Guaranteed
by the Contractor the shortfall shall be deducted by
the Employer from the Contractor. In case of excess of
CENVAT, 50% of the excess CENVAT amount will be
paid.
14.6.1
For the purpose of the Contract, it is agreed that the
'Contract Price' specified in Article 2 ("Contract
Price" & "Terms of Payment") of the Contract
Agreement is based on the taxes, duties, levies etc. and
charges prevailing on Base date (hereinafter called
"Tax" in this Sub-Clause 14.6 hereof). If any rate of
tax is increased or decreased, a new tax is introduced,
an existing tax is abolished, or any change in
interpretation or application of any tax occurs in the
course of the performance of Contract, which was or
will be assessed on the Contractor, Sub Contractors
or their employees in connection with performance of
the Contract, an adjustment of the Contract Price
shall be made as Sub-Clauses 14.6.2 & 14.6.3, hereof,
by addition to the Contract Price or deduction
therefrom, as the case may be.
14.6.1.1
The adjustment in the Contract Price towards
variations in taxes shall be applicable for the
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variations in the taxes enacted within the scheduled
Contractual delivery/ execution period provided the
Facilities are completed within the "Time, for
completion" of the Contract. For any upward
variations in taxes enacted after the Contractual
delivery / execution period, the adjustment in the
Contract Price shall not apply in case the reasons for
delay are attributable to the Contractor not
withstanding extension to the "Time for Completion"
is granted. However, if the completion of the Facilities
is delayed due to reasons attributable to the Employer
and extension to the "Time for Completion" is granted
variations in taxes enacted after the Contractual
delivery/ execution period, the adjustment in the
Contract Price shall be allowed within the extended"
Time for Completion" of the Contract.
However, if the completion of facilities is delayed
beyond scheduled date of the "Time for Completion"
due to reasons attributable to both the parties, then
the period for delay attributable to the Employer will
be considered as initial delay and the price adjustment
shall be applicable during this period as well.
14.6.1.2
The adjustment in the Contract Price towards
imposition of new taxes or abrogation of existing
taxes, shall be applicable only if the new tax is enacted
or existing tax is abrogated within Contractual
delivery/execution period. For any variation due to
enactment of new tax after Contractual delivery/
execution period, adjustment in the Contract Price
shall not apply in case the reasons for delay are
attributable to the Contractor not withstanding
extension to the "Time for Completion" is granted.
However, if the completion of the Facilities is delayed
due to reasons attributable to the Employer and
extension to the "Time for Completion" is granted
variations in taxes due to enactment of new tax or
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abrogation of existing tax enacted after the
Contractual delivery /execution period, the adjustment
in the Contract Price shall be allowed within the
extended "Time for Completion" of the Contract.
14.6.2
The adjustment in the Contract Price towards
variation in the taxes shall be made by the Employer
on production of the documentary evidences by the
Contractor.
14.6.3
The Contract Price shall be adjusted towards
variations in taxes in respect of only finished
equipment supplied by the Contractor to the employer.
No adjustment in the Contract price shall be made for
variations in the taxes on raw materials, parts,
component I intermediate components , assemblies/
sub-assemblies etc.
Summary Price Schedule
S.N Description Prices (Currency)
o
Foreign Portion Indian Portion
(Euro) (INR)
SVAI- SVAI MT MBE
MT Linz India
A B C D E
1 Design &
Engineering
a Imported (FOB) 7,085,91 --- ---
(Refer Table-1) 6
b Indigenous (At site) 127,707,2
2 Supply of Plant &
Equipment
a Imported (FOB) 51,813,3 --- ---
(Refer Table 4A & 84
4B)
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b Indigenous (At site) 2,372,225, 385,222,400
(Refer Table 4A & 000/-
4B)
3 Supply of
Refractories
a Imported (FOB) n.a --- ---
(Refer Table 5)
b Indigenous (At site) n.a. n.a.
(Refer Table 6)
4 Supply of
Commissioning
Spares
a Imported (FOB) Included --- ---
(Refer Table 7) in Table
b Indigenous (At site) Included Included in Table
(Refer Table 6) in Table 4B
4A
5 Civil Engineering n.a. n.a. n.a.
Work including
supplies (Refer
Table 9) Supply &
Ejection of
Fabricated Building
Steel
6 Structures at site n.a. n.a. n.a.
including sheeting,
glazing and final
painting (Refer
Table -10)
7 Storage, Handling, --- 103,849,0 320,563,080
Commissioning and
P.G.Tests of Plant &
Equipment (Ref
Table 11)
8 Foreign Supervision Included 303, 372, ---
Charges in India in SVAI 000
during Erection, MT India
Start up, Price
Commissioning and
PG Tests of plant
and Equipment
(Refer Table 12)
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9 Training Charges 150,000 Included
(Refer Table 13) in Table
11A
10. Ocean Freight n.a. 103,157,0 ---
(excluding Import
Duty), Port
Clearance & Inland
Transportation for
imported
items for which
prices are quoted in
foreign currency
(inclusive of Service
Tax & Education
Cess Rs. 11,347,000)
11. Comprehensive n.a. 40,337,00 ---
Insurance (Refer
Clause no. 36 of
GCC) (Incl. of
Service Tax & Edu.
Cess Rs4,437,000)
12. Total Contract Price 59,049,3 3,050,647, 705,785,480
(1 to 11) 00 252
Total Contract Price 59,048,3 3,756,432,732
(1 to 11) Total Euro 00
& INR Values
13. Guaranteed amount 330,670,2 87,669,480
on total contract
pride
14. Guaranteed amount 14,816,000
of input tax credit on
VAT
15. Total contract price 271,99,77, 603,300,000
input tax credit on
VAT ENTRY TAX
Total Contract Price (Net of CENVAT &VAT/ ENTRY TAX):
Indian Currency (in words) (SVAI MT India Portion): Rupees Two
hundred seventy one crore ninety nine lakh seventy seven thousand only.
Indian Currency (in words) (Mchally Bharat Portion): Rupees Sixty crore
thirty three lakh only.
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Signing Date:16.03.2020
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Foreign Currency (in words) (SVAI MT Linz Portion): Euro Five crore
ninety lakh forty nine thousands three hundred only.
Note: All the necessary documents for availing the
CENVAT credit shall be furnished, else balance shortfall
shall be deducted from the contract price item serial no.12
above.
Primetals Technologies India Pvt. Ltd.
Sd/-"
17. Upon a perusal of the relevant clauses, more
specifically Clause 14.5.6 of the contract, I find that the
contract specifically envisages that in case of any shortfall in
the CENVAT credit as against the minimum guaranteed
CENVAT Credit, the same shall be deductible from the
amount payable to the contractor. However, since this clause
does not specify the amount from which the said shortfall
would be deductible, the answer to this quandary lies in the
note at the bottom of the summary price schedule appended to
the contract. A plain reading of this note makes it evident that
the only logical interpretation of the phrase 'contract price'
for the purpose of Clause 14.5.6 of the contract is that any
deduction on account of shortfall viz. the guaranteed
CENVAT credit had to be made from the gross contract price
at serial No.12 and not from the net contract price at serial
No.15.
18. In the light of this position, I find no merit in
Mr.Sethi's primary contention that the sum of
Rs.5,01,47,631/- towards the admitted shortfall in CENVAT
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credit was required to be deducted from the net contract price
mentioned at serial no.15 of the summary price schedule and
not from the gross contract price mentioned at serial no.12
thereof. In fact, the petitioner's submission that a deduction
from the gross contract price at serial No.12 also
contemplated deduction from the net contract price at serial
no.15 is in the teeth of the plain language employed in the
contract.
19. I find that the learned Arbitrator has, after considering
the summary price schedule as also the terms of the contract,
come to a categorical conclusion that the deduction could be
made only from the gross contract price referred to at serial
no.12. Thus, I have no hesitation in concurring with the
findings of the learned Arbitrator that any shortfall in the
CENVAT credit payable by the respondent, could be
recovered only by making requisite deductions from the gross
contract price mentioned at serial No.12 of the summary price
schedule. The relevant observations of the learned Arbitrator
in this regard reads as under:-
"61. CENVAT credit, conceptually is a credit in
respect of Central Excise on inputs purchased for the
manufacture or the duty paid in relation to
manufacture of the final product. Authoritative texts
elucidate, that CENVAT credit is also available in
respect of duty paid on capital goods, which include
machinery, plants, spare parts of machinery etc.
CENVAT
credit is thus comparable to a credit balance in bank
account that can be adjusted towards the Excise Duty
payable.
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62. As the discord patently, is traceable to the
provisions of the Contract Agreement and the GCC,
reference ought to be made to those relevant and
extracted herein before. For ready reference, in
addition, Article 1.2 and 1.3 of the Contract
Agreement are set out herein below:
"Contract Agreement:
1.2 Contract Documents (Reference GCC Clause 2)
The· followinq documents shall constitute the
Contract between the Employer and the Contractor
and each shall be read and construed as an integral
part of the Contract.
(a)This Contract Agreement and Appendices hereto.
(b)General Conditions of Contract and Annexures
hereto.
(c) Contract Technical Specifications.
(d)General Technical Specifications.
1.3 Order of Precedence (Reference GCC Clause 2)
In the event of any ambiguity or conflict between the
Contract Documents listed above) the order of
precedence shall be the order in which the Contract
Documents are listed in Article 1.2 (Contract
Documents) above. (emphasis supplied)
A plain reading of the Articles of the Contract
Agreement quoted hereinabove, testifies that the
documents listed in Article 1.2, constitute the contract
and are to be read and construed as an integral part
thereof and that in the event of any ambiguity or
conflict between these, the order of precedence for
determining the primacy thereof would be the order in
which these are listed in Article 1.2. In other words,
in case of conflict between any provision of the
Contract Agreement and the Appendices thereto and
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that of the General Conditions of Contract and
Annexures thereto, for an instance, surfaces, the
provision in the Contract Agreement and the
Appendices thereto, would prevail.
63. Whereas to reiterate, a combined reading of
Article 2.1 of the Contract Agreement and Clauses
11.2.1, 14.1 and 14.1.1 quoted herein above, evinces
that the Total Contract Price is inclusive of all taxes
and duties as on the Base date and the Basic price
constitutes the consideration under the contract.
Clause 14.5.6, requires the Contractors to indicate
Minimum Guaranteed CENVAT Credit that can be
availed by the Employer, against materials supplies
for subject work, so much so that in case of any
shortfall in CENVAT credit from that guaranteed by
the Contractor, the shortfall
shall be deducted by the Employer from the
Contractor and in case of excess of CENVAT, 50% of
the excess CENVAT amount would be paid to the
Contractor.
Clause 14.6 deals with variations in taxes and duties
and Clause 14.6.1, 14.6.1.1 and 14.6.1.2 of the GCC
comprehend adjustment in Contract
Price on variation in the rate of taxi abolition of any
taxi imposition of new tax. Clause 14.6.1 in particular
reiterates, that the "Contract Price" specified in
Article 2 of the Contract Agreement is based on the
taxes, duties, levies etc., and charges prevailing on
Base date and prescribes that, if any rate of tax is
increased or decreased, a new tax is introduced and
existing tax is abolished or any change in
interpretation or application of any tax occurs in the
course of performance of the contract, which was all
to be assessed on the Contractor, sub-Contractor or
their Employees in connection with the performance
of the contract, an adjustment of
Contract Price shall be made as per Clauses 14.6.2
and 14.6.3, by addition to the Contract Price or
deduction therefrom as the case may be.
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.......
71. The cognate provisions of the Contract Agreement
and GCC on the issue as set out hereinabove, present
a complete scheme, to be interpreted in a manner, to
sustain the cohesiveness and the efficacy thereof, as
intended by the parties. They ought not to be
interpreted in isolation to be in conflict with each
other and be mutually extinctive, making the Contract
Agreement and the GCC unworkable. The 'Note' to
the Summary Price Schedule, Clause 14.5.6 and 14.6
of the GCC and Clause 3 of the MOU, thus, have to
be read with harmonious orientation. Apart from the
fact that Clause 14.5.6 of the GCC and Clause 3 of
the MOU, in the comprehension of the Tribunal, do
not permit the deduction of the shortfall amount in
minimum guaranteed CENVAT credit, otherwise than
from the Total Contract Price, had the parties
intended, such deduction from the Running Bills of the
Contractor, these Clauses would have been expressly
worded to that effect."
20. The petitioner's challenge to the learned Arbitrator's
directions with respect to reimbursement of the CST paid by
the respondent's sub-contractors/vendors to the respondent is
equally meritless. I find that the learned Arbitrator has, after
examining Clause 14.1 of the contract, concluded that the
price agreed upon between the parties clearly includes all
taxes to be reimbursed to the respondent. Therefore, merely
because some input taxes were not paid directly by the
respondent but by its sub-contractors/vendors in respect of
goods used in the execution of the contract, the same could
not be a ground for the petitioner to refuse reimbursement
thereof to the respondent. In this regard, the learned
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Arbitrator has observed as under:-
"44. On a combined consideration of all the materials
on record, this Tribunal is of the view that the
Claimant's remaining claim for reimbursement of
CST for the amount of Rs.1,90,56,702.38 deserves to
the allowed in full and the denial thereof by the
Respondent on grounds urged by it, is wholly
unsustainable in law and on facts. Further, the
Respondent having made the payment of the Excise
Duty component in the same sale transactions, its
approach to deny reimbursement of the CST paid by
the Claimants/Vendors in the first interstate sales,
having regard to the entire conspectus of law, the
contractual stipulations and the materials on record
is wholly in defiance of logic. The materials on record
evince, that the parties on a correct understanding of
the terms and conditions thereof pertaining to the
nature of sale transactions to be undertaken, did
participate therein and in the process, the statutory
form/certificate had been issued on due verification of
all aspects and endorsed by the Tax authorities as
well. The Respondent's specious plea of denying the
reimbursement of CST to the Claimant on the ground
that it did not charge CST on the sale value of the
transaction of sale by it to the Respondent, flies in the
face, not only of the statutory provisions involved and
the judicial enunciation thereof as well as the
contemporary documents on record including the
letters dated 05.03.2010 and 25.06.2014 of the
Respondent acknowledging the sales in favour of the
Respondent as "Sale-in-Transit", the Respondent's
demurer, that it being a predetermined buyer at the
stage of the first interstate sale, the subsequent sale in
its favour does not qualify for a sale in transit, is in
view of the above referred judicial renderings, flawed
and indefensible, as the law permits two successive
sales and it is wholly inconsequential whether the
ultimate buyer at the stage of first sale is known or
not.
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To reiterate, the Respondent having consciously
acknowledged the sale in its favour to be a sale in
transit, had issued Form "C" and had availed the
concessional rate of tax of 2%, its plea against
estoppel, in the facts and circumstances of the case
also cannot be sustained. As a matter of fact, as is
borne out by the records, the Respondent continued to
issue such Form "C" pertaining to the subsequent
sales in the Claimant's favour even after the letter
dated 05.08.2014 of its expert, Mr.B.S.P. Roy. As the
sales by the Claimant in favour of the Respondent,
being sale-in-transit, were exempt from CST, the
latter's contention that it was not liable to reimburse
the CST as the same was not charged by the Claimant
on such sales, is patently fallacious.
xxx
54. The plea of the Respondent, in the above
overwhelming perspectives that as the Claimant has
not raised CST invoice in respect of the sales made by
the Claimant to it (Respondent) and that therefore,
Section 9(1) of the Act is attracted, is to be mentioned
only to be rejected. Such sales being in form and
substance, sale-in-transit, as per Section 6(2) of Act,
1956, this contention is non est in law. Its avowal that
the amount of CST paid by the vendors/Claimant in
the first Interstate sale had been included in the cost
price of the Claimant and that by seeking
reimbursement thereof, it was endeavouring to reap
undue benefits is also in the realm of speculation,
more particularly in the face of categorical denial
thereof by the Claimant in its rejoinder and the failure
of the Respondent to discharge its burden with regard
thereto. Even otherwise, a bare perusal of Table 4A,
would unequivocally proclaim that ST/VAT/CST can
by no means be a part of the Total Basic Price and is
independent and severable therefrom. Mere reference
of any commercial business practice by the
Respondent to this effect does not, in the opinion of
the Tribunal, prove this imputation against the
Claimant.
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The Respondent's plea that it did not stand to
gain in the bargain, though CST at concessional rate
of 2% had been charged on the first interstate sales
and that the subsequent sales in its favour had been
exempted therefrom, also belies logic and is on the
face of records, unsound and unsustainable. Its plea,
that the Claimant's invoices referring to the
expression "Price Enhancement" though labelled as
CST/Tax invoices, do not qualify for reimbursement of
CST also, in the facts and circumstances of the case is
untenable and is rejected.
xxx
56. The interstate sales referred to and proved by the
Claimant in the instant proceedings and which form
the basis of its claim for reimbursement of CST, do
constitute "sale in transit" in terms of Section 6(2) of
Act, 1956.
The supplies made by the Claimant to the
Respondent, pursuant to the interstate sales involved,
are in accordance with the Contract Agreement
between the parties and the relevant clauses of the
GCC more particularly Clause 33.2 of the GCC and
having regard to the arrangement effected to execute
the sale-in-transit, no separate/ fresh Contract
between the Claimant and the Respondent was
necessary after the interstate sales between the
Claimant and its vendors. The interstate sales in
succession between the Claimant and the vendors and
the Respondent, in a progressive sequence in
continuum, are valid in law and as contemplated by
the parties.
Having regard to the scheme of the Contract
Agreement and the GCC pertaining to "sale in
transit", the fact that the Respondent was a
predetermined buyer at the time of the first interstate
sales between the Claimant and its vendors, is
inconsequential and does not in any way render the
sale in transit in the instant case, under Section 6 (2)
of Act 1956, non est.
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The Respondent's plea that it did not in any way
participate in the sales in transit, in the face of the
overwhelming materials on record to the contrary is
negated. The Respondent, having consciously issued
the declarations in Form 'C' qua the sales in transit
after actively participating therein, being aware of all
the relevant facts and circumstances and the
significance of the sale dispatch documents involved,
it cannot be permitted to take refuge under the cover
of the plea of no 'estoppel against law'. It having
issued the Form 'C' qua the sales in transit involved,
in discharge of its statutory obligations and being
fully cognizant of the significance and consequences
thereof, if cannot be permitted wriggle out of its
responsibilities on such plea. It having acted in
accordance with law in issuing the Form „C‟ in terms
of Act 1956 and the contractual stipulations, it cannot
be allowed to retrace its path and avoid its
obligations under the Contract. To reiterate, the
Respondent's contention that the CST paid by the
Claimant's vendors had been included in the Total
Basic Price! Cost of the Claimant as per the normal
commercial practice also does not commend for
acceptance, in absence of pleadings or proof with
regard thereto, and thus is wholly speculative
warranting rejection thereof.
57. In view of the determination made hereinabove,
the Claimant's claim of reimbursement of CST of
Rs.2,82,73,811.35 is upheld. The payment of
Rs. 92,16,537.03 by the Respondent towards this head
is in accordance with the relevant contractual
provisions and Act 1956, and the rules framed
thereunder. Resultantly, the Claimant's claim for
balance principle amount of Rs.1,90,56,702.38 is
allowed, on a consideration of all aspects bearing on
the issue. The Respondent's counter claim of
Rs.92,16,537.03 is rejected."
21. It is thus evident that the learned Arbitrator has, after
interpreting the various clauses of the contracts, including
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clause 14.1 of the GCC, arrived at a categorical conclusion
that the respondent was entitled to reimbursement of the CST
paid by its sub-contractors/vendors, with which conclusion I
find no reason to interfere. Even otherwise, when the
findings of an award rest on an interpretation of the
provisions of the contract between the parties, the Court,
while examining the award under Section 34 of the Act,
cannot interfere with the same, even if another interpretation
is possible. In this regard, reference may be made to
paragraph 22 of the decision of this Court in Union of India
through Ministry of Youth Affairs and Sports Department
of Sports CWG Delhi 2010 Cell vs. GL Litmus Events
Private Limited OMP(COMM.)30/2020 dated 29.01.2020,
which reads as under:-
"22. Even otherwise, the impugned award hinges
upon the interpretation of Clauses 11.4 and 38 of the
Agreement by the Tribunal; this must be considered in
the light of the settled legal position that once the
arbitrator interprets the provisions of an agreement
between the parties, the Court while examining the
award under Section 34 of the Act will not interfere
with the same merely because another interpretation
is possible. In any event, in the present case, I am of
the view that the interpretation of Clause 38 by the
Tribunal is not only correct but is the only possible
interpretation. In this regard, reference may be made
to the decision in National Highways Authority of
India vs. ITD Cementation India Ltd. (2015) 14 SCC
21 wherein the Supreme Court was dealing with the
question of interpreting the terms of a contract, which
formed the basis of the dispute, and proceeded to
reiterate the settled legal principles in that regard as
under:-
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"25. It is thus well settled that construction of the
terms of a contract is primarily for an arbitrator to
decide. He is entitled to take the view which he holds
to be the correct one after considering the material
before him and after interpreting the provisions of the
contract. The Court while considering challenge to an
arbitral award does not sit in appeal over the findings
and decisions unless the arbitrator construes the
contract in such a way that no fair-minded or
reasonable person could do."
22. At this stage, reference may also be made to
paragraph 17 of the GL Litmus Events Private Limited
(supra) which reads as under:-
"17. Before I deal with the rival contentions of
learned counsel for the parties, a reference may be
made to a recent decision in Hindustan Construction
Company Limited & Ors. Vs. Union of India & Ors.
2019 (16) SCALE 823 wherein the Supreme Court
reiterated the scope and grounds of judicial
interference in an arbitral award under Section 34 of
the Act; the relevant paragraph reads as under:
"49. Further, this Court has repeatedly held that an
application Under Section 34 of the Arbitration Act,
1996 is a summary proceeding not in the nature of a
regular suit - see Canara Nidhi Ltd. v. M. Shashikala.
As a result, a court reviewing an arbitral award
Under Section 34 does not sit in appeal over the
award, and if the view taken by the arbitrator is
possible, no interference is called for - see Associated
Construction v. Pawanhans Helicopters Ltd. (2008)
16 SCC 128 at paragraph 17.
50. Also, as has been held in the recent decision
Ssangyong Engineering & Construction Co. Ltd. v.
NHAI 2019 SCC Online 677, after the 2015
Amendment Act, this Court cannot interfere with an
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arbitral award on merits (see paragraph 28 and 76
therein). ...."
23. Mr.Sethi has also vehemently urged that the learned
Arbitrator erred in awarding interest at an exorbitant rate of
14% per annum, for which purpose he has relied on Vedanta
v. Shenzen Shadong Nucleur Power Construction Co. Ltd.
Civil (2019) 11 SCC 465 wherein the Supreme Court held as
under:-
"9. The discretion of the arbitrator to award interest
must be exercised reasonably. An Arbitral Tribunal
while making an award for interest must take into
consideration a host of factors, such as: (i) the "loss
of use" of the principal sum; (ii) the types of sums to
which the interest must apply; (iii) the time period
over which interest should be awarded; (iv) the
internationally prevailing rates of interest; (v)
whether simple or compound rate of interest is to be
applied; (vi) whether the rate of interest awarded is
commercially prudent from an economic standpoint;
(vii) the rates of inflation; (viii) proportionality of the
count awarded as interest to the principal sums
awarded.
xxx xxx xxx
16. The imposition of a high rate of interest @ 15%
post-120 days is exorbitant, from an economic
standpoint, and has no co-relation with the prevailing
contemporary international rates of interest. The
award-debtor cannot be subjected to a penal rate of
interest, either during the period when he is entitled
to exercise the statutory right to challenge the award,
before a court of law, or later. Furthermore, the
Arbitral Tribunal has not given any reason for
imposing a 15% rate of interest post 120-days."
24. Though Mr.Markanda has tried to justify the award of
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interest at the rate of 14% per annum by contending that the
same was based on a consideration of the facts and
circumstances of the present case, and therefore this Court
should not interfere with the same. I, however, find that the
learned Arbitrator, while awarding interest at the rate of 14%,
per annum has given absolutely no reason for the same;
which, admittedly, is much higher than the prevailing rates of
interest. In this regard, Mr.Sethi's reliance on Vedanta
(supra) is merited. I am, therefore, of the opinion that the
award of interest @ 14% per annum by the learned Arbitrator
is not only unreasoned but is, even otherwise, highly
excessive and virtually in the nature of a penal interest when
considered in the light of the prevailing rates. The grant of
such a rate of interest in today's scenario is against public
policy and, therefore, the same is liable to be reduced.
Accordingly, the rate of interest awarded in favour of the
respondent under the impugned award is reduced to 10% per
annum, which is in tune with the prevailing market
conditions, applicable for all the three periods, i.e., pre-award,
pendente lite award and post-award periods.
25. Insofar as the petitioner's challenge to the costs of
arbitration awarded in favour of the respondent is concerned,
since the respondent has fairly expressed its willingness to
accept 50% of the costs of arbitration, instead of full cost as
granted under the impugned award, I need not delve into this
aspect. Accordingly, the direction in this regard is modified
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and the petitioner is directed to pay 50% of the actual costs of
arbitration amount incurred by the respondent as determined
by the learned Arbitrator.
26. Before I conclude, I may note that Mr. Sethi has
vehemently urged that in view of Clause 4.2 of the contract,
the respondent is not entitled to claim any escalation or raise
any future bills towards escalation qua the contract. However,
since this issue was not the subject matter of the impugned
award, I have consciously refrained from examining this
aspect despite the petitioner's vehement arguments in this
regard. It is, however, made clear that in case any claim is
raised by the respondent in the future towards escalation, the
same would be considered on its own merits.
27. The petition along with pending applications are,
accordingly, disposed of in the aforesaid terms.
REKHA PALLI, J
MARCH 12, 2020/sr
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