Karnataka High Court
M/S. Jyothy Fabricare Service Ltd vs The Senior Divisional Commercial ... on 7 March, 2025
Author: Krishna S Dixit
Bench: Krishna S Dixit
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WA No.3253/2018
IN THE HIGH COURT OF KARNATAKA AT BENGALURU
R
DATED THIS THE 7TH DAY OF MARCH, 2025
PRESENT
THE HON'BLE MR JUSTICE KRISHNA S DIXIT
AND
THE HON'BLE MR JUSTICE RAMACHANDRA D HUDDAR
WRIT APPEAL NO.3253 OF 2018 (T-RES)
BETWEEN:
M/S. JYOTHY FABRICARE SERVICE LTD.,
NO.903, 9TH FLOOR, NORTH BLOCK, (REAR WING)
MANIPAL CENTRE, DICKENSON ROAD,
BANGALORE-560 042.
(REPRESENTED BY MS.CHAITRA KARANTH H N,
LEGAL OFFICER
AGED ABOUT 30 YEARS,
D/O MR.NAGESH KARANTH H K)
...APPELLANT
(BY SRI.V RAGHURAMAN., SENIOR COUNSEL A/W
SRI. BHANUMURTHY J S., ADVOCATE)
AND:
THE SENIOR DIVISIONAL COMMERCIAL MANAGER
BANGALORE DIVISION,
SOUTH WESTERN RAILWAY,
DIVISIONAL OFFICE, BANGALORE-560 023.
...RESPONDENT
(BY SRI.ABHINAY Y T.,ADVOCATE)
THIS WRIT APPEAL IS FILED UNDER SECTION 4 OF THE
KARNATAKA HIGH COURT ACT PRAYING TO I) ALLOW THE
WRIT APPEAL AND SET ASIDE THE JUDGMENT OF THE
LEAREND SINGLE JUDGE IN WP 24097/2015 AND 30354/2015
DATED 22/10/2018 AND II) GRANT RELIEFS AS PRAYED FOR
IN WP 24097/2015 AND 30354/2015.
THIS WRIT APPEAL HAVING BEEN RESERVED FOR
ORDER, COMING ON FOR PRONOUNCEMENT THIS DAY,
KRISHNA S. DIXIT.J., PRONOUNCED THE FOLLOWING:
CORAM: HON'BLE MR JUSTICE KRISHNA S DIXIT
AND
HON'BLE MR JUSTICE RAMACHANDRA D HUDDAR
CAV JUDGEMENT
(PER: HON'BLE MR JUSTICE KRISHNA S DIXIT)
This intra-court appeal seeks to call in question a
learned Single Judge's order dated 22.10.2018 whereby,
appellant's W.P.No.24097/2015 & W.P.No.30354/2015
have been negatived. In the said petitions, essentially, he
had sought for a Writ of Mandamus to the respondent-
Railway to reimburse service tax component in terms of
tender documents followed by contract in the light of
subsequent amendment of law relating to Service Tax
Regime w.e.f. 1.7.2012. The said amount has been
quantified at Rs.31,37,692/-.
2. Appellant, a company incorporated under the
provisions of erstwhile Companies Act, 1956, is engaged in
the business of providing wet washing services, wash
bedrolls that are ordinarily used by the Railway
passengers. During the period between 20.12.2009 &
11.06.2012, the appellant-Company has won thirteen
agreements with the respondent-Railway in a public tender
process for providing the services of collection of soiled
linens, washing, loading of washed linens in coaches and
supplying washed bedrolls to Railway passengers. All
these contracts were entered into prior to 1.7.2012 i.e.,
the crucial date with effect from which the Service Tax
Regime underwent a paradigm shift in the sense that what
was selectively taxable became the exception, all services
having become taxable. In other words, negative list
taxation regime came into operation. During the contract
period, only the service of dry cleaning was taxable and
wet cleaning was not.
3. The respondent-Railway despite half a dozen letters
sent by the appellant during the period between 9.10.2012
to 26.7.2013 for claiming reimbursement of service tax
component, maintained stony silence. Eventually, that led
to appellant sending a legal notice dated 29.10.2014 in
that connection calling upon the Railways to make good
the service tax component specifically mentioning the
amendment to Finance Act, 1994 read with Central Excise
Act, 1944. The Railways vide reply dated 12.11.2014
repelled the claim on the ground that the terms of the
contract did not impose any such obligation on their part
and that the passengers were charged by the Railways as
per their schedule with no separate collection from them
for bedrolls. A legal reply notice dated 23.12.2014
followed to the same effect.
4. Appellant had filed the subject writ petition grieving
against the stand of the Railways. After service of notice,
Railways entered appearance through its counsel and filed
their Statement of Objections resisting the petition both on
merits and on the ground of availability of arbitration
facility. Learned Single Judge broadly agreed with the
version of the Railways and dismissed the petition
relegating the appellant to arbitration. Aggrieved thereby,
this appeal is presented at our hands.
5. Having heard the learned Senior Advocate appearing
for the appellant-Company and the learned Senior Panel
Counsel representing the respondent-Railways, we are
inclined to grant indulgence in the matter for the following
reasons:
5.1 AS TO ARBITRATON CLAUSE BARRING INVOCATION
OF WRIT JURISDICTION:
(a) The contracts for rendering of cleaning services
were entered into prior to 1.7.2012 and at that time there
was no service tax levy on wet cleaning services. True it
is that there is an arbitration clause in the agreements in
question which reads as under:
"If any dispute, difference or question shall
arise between the Railway Administration and
the contractor as to the respective rights,
duties and obligations of the parties here to or
as to the constructions or interpretations of any
of the terms and conditions of the agreement
as to its applications (except the decision
whereof if herein expressly provided for) then
the same shall be referred to the Chief
Commercial Manager of South Western
Railway, whose decision shall be final."
(b) The first contention of learned Panel Counsel
appearing for the Railways that the arbitration clause
would be an alternate & efficacious remedy and therefore
consistent with learned Single Judge's order the appellant
should explore the same, is bit difficult to countenance.
Reasons for this are not far to seek:
(i) Firstly, the arbitration clause is hit by the Apex
Court decision in CENTRAL ORGANISATION FOR RAILWAY
ELECTRIFICATION vs. ECI SPIC SMO MCML (JV)1.
Therefore, the subject arbitration clause is liable to be
ignored for all practice purposes.
(ii) Secondly, the question is not as to the liability
to pay the service tax in respect of services in question; it
is essentially as to who should pay this in the light of
change of legal regime of taxation post conclusion of
contracts. In fact, in Railways Reply Legal Notice dated
23.12.2014, at para 3, it is specifically admitted 'It is true
that the service tax is indirect tax and has to be
necessarily collected from the receiver of services. My
client has already discharged the service tax portion to
your client since cost as per tenders as quoted by your
client includes the service tax portion also. Therefore, my
client need not reimburse the service tax twice... ' Thus,
there being no repudiation of liability for discharging the
service tax, it cannot be argued that there is an arbitrable
dispute merely because a question as to who should pay,
eventually arises. This view gains support from the
Coordinate Bench decision in W.A.No.1427/2021 (T-RES)
between HUBBALLI DHARWAD SMART CITY LIMITED vs.
MAS CONSTRUCTIONS disposed off on 31.01.2025.
(iii) Thirdly, an arbitration clause of the kind even
otherwise does not constitute a China Wall against
exercising writ jurisdiction. In appropriate cases, Writ
2024 SCC Online SC 3219
Court can grant relief when the answering respondent
happens to be Article 12-Entity in the light of R.D.SHETTY
vs. INTERNATIONAL AIRPORT AUTHORITY OF INDIA2. It
is not that the Writ Courts should invariably deny relief
merely because the other side disputes the fact matrix,
provided that the disputed facts can be ascertained from
the pleadings & record. Justice Oliver Wendell Holmes,
a century ago has said in DAVIS vs. MILLS3:
"Constitutions are intended to preserve
practical and substantial rights, not to maintain
theories...".
5.2 AS TO STAND OF THE RAILWAYS EMANATING FROM
ITS LEGAL REPLY NOTICE:
(a) The vehement contention of learned Panel Counsel
appearing for the Railways that his client is not at all liable
to reimburse the service tax component under the terms
of contract, is contrary to its stand taken up in the legal
reply notice dated 23.12.2014 wherein at page 2 it is
stated as under:
"My client admits that generally the liability
to pay service tax has been placed on the
'service provider' except in certain case. The
contractor to whom bed rolls contract is
awarded is the Service Provider and is liable for
service tax for his activities of providing bed
rolls. Thus, my client is committed to observe
AIR 1979 SC 1628
194 U.S. 451 (1904)
all statutory obligations of the Service Tax
laws.
It is stated in your legal notice that in view
of applicability of section 12B so as to read it
with section 12A of the Central Excise Act
corresponding to section 83 of the Finance Act,
1994, an deemed presumption regarding
passing of service tax on the recipient of
service would be created automatically. Thus
as per foregoing provisions the provider of
service who is an assessee under Section 65 of
the Finance Act has to collect service tax from
the users of service."
(b) There are certain paragraphs in the subject
Legal Reply Notice which purport to repudiate claim of the
appellant for reimbursement of tax component, is true.
However, on the principle of reimbursement as such, there
is no dispute at all. The dispute is the extent of
reimbursement in the sense that what is payable by way
of service tax because of paradigm shift in the Legal
Regime, with effect from 1.7.2012 i.e. post-contract
period.
5.3 AS TO SPECIFIC CLAUSES IN THE TENDER/CONTRACT
DOCUMENTS:
(a) The next contention of learned Panel Counsel is
that the Price Bid for comprehensive work of supply,
washing and distribution of Bed Rolls to the passengers of
AC includes rate inclusive of all applicable taxes and levies
etc. This argument is structured on the basis of clause
(xvi) of Agreement No.04/MECH/SBC/2012 dated
11.06.2012 which reads as under:
"(xvi) Successful tenderer has to pay
necessary Service Tax wherever levied or
becomes leviable or as and when advised by
the Service Tax Department. Failure to do so
shall lead to termination of contract and
forfeiture of Security Deposit (SD) and
Performance Guarantee (PG). Railway
Administration may also recover the same from
any pending bills of the successful tenderer."
(b) Learned Sr. Advocate appearing for the
appellant is right in telling us that this clause cannot be
construed as absolving obligation of the Railways to
reimburse the service tax component. This submission
impresses us in the light of admission of the Railways in its
Legal Reply Notice, relevant part of which is reproduced
above. This clause is in the nature of a warning to the
contractor that he should discharge the initial liability by
paying the service tax so that no coercive proceedings
may be taken against the officials of the Railways, owing
to the lapse of contractor, and nothing beyond. This
accords with the stand taken by the Railways in the Reply
Notice. Added, the said clause is applicable only in respect
of TDS like taxes and not service tax since there is no such
provision in the Finance Act, 1994.
(c) Learned Panel Counsel next brought to our
notice Note-1 of Price Bid vide Tender Notice
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No.08/SBC/MECH/2011 dated 22.12.2011 which is a part
of the tender document. The same reads as under:
"Tenderer(s) should quote the rate inclusive of
all applicable taxes and levies, etc."
He submits that the rates quoted by the appellant thus
necessarily include the applicable taxes & levies and
therefore that obligation does not rest on the shoulders of
Railways. This is bit difficult to agree with and reasons are
not far to seek:
(i) Firstly, if that is the kind of interpretation, why
is that the Railways has reimbursed the service
tax component all through, remains
unanswered. In fact, it is the case of the
Railways that it has already reimbursed the
service tax component, of course, at the agreed
rate.
(ii) Secondly, in their legal reply notice the
Railways have specifically admitted that they
are the service recipients, appellant being the
service provider, and further that it is the
obligation of the service recipient to discharge
tax component.
(iii) Section 83 of Finance Act, 1994 read with
Sections 12A & 12B of Central Excise Act, 1944
raises a presumption that the incidence of duty
can be passed on to the buyer unless contrary
is proved and therefore, being an indirect tax,
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has to be borne by the service recipient vide
Satya Developers Pvt. Ltd. vs. Pearey Lal
Bhawan Association4, and; Meattles Pvt.
Ltd. Vs. HDFC Bank Ltd.5
(iv) When the contracts in question were
entered into in the year 2011, both the parties
had not contemplated change of legal regime
with effect from 1.7.2012 from Positive List to
Negative List eventually giving rise to new tax
liability. It is not just change of rates of tax,
but, very taxability. Therefore, the Railways
have to bear the brunt vide Govt. of NCT vs.
MBL Infrastructure6
5.4 AS TO DRAWING ANALOGY FROM SEC.64A OF THE
SALE OF GOODS ACT, 1930:
(i) The contention of the Railways that what has
not been contemplated when the parties negotiated the
contract, cannot be loaded to the shoulders of his client,
merely because there is change of law, does not merit
acceptance. There is a statute namely, the Sale of Goods
Act, 1930 which regulates the contract of/for sale or
purchase of goods. However, there is no corresponding
statute of the kind in respect of service and labour.
Section 64A of the Act that applies to sale of goods gives
. 2017 (3) GSTL 325 (Del.).
. 2016 (42) STR 655 (Del.).
2012 SCC Online Del 1465.
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an indication as to who should bear the brunt of new
taxes. The same reads as under:
"64A(1). In contracts of sale, amount of
increased or decreased taxes to be added or
deducted.-- (1) Unless a different intention
appears from the terms of the contract, in the
event of any tax of the nature described in sub-
section (2) being imposed, increased,
decreased or remitted in respect of any goods
after the making of any contract for the sale or
purchase of such goods without stipulation as
to the payment of tax where tax was not
chargeable at the time of the making of the
contract, or for the sale or purchase of such
goods tax-paid where tax was chargeable at
that time,--
(a) if such imposition or increase so takes
effect that the tax or increased tax, as the case
may be, or any part of such tax is paid or is
payable, the seller may add so much to the
contract price as will be equivalent to the
amount paid or payable in respect of such tax
or increase of tax, and he shall be entitled to
be paid and to sue for and recover such
addition; and
(b) if such decrease or remission so takes
effect that the decreased tax only, or no tax, as
the case may be, is paid or is payable, the
buyer may deduct so much from the contract
price as will be equivalent to the decrease of
tax or remitted tax, and he shall not be liable
to pay, or be sued for, or in respect of, such
deduction."
(ii) Sec.64A of our 1930 Act is modeled from Sec.10
of English Finance Act, 1910 which permits the seller to
add tax component to the agreed price for the sale of
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goods, if such tax levy is because of a statute enacted
post conclusion of contract. There are some differences
between our law and their law, is true; however that
difference is not relevant to our discussion. Firstly,
Sec.64A regulates the rights & liabilities between the seller
and the buyer. It deals with two distinct things:
Imposition of tax and increase of tax, occurring in clause
(a). Where tax is chargeable at the time of making of the
contract, any increase subsequently will be covered by
clause (a). The intent of the Parliament is as clear as
Gangetic waters: No party to a contract should be made to
unjustly gain or suffer on account of the State action in
increasing or decreasing duty. If the duty is increased the
liability is on the buyer and if it is decreased the liability to
refund such part is on the seller. The clauses of
tender/contract document which the Panel Counsel heavily
banked upon as above have to be understood in the light
of this provision.
(iii) True it is, that section 64A as such cannot be
invoked because the case does not relate to tax on goods;
however that does not mean that the wisdom of its
underlying principle cannot be made use of by analogy.
We are aware of the difference between goods and
services. There is terminological difference also when it
comes to usage: ordinarily it is said 'goods are sold or
bought' whereas 'service is rendered'. Goods are tangible
whereas services need not be so. Consideration for sale
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of goods is price; such terminology is not employed when
it comes to rendering of service. In a sense salary,
wages, charges, etc. are employed in lieu of price. Of
course, the words consideration is genus and price,
salary, wages, charges, etc. are species. All this being
said, there is one common thing between these two: Both
are taxed, although under different statutes. The basic
principle on which levy is enacted, thus largely remains
the same, variance in modalities notwithstanding. All this
we are saying to point out that there is nothing that bars
drawing of wisdom of a provision of a statute, which may
not be applicable to transactions of the kind, the case
involves.
(iv) We are asking ourselves a question: Had the
levy of service tax on services of the kind is abolished by
an Ordinance with retrospective effect, whether Railways
would have allowed the appellant to retain the quoted
rates which admittedly include the tax component ? The
answer would be perfectly in the negative. As a corollary
of this the recipient of services like the buyer of goods
has to bear the new levy of service tax occasioned by
State action namely the amendment to Finance Act, 1994
w.e.f. 01.07.2012, which obviously is post conclusion of
contracts in question. Any other answer or view would
strike at reason, at law and at logic.
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In the above circumstances, this appeal succeeds
and impugned order of the learned Single Judge is set
aside; appellant's WP No.24097/2015 & WP
No.30354/2015 are allowed. A Writ of Mandamus issues
directing the respondent-South Western Railway to
reimburse to the appellant all that amount which it has
paid by way of service tax, with 9% interest p.a. from the
date the amount became payable, within eight weeks.
Delay if brooked would carry additional interest at the rate
of 1% per mensem and the same may be recovered from
the erring officials.
Sd/-
(KRISHNA S DIXIT)
JUDGE
Sd/-
(RAMACHANDRA D. HUDDAR)
JUDGE
Snb/cbc/SK
