IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
ARBITRATION PETITION NO.76 OF 2007
Maharashtra State Road Development
Corporation .. Petitioner Versus
IJM Corporation Berhad (IJM) - Satyam
Construction Ltd. (SCL) (Joint Venture) .. Respondent. Mr.E.P.Bharucha, Senior Advocate i/b. Amarchand & Mangaldas for petitioners
Mr.Ramesh Dhanuka with Vaishashi Chaudhary i/b. Mrs.A.R.Dhanuka for respondents.
CORAM : S.C.DHARMADHIKARI, J.
Reserved on : 29th August 2009
Pronounced on : 16th December 2009
1] By this petition under section 34 of the Arbitration and Conciliation Act, 1996 (for short "the Act"), the petitioner, Maharashtra State Road Transport Development Corporation, a Government of Maharashtra Undertaking, challenges the Award dated 28th November 2006 made by the Sole Arbitrator.
2] The Award directs the petitioners to pay to the respondents a sum of Rs.1,21,83,508 along with interest at the rate of 16% p.a. from 28th October 2002 till the date of Award provided the said amount is paid within 60 days from the date of the Award, failing which the respondents are held to be entitled to interest till the date of payment. A copy of this Award is annexed as Annexure A to the petition.
3] The facts leading to this petition are that, the petitioner invited bids for the construction of Mumbai Pune Expressway section from Kon to Chowk (from 1.6 Kms. To 14.84 Kms. in length) i.e. total stretch of about 13.2 Kms. The work included construction of bridges, cross drainage work, via ducts and other structures. The respondents submitted its bid on 18th December 1997 of approximately Rs.136.82 Crores. The period of completion was specified as 27 months. It is the case of the petitioner that the bid amount included sales tax and other taxes on all materials that may be purchased for the purpose of the contract. The bid was accepted by letter dated 1st January 1998 and the contract came to be awarded. The agreement dated 23rd January 1998 was executed and 3
instructions were given to proceed with the work on the same date, the date of completion being 22nd April 2000.
4] It is then alleged that during the execution of the work, disputes and differences arose between parties on account of payment of works contract on interpretation of clause 8 of the Addendum to the contract. Disputes arose, according to parties, in view of the amendment to the Maharashtra Sales Tax Act on the Transfer of Property and Goods involved in the execution of Works Contract (Re-enacted) Act, 1989 (for short (Works Contract Act, 1989).
5] It is then stated that the respondents claimed reimbursement of their entire liabilities words Works Contract Tax under the amended provisions (without deduction of any amount therefrom) and alleged that their liability to pay the said tax prior to the amendment of 1 st May 1998 was NIL. On the other hand it was petitioner's case that the respondent was only entitled to increase, if any, in works contract tax and that the liability to pay the said tax under the pre-amended provisions is in-tact. It was the case of the petitioner that the respondent failed and neglected 4
and/or refused to substantiate their claim by furnishing particulars and data as stipulated under Clause 8 of the Addendum, including the data, and particulars as to their liability to pay Works Contract Tax under the unamended provisions. In the absence of such particulars, it could not be determined, if there, was any increase at all. The respondent had failed to discharge the burden and hence it was not entitled to reimbursement. 6] It is stated that the works were completed on 22nd April 2000. The Road was opened for traffic from 1st May 2000. All other ancillary work was completed by October 2000 and the Takeover Certificate was issued on 21st October 2000. The total value of the works paid by the petitioner to the respondent was approximately Rs.151 Crores, including the price variations and extra items.
7] However, since the claim for works contract tax reimbursement was rejected, the respondent by letter dated 24th March 2004 purported to refer the dispute to the Engineer under clause 67.1 of the Contract. The Engineer rejected the claim by a letter dated 6th April 2004. Respondent then purported to refer the decision of the Engineer to the Steering 5
Committee under clause 67.2. This they did by their letter dated 24th April 2004. Finally, the matter came to be referred to the Arbitrator. Learned Arbitrator issued notices and passed preliminary orders with regard to filing of pleadings.
8] Respondents filed a statement of claim on 16th February 2006 under four heads, which are as under:-
1. Claim No.1- Reimbursement of Sales Tax on Works Contract recovered wrongly - Rs.1,68,48,311/-;
2. Claim No.2 - Claim for losses actually suffered by virtue of illegal recovery of the amount f Rs.1,00,00,000/-;
3. Claim No.3- Interest @ 18% p.a. till 17th February 2006 being Rs. 2,32,14,663/- ; and
4. Claim No.4 - Costs of arbitration - Rs.27,00,000/-" 9] The petitioner filed the statement of defence on 22nd March 2006 to which a rejoinder was filed on 6th April 2006 by the respondent. No oral evidence was led. Further, additional documents and information were 6
filed by the parties before the learned Arbitrator. 10] The Arbitrator made the impugned Award by holding that all Taxes as on the date of contract were deemed to have been included in the price quoted by the claimants and the claimants - respondent was entitled to get reimbursement of any increase in respect of tax on completed items as may be levied after the signing of the contract. Therefore, the entitlement of 1% tax payable on Rs.1,49,09,61,587 as per the immediate liability option will have to be further reduced by what could have been the tax liability of the respondent under the pre-amended Act based on the purchase data given by it. Relying upon the figures/ data (Exh.C-39), the learned Arbitrator reduced the amount and finally held that the respondent is entitled to reimbursement of Rs.1,21,83,508/-. The Arbitrator awarded interest at 16% on this amount as aforenoted. It is this Award which is impugned before me.
11] Mr.Bharucha, learned Senior Counsel appearing on behalf of the petitioner submitted that the impugned award is vitiated as it is against the specific terms of the Contract. He submits that it was incumbent upon 7
the respondent to have worked out the liability to pay tax. Firstly, as per section 6(1)(A)(a) up to 1st May 1998 and, thereafter, as per Section 6(1) (A). Secondly, as per section 6(1)(A), after amendment of 1st May 1998 and thirdly on the basis of composition as per Section 6(1)(A). In such circumstances, respondent should have, thereafter, paid the lesser of the two amounts under the second and third methods. Lastly, the amount actually paid by the respondent was more than the amount as per the liability at the time of entering into contract i.e. the amount worked out by the first method. Then this excess amount alone would have been on account of the petitioner as per clause 8. Respondents did not determine their tax liability as per this difference. They refused to furnish the data as obliged under clause 8, particularly as to their liability under the preamended provisions. In the absence of such particulars, it could not be determined, if there was any increase of the quantum in the tax paid by the respondent. The respondent completely failed to discharge the burden placed by clause 8 of the Addendum to the Contract and hence their claim was untenable.
12] The learned Arbitrator did not consider any evidence of the items to 8
be deducted from the turnover under clauses (a) to (d) of the old section 6(1)(A). The respondent also did not prove that the goods had not undergone a change of form before use in the present contract, as goods which undergo any change of form or manufacture before use shall not be deducted under clause (a) of the old section 6(1)(A) of the un-amended provision.
13] The learned Arbitrator wrongly discharged the respondent of the above burden by relying upon joint statements which were submitted by the parties "without prejudice" to their rights, and "so as to avoid any mistake in recording the facts correctly". It is pertinent to note that the without prejudice joint statements did not follow the three steps set out above.
14] Reliance of the learned Arbitrator on the said "without prejudice" statements is an error apparent on the face of the record. The steel used in the contract was cut and bent so as to form cages, into which concrete was poured to form structures of the required size and shape called a "Span". The "Span" could be regarded either as a new article 9
manufactured from the purchased steel or in any event the steel as purchased had changed its form. In either case the same was not entitled to any deduction under Section 6(1)(A)(a) of the unamended provision or Section 6(1)(A) of the amended provision. Steel being declared goods would be exempted from the turnover and would be not liable to tax only if it was sold or used in the works contract in the same form in which it was purchased without any change in form taking place or without any manufacturing taking place. This provision remained unchanged after the 1st May 1998 amendment. It was thus not necessary for the learned Arbitrator to go into the question of manufacture. In any event, the learned Arbitrator having chosen to go into this question of manufacture, decided the same erroneously.
15] The Arbitrator confused two distinctive criteria that the Statute imposed. Not only manufacture of new goods from the declared goods but also any change of form of the declared goods before their use in the works contract will deprive the declared goods from exemption. The steel which underwent a change of form even if it did not result in manufacture of new marketable goods, could not be deducted from the 10
turnover under both the provisions amended so also unamended. 16] Mr.Bharucha has contended that the confusion between the test of marketability/ manufacture and the test of change of form amounts to complete non application of mind and vitiates the award. He submits that the steel which underwent change form, even if it did not result in manufacture of new marketable goods could not be deducted from the turnover under both amended and unamended provisions. 17] Mr.Bharucha then contended that the respondent had to prove the increase in the work contract tax as a result of amendment of 1st May 1998 and the quantum of the increase. The burden could not be said to have been discharged by producing proof of deduction of tax at source (TDS). This conclusion is wholly erroneous inasmuch as the petitioner was statutorily obliged to deduct TDS at 2% of the value of each bill, irrespective of respondent's liability of work contract tax under section 6(B) of the Work Contract Act. In these circumstances, payment of TDS has no bearing whatsoever on the respondents burden of proof. The respondent will have to discharge that burden independently and 11
deduction of TDS by the petitioner can in no case be construed as the burden being discharged by the respondent.
18] Mr.Bharucha assailed the Award on the ground that the Arbitrator failed to take into consideration the fact that the claims of the respondent were barred by limitation. Elaborating this submission, Mr.Bharucha submitted that in the statement of claim and the letter dated 24th April 2004, the respondent claimed that an amount of Rs.1,40,39,813 was reimbursed towards Works Contract Tax in January 2000. The further request was made for advance of Rs.25,31,796 in October 2000. The complaint of the respondent was that instead of reimbursing this further amount, the petitioner deducted and/or reversed the earlier reimbursement of works contract on 15th October 2001. Therefore, the right to claim this amounts accrued in October 2000 and in any event from 15th October 2001. The statement of works contract tax with interest has been annexed by the respondent. Assuming without admitting the statements, it is clear that the alleged due date of the last installment is 1st May 2002. However, by letter dated 10th May 2005, the respondent referred the dispute to Arbitration. In such circumstances, the claim was ex-facie time barred. 12
The arbitrator failed to take into account the relevant statutory provisions and erroneously concluded that the claim is within limitation. 19] Mr.Bharucha then raised some ancillary submissions on the issue of jurisdiction of the Arbitrator and the Award of interest at 16%. He submitted that the claim for works contract tax made by the respondent is excepted matter. The arbitration agreement cannot apply to such a claim. Thus, the arbitrator had no jurisdiction to entertain claims of respondent in this regard. The arbitrator was bound to decide the claim only in accordance with the terms of contract. Further, once the claim was quantified by the respondent to Rs.2,37,49,735/- inclusive of everything, then, the Arbitrator was bound by this figure and could not have awarded interest. Further, in any event, the interest could not have been awarded at 6%. The learned Arbitrator failed to assign any reasons while granting 16% interest and hence, the award is vitiated. For all these reasons, the Award deserves to be quashed and set aside.
20] Mr.Bharucha has relied upon the following decisions in support of his abovementioned submissions.
(i) (2003) 5 SCC 705 (ONGC Vs.Saw Pipes)
(ii)(2006) 4 SCC 445 (Hindustan Zinc Ltd. Vs. Friends Coal Carbonisation)
(iii)2003 Sales Tax Cases Vol.132 539 (Commissioner of Sales Tax Vs.Matushree Textile Ltd.)
(iv)(2002) 4 SCC 45 (General Manager, Northern Railway Vs. Sarvesh Chopra)
(v) A.I.R. 1999 S.C. 3627 (Rajasthan State Mines & Minerals Vs. Eastern Engineering Enterprises)
(vi)(1998) Vol.2 Lloyd's Law Reports 632 (Metalfer Corporation Vs. Pan Ocean Shipping Co.)
(vii)A.I.R. 1994 Bombay 48 ( State of Maharashtra & Ors Vs. Saifuddin Mujjaffarali Saifi)
(viii)(2005) 6 SCC 678 (Rajendra Construction Co. Vs. Maharashtra Housing & Area Development Authority)
(ix)(2006) 9 SCC 383 (Mukund Ltd. Vs. Hindustan Petroleum Corporation)
(x) (2006) 13 S.C.C. 779 (Food Corporation of India Vs. A.M.Ahmed & Co. and Anr.)
(xi)(2006) 11 SCC 181 (McDermott International Inc. Vs. Burn Standard Co. Ltd. & Ors.)
(xii)(1999) 2 SCC 166 (Bharat Bhushan Bansal Vs. U.P. Small Industries Ltd., Kanpur)
21] Mr.Dhanuka learned Counsel appearing for respondent on the other hand supported the Award. He submits that this is a petition under section 34 of the Arbitration and Conciliation Act, 1996. The award of the Arbitrator is rendered as the disputes were referred to him for adjudication. The dispute itself pertain to the reimbursement of works contract tax paid by the claimant/ contractor/ respondent. That claim was squarely covered by the terms and conditions of the contract. Once the 14
claim squarely fell within the purview of the contract and all differences and disputes could have been referred to arbitration as per the Arbitration Agreement thereunder, then, it is erroneous to urge that the Arbitrator had no jurisdiction to entertain and try the claim. Mr.Dhanuka submits that the Arbitrator, therefore, has not assumed jurisdiction erroneously but proceeded to adjudicate the claim arising out of the contract. 22] Thus, the Arbitrator had complete jurisdiction to adjudicate upon the claims. The claims are not time barred as falsely contended. In this behalf, Mr.Dhanuka submitted that the running account bill No.35 was submitted on 13th October 2000. The respondent claimed reimbursement of sales tax on works contract and enclosed copy of the assessment order from sales tax authorities for the period of assessment viz., 1st April 1999 to 31st March 2000, determining the tax liability at Rs.1,09,76,109. On this very date the Consultants forwarded a copy of the assessment order received by them from the respondents so also copy of the R.A. Bill to the petitioners and requested them to look into the matter. 23] Thereafter, the consultants on 5th October 2001 addressed a letter to 15
the petitioners and informed that the reimbursement of works contract tax was recommended by them in R.A.Bill No.40 and the same has been considered in pre- final bill. Petitioners reimbursed to the respondent Rs. 1,40,39,816 in two installments as per clause 8 of the Corrigendum/ Addendum to the contract. Suddenly, there was recovery from the bills of respondents for October 2001 and the respondent proceeded with regard to this recovery on 8th November 2002. Thereafter, on 10th November 2003, respondent requested the petitioners to refer the matter to Steering Committee under clause 67.2 of the Conditions of Contract, which request was reiterated on 24th April 2004. The Consultants rejected the claim on 6th April 2004. That is how on 10th May 2005 the request to appoint an arbitrator has been made. Mr.Dhanuka, therefore, submitted that the recovery was commenced suddenly from the bills of respondents from October 2001. At that stage, there was a request for further reimbursement pending with the petitioner. The matter was taken up with the steering committee in January 2003 and, thereafter, the notice under clause 67.1 was sent to the petitioners on 26th February 2003. There was a meeting held on 21st October 2003 wherein it was pointed out that because of the objection from the CAG (Audit), the petitioners had 16
decided not to reimburse the amount of tax paid by the respondent. In these circumstances, how the claim could be said to be time barred has not been clarified by the petitioners. Therefore, Mr.Dhanuka submits that the claim was within limitation and not barred. In any event, this issue has been considered by the Arbitrator and his reasoning cannot be questioned now as if this Court is sitting in appeal over the decision and the Award of the Arbitrator. Therefore, there is no substance in the complaint that the claims were time barred. Mr.Dhanuka then contended that the respondents have pointed out in great details that the amount was withheld. It was initially reimbursed but recovery commenced and, therefore, the matter went to arbitration. Once it is found that the amounts have been withheld without any basis, then, the Arbitrator was empowered to award interest. Mr.Dhanuka has invited my attention to section 31(7)(a) of the Arbitration Act, 1996. The power under this provision has been rightly exercised. The rate of interest is within the exclusive power of the Arbitrator. The rate of interest is considered from October 2002 till the date of the award, rightly, as the petitioners have illegally deducted the amounts from the bill of respondents. With regard to quantum of interest and the manner in which the same has to be paid, 17
the petitioners cannot make any complaint as it is well within the powers of the Arbitrator. Further, the petitioners themselves had charged interest at 16% p.a. on various advances. Therefore, it is now not permissible for them to dispute the rate determined by the Arbitrator. Thus, on the issue of jurisdiction, the limitation and interest the award is not vitiated and does not deserve to be set aside.
24] As far as the main plank of the submissions of Mr.Bharucha and more particularly with regard to work contract tax liability, Mr.Dhanuka submits that the argument proceeds on a complete misconception. The disputes and differences arose between the parties because of the amendment to the Contracts Act. He submits that as per Section 6(1)(A) (a) and (b) of the said Act, the contractor could claim benefit of resale in respect of purchase of goods used in the execution of works contract and where the transfer of property had taken place in the form in which the goods were purchased in respect of the construction contract. Under the Notification issued by the State Government when cement is mixed with rubble/ sand and concrete is prepared for use in the construction benefit of resale could be claimed. However, from 1st May 1998 the system of 18
levying tax on the balance amount of turnover after deducting value of goods which are purchased from registered dealer and used in the execution of works contract without changing form, was done away with. It was provided that from 1st May 1998, such contractors were made liable to pay tax at 15% on value of goods utilised in the execution of works contract without having any bearing on the source of purchase. The provision was amended to clarify that notwithstanding anything contained in section 6 and sub-section 1 thereof, the dealer who had entered into any contract for execution of work during the period from 1st April 1992 to 30th April 1998 and commenced execution during such period and the execution continued on or after 1st May 1998, he may opt in lieu of tax payable by him under the said Act in lumpsum by way of composition of an amount equivalent to 1% of the contract. 25] Mr.Dhanuka, therefore, contended that mixing of various material used in construction activity were not considered as change of form in the earlier notification. It did not attract, therefore, payment of Works Contract Act. In view of the amendment with effect from 1st May 1998, earlier notification was withdrawn thereby imposing additional incident 19
of tax after award of the contract. Instant contract was treated as on going contract by assessing authorities and accordingly, they assessed the respondent at 1% under the amended provisions of Sales Tax. In view of the demand raised by Sales Tax Authorities for the year 1st April 1998 to 31st March 1999, respondents were required to pay a sum of Rs.48,89,563 and Rs.7,05,033 towards Taxes under the Contracts Act. This amount was paid under two different challans and the copies thereof were annexed by the respondents to their statement of claim. These facts have also been set out by the authorities in their assessment order dated 22nd December 1999. This document was produced and a copy of the assessment order is exhibited as Exh.C-36 by the learned Arbitrator. Thereafter, the assessment for the year 1st April 1999 to 31st March 2000, the petitioners deducted 2% TDS from their various bills totaling to Rs. 1,53,31,319 and deposited the said amount with the Sales Tax Department. These facts are also recorded in the assessment order, a copy of which is exhibited as Exh.C-37. The Sales Tax Department has given credit of the said amount deducted from the bills of the respondent and issued an order for refund of Rs.45,96,937/- which was inclusive of Rs.43,54,210 as excess amount and Rs.2,42,727 as interest. These 20
documents being produced and the sales tax authorities also allowing the refund of the amount deducted over and above 1%, then, the claim made for reimbursement was fully justified. The amount was by way of further increase in taxes under the Contract Act on completed items of work. It cannot be said, therefore, that the claim of the respondent was not tenable.
26] Mr.Dhanuka contended that all these pleas are raised and complete facts set out in the statement of claim and rejoinder. Necessary documents were also produced. In fact, by virtue of the last amended notification, benefits of various exemption available to respondents were taken away thereby resulting in increased tax liability. The matter was covered by clause 8 of the Addendum to the contract. The respondents had approached the consultants/ engineers and requested that the amount of Rs.55,95,596 paid by them to the Sales Tax Authorities due to the amendment be reimbursed/ released. The demand was raised by further letter dated 12th April 1999. On the recommendation of the Engineer, the employer/ petitioner rightly reimbursed the sum of Rs.1,40,39,813 after submission of sales tax assessment till March 2002. After reimbursing 21
the said amount, a false and frivolous objection appears to have been raised and in view thereof, petitioners illegally decided to recover the amount already reimbursed. This decision was recorded in the Minutes of the Meeting held on 21st October 2003. (Exh.C-16). On the basis of this position, petitioners recovered Rs.1,40,39,813/- from the bills of October 2001, which was delayed for substantial period by the petitioners themselves. The demand was raised for refund of this amount and, therefore, the matter was referred to arbitration. 27] Mr.Dhanuka submitted that once such is the nature of the dispute, then, whether there was any liability on account of the provisions being amended or whether the amended provision imposed increased tax liability or not and whether the respondent could have sought reimbursement of the amount of tax paid pursuant to the amendment or not are matters which were within the domain of the Arbitrator. He could have even considered as to whether the tax liability had increased at all or not. The parties proceeded before the Arbitrator on the basis that not only the extent of the liability but the quantum of the tax are matters which can be gone into by the Arbitrator. Thus, this is a matter where the 22
question of law was specifically referred to the Arbitrator. The Award may not be worded or rendered by the Arbitrator like a Judgement of a Court of Law with elaborate and complete reasoning, however, once the matter has been considered by the Arbitrator, then, merely because the Award is erroneous, is no ground to set aside the same. In these circumstances, the award rendered by the Arbitrator being justified should not be set aside.
28] Mr.Dhanuka has relied upon the following decisions in support of his contentions:-
(i) (2006) 11 S.C.C. 181 (McDermott International Inc. Vs. Burn Standard Co.Ltd. And Ors.)
(ii)A.I.R. 1999 S.C. 1614 (Oil & Natural Gas Commission Vs. M/s.M.C.Clelland Engineers S.A.)
29] For properly appreciating the rival contentions, it is necessary to refer to the contract between the parties. It is clear that the contractor/ respondent had submitted a bid which was accepted for execution and completion of the works specified in the agreement/ contract between 23
parties. There is an agreement wherein clause 4 states that the documents mentioned and enlisted therein shall be deemed to form and be read and construed as part of the Agreement. One of the documents is "General Conditions of Contract - Conditions for contract for works of Civil Engineering Construction and "General Conditions of Contract - Conditions of pre-application". It is clear that the bid document consists of volumes in which these general conditions are also included. It is common ground that clause 8 of the addendum to the contract deals with tax and reads as under:-
"8. The rates quoted by the Contractor shall be deemed to be inclusive of the Sales and other taxes on all materials that the contractor will have to purchase for performance of this contract. Any further increase in Central or State Sales Tax or other taxes on completed items of work of this contract as may be levied and paid by the Contractor shall be reimbursed by the Employer to the contractor on proof of payment."
30] A bare perusal of the same would indicate that the rates quoted by the contractor shall be deemed to include Sales and other taxes on all materials that the contractor will have to purchase for performance of this contract. Any further increase in Central or State Sales Tax or other tax on completed items of work of this contract as may be levied and paid by the contractor shall be reimbursed but the reimbursement is on proof of payment being produced by the contractor. Clause 67 of the Contract reads thus:-
"67.1 If a dispute of any kind whatsoever arises
between the Employer and the Contractor in connection with, or arising out of, the Contract or the execution of the Works, whether during the execution of the Works or after their completion and whether before or after repudiation or other termination of the contract, including any dispute as to any opinion, instruction, determination, certificate or valuation of the Engineer, the matter in dispute shall, in the first place, be referred in writing to the Engineer, with a copy to the other party. Such reference shall state that it is made pursuant to 25
this Clause. No later than the eight-fourth day after the day on which he received such reference the Engineer shall give notice of his decision to the Employer and the Contractor. Such decision shall state that it is made pursuant to this Clause."
"Unless the Contract has already been repudiated or terminated, the Contractor shall, in every case, continue to proceed with the Works with all due diligence and the Contractor and the Employer shall give effect forthwith to every such decision of the Engineer unless and until the same shall be revised, as hereinafter provided, in an amicable settlement or an arbitral award."
"If either the Employer or the Contractor be dissatisfied with any decision of the Engineer, or if the Engineer fails to give notice of his decision on or before the eighty-fourth day after the day on which he received the reference, then either the Employer or the Contractor may, on or before the 26
seventieth day after the day on which he received notice of such decision, or on or before the seventieth day after the day on which the said period of 84 days expired as the case may be, give notice to the other party, with a copy for information to the Engineer, of his intention to commence arbitration, as hereinafter provided, as to the matter in dispute. Such notice shall establish the entitlement of the party giving the same to commence arbitration, as hereinafter provided, as in such dispute and, subject to sub-clause 67.4 no arbitration in respect thereof may be commenced unless such notice is given."
" If the Engineer has given notice of his decision as to a matter in dispute to the Employer and the Contractor and no notice of intention to commence arbitration as to such dispute has been given by either the Employer or the Contractor on or before the seventieth day after the day on which the parties received notice as to such decision from the Engineer, the said decision from the Engineer, the said 27
decision shall become final and binding upon the Employer and the Contractor."
31] It is the case of the parties that section 6 of the works contract act prior to its substitution read as under:-
"6(1)(A) There shall be levied a tax on the turnover of sales in respect of goods other than those covered by the Schedule at the rates specified in clause (B), after deducting from such turnover ---
(a) the turnover of sales in respect of the declared goods purchased from a dealer registered under the Bombay Sales Tax Act and sold in the same form in which they were purchased or without doing anything to them which amounts to or results in any manufacture;
(b) the turnover of sales in respect of the goods 28
covered by Schedule A to the Bombay Sales Tax Act; (c) the turnover of sales in respect of the goods which are exempt from payment of the whole of tax
unconditionally under any notification issued under section 41 of the Bombay Sales Tax Act;
(d) the turnover of purchases of goods other than declared goods in which transfer of property takes place (either in the same form in which such goods were purchased or in any other changed form, where such change in the form in which such goods were purchased is caused by the application of such process or method, as the State Government may, by notification in the Official Gazette, specify) in the execution of the works contract provided such purchases are effected from :- (i) a dealer registered under the Bombay Sales
Tax Act and whose registration certificate is in
force on the date of such purchase;
(ii) a person not registered under the Bombay
Sales Tax and tax under the said Act has been
paid on the goods so purchased;
(B) The tax shall be levied at the following rates, namely;
(i) in respect of declared goods, the rate of tax shall be four paise in a rupee on the turnover of sales of such goods;
(ii) in respect of goods other than declared
goods, the rate of tax shall be ten paise in a rupee on the turnover of sales of such goods;
32] After the amendment the same reads thus:-
"6(1)(A) There shall be levied a tax on the turnover of sales in respect of goods at the rates specified in clause (B), after deducting from such turnover the turnover of sales of declared goods purchased from a dealer registered under the Bombay Sales Tax Act, 1959 and sold in the same form in which they were purchased; or without doing anything to them which amounts to or results in any manufacture.
(B) The tax shall be levied at the following rates, namely,
(i) in respect of declared goods, whether used in the same form or otherwise, the rate of tax
shall be four paise in a rupee of the turnover of sales of such goods;
(ii) in respect of goods specified in the
schedule if they are manufactured, produced or
constructed, and supplied in such form or used in the execution of works contract then, subject to
sub-clause (i) tax shall be levied at the rate set out against each of them in column (3) of the said
(iii) in respect of goods other than those
covered by sub-clauses (i) and (ii), the rate of tax shall be fifteen paise in a rupee on the turnover of sales of such goods;
33] The claim made by the respondent was that there is illegal recovery of amounts from the running bills. This recovery is made by the petitioner. The recovery is illegal because various sums were paid to the sales tax authorities and challans/ copies thereof were produced with the claim for reimbursement, made from 10th April 1999. However, the Senior Resident Engineer responded on 14th April 1999 (Exh.C-4) that the respondent is not entitled for reimbursement of Sales Tax paid. The 32
respondent once again took up the matter and on 19th April 1999, the Consultant accepted that the claim for sales tax must be reimbursed as per the Addendum No.8 of the Contract Tax Act. However, in the same letter respondent was asked to clarify the position as to why they paid more money than assessed and why receipt was not obtained for the full amount by them. It is also stated that the case of the respondent would be forwarded to the Corporation on receipt of clarification and respondents were requested to produce proof of payment for the amount of cheque paid towards Sales Tax.
34] Copies of two challans evidencing payment of sales tax on works contract were forwarded and, thereafter, it was pointed out that due to the amendment to the provisions, subsequent to the award of contract, the respondents are incurring sales tax on works contract liability and, therefore, the amount be reimbursed to them. Thereafter, the correspondence followed and the aforementioned events took place. 35] After referring to the correspondence and the ultimate outcome of the same, the respondents contended that the contract value was of Rs. 33
136,81,93,946/-. The contract was falling within the purview of this Works Contract Act. After inviting attention of the Arbitrator to the various provisions and the amendment so also the addendum, the respondents contended that by virtue of the amendment they were liable to pay tax at 15% of the value of goods utilised in the execution of works contract without having any bearing on the source of purchase. The attention of the Arbitrator was also invited to Ordinance No.11 of 1999 issued on 6th February 1999, whereby, in addition to the earlier composition scheme of 8%, the option of paying 2% of the total contract value was given to the contractor. There was further amendment by which new subsection 1(a) was added to section 6(1) with effect from 1st May 1998. By this amendment in respect of contracts entered into on or after 1st April 1992 but before 30th April 1998, where the execution of such contract has commenced during such period but continued on or after 1st May 1998, the dealer can opt to pay a lumpsum by way of 1% for construction contract and 3% for other contracts. It was also submitted that due to above amendments, respondents had to pay 1% towards construction contract as the execution in the present case was after 1st April 1992 but before 30th April 1998. The contract admittedly 34
commenced during the further period and execution continued after 30th April 1998. The contract, therefore, comes into the definition "Ongoing contract" and hence, the respondent was liable to pay tax at 1% on total receipts being civil construction contract.
36] In paras 12 to 20 of the Statement of Claim, respondents pointed out as to how the liability accrued and the payment of tax was made to the sales tax Authorities. They also referred to the assessment orders. It is, thereafter, contended that the Engineer and the petitioner had rightly reimbursed the sales tax amount which have been deducted from the claimant's running account bills. The reimbursement was made in two installments in the month of January 2000. It was pointed out that the Maharashtra Sales Tax on Transfer of property of goods involved in execution of works contract has provided a scheme as on 1st May 1998. There was no tax if the goods were purchased from registered dealer and used in the same form while executing the works contract. Preparing concrete was specified process. Cement, sand was considered as used in the same form and, there was no incidence of Tax and the steel being declared goods, there was no tax. Attention was also invited to the 35
unamended provisions and it was stated that with effect from 1st May 1998, the amendment is for road construction contract. The process of making concrete is not exempted from tax. Use of cement, sand, metal and use of other ingredients for making concrete became taxable. The effect is tax is at 15% on the ingredients to make concrete. Further, the concrete which was being used in execution of work from 1st January 1998 to 30th April 1998 was not attracting tax as the process of making concrete was specified and the goods used in the said making were treated as used in the same form. After the amendment, the system of levying tax on balance amount of turnover, after deducting the value of goods which were purchased from the registered dealers and used in the works contract without changing form, was done away with. As observed above, it was provided that from 1st May 1998 as the contractors were liable to pay tax at 15% on the value of the goods utilised in the execution of contract without having any bearing on the source of purchase. It was urged by the respondent that with the amendment, contractors were asked to pay twice i.e. when they purchased the goods from registered dealers as per the provisions of Bombay Sales Tax Act, 1959 and again when they use that material in execution of works contract at 15% on the basis 36
of the amended provisions. For the reasons that were set out by the respondent under the heading "Claim No.I", they prayed that an amount of Rs.1,68,48,311/- be paid to them.
37] As against this, the defence of petitioner was that the respondents have misinterpreted the condition No.8 of the Contract Terms and Conditions and have wrongfully raised their claim. The petitioner has recovered the payment made to the respondent during the Intermediate bill stage itself. The petitioner pointed out that the respondent has claimed reimbursement of whole of works contract tax at 1% made applicable from 1st May 1998 and not on the increase part of 1% of its liability. Thus, it appears that the stand is that petitioner should bear the entire burden of works contract tax. It is stated that the respondent has not claimed before the Engineer anything over and above the base tax. The claim is, therefore, untenable because what the respondent is seeking is reimbursement of whole tax at 1% and not for any increase. In any event, the claim as made is contrary to the terms of the contract. It was then contended that even if the respondent formed joint venture for the contract work only, they are deemed to have worked out their work tax 37
liability as per applicable law prior to 1st May 1998. They cannot be permitted to urge that they were not liable to pay any work contract tax prior to 1st April 1998. Respondent has not given any details about their cost of works contract tax while bidding and since they have claimed for total works contract it implies that they had no intention to take any benefit under the Addendum No.8 of the Conditions of Contract. In such circumstances, the claim is illegal and could not have been awarded. Thereafter and without prejudice to the aforesaid submissions, the petitioner objected to claim No.1 on various grounds including that no proof of payment has been produced. Respondents are producing two sheets of papers terming them as challans for the work. The documents are not admitted and their contents are seriously disputed. The petitioners pointed out that the documents are not relevant and admissible for the reasons that they do not contain details of the nature pointed out in para 5.3.1 of the statement of defence.
38] Further, without prejudice it is pointed out by the petitioners that there is no evidence insofar as this claim is concerned. The respondent has suppressed material facts. Petitioners have pointed out that no details 38
are placed on record insofar as the position prevailing prior to the amendment. The details, such as steel brought at site etc. and incorporated in the work, pre-cast concrete items prepared at site or elsewhere and installed at work railing items etc. converting them in railings etc. are matters which cannot be assumed and unless details are furnished the Tribunal cannot consider the claim No.1. It was urged that the onus is on the respondent. It may be that the petitioner has reimbursed certain amount to the respondent but that by itself is not decisive. The petitioner dealt with the documents produced and hence urged that the claim should not be awarded.
39] The Arbitrator in the Award at para 12 observed that with the consent of both parties and without prejudice to their rights, it was decided to prepare agreed data based on the final bill and other documents so as to avoid any mistakes in recording the facts. Accordingly, statements indicating quantification of various items were submitted and they were taken on record (Exh.38). Copy of the final bill (Exh.40) was also taken on record. Learned Arbitrator has in para 14 held that the intention of parties from the contract document and more 39
particularly clause 8 is that all taxes as on the date of contract were deemed to have been included in the price quoted by the respondent. The respondent is only entitled to get reimbursement of any increase in respect of any tax on completed items. As far as the issue as to whether there is any increase in tax after amendment on 1st May 1998 to the Works Contract Act is concerned, the Arbitrator proceeded on the admitted basis that there is an increase in tax on account of deletion of permissible deductions from turnover of sales under section 6(1)(A) of declared goods purchased from registered dealers and sold in the same form in which they were purchased. Secondly, there is an increase on account of change in the rates of taxes. The Arbitrator compared the provisions existing prior to and after amendment and concluded that there is an increase in tax liabilities. The learned Arbitrator referred to the material produced by the respondent to discharge the burden with regard to the increase in taxes. While dealing with the materials produced, the Arbitrator referred to Trade Circulars and, thereafter, the learned Arbitrator had before him the statements/ details and he invited comments of both sides. The learned Arbitrator concluded that the amount of contract for which the respondent could be entitled to reimbursement of 40
tax has to be determined at Rs.149,09,61,587/-. Thus, the respondent is entitled to get reimbursement of any increase in respect of any tax on completed items as may be levied after signing of the contract. Learned Arbitrator then observed that the entitlement of 1% payable on this sum, as per the minimum liability option, will have to be further reduced by what would have been tax liability of the respondent based on pre- amendment Act as per the purchase data. Learned Arbitrator referred to Exh.C-39 and held that the value of goods purchased outside Maharashtra other than declared goods comes to Rs.2,72,61,076 and tax liability under the pre-amended Act on this purchase at 10% would be Rs.27,26,108/-. This needs to be deducted from the entitlement of Rs.149,09,61,587/- arrived at earlier, leaving the increase entitlement of Rs.1,21,83,508/-. Thus, this is the sum which will have to be reimbursed, according to the Arbitrator. In paras 19 and 20 of the Award, this is what is held:- "19. There was considerable discussion and arguments advanced from both sides regarding items within BOQ items which are alleged to be used in the execution of the contract by changing the form. The claimant had in their written 41
submissions given on 18/7/2006 to explain the statements filed estimated that the value of steel used in the execution of works contract comes to Rs.17,329,554/- and value of Metal Crash Barrier which was procured through the sub-contractor comes to Rs.10,82.624/-. The respondent has argued that the WC tax of 10% on these items which were changed in the form comes to Rs.28,15,579 and hence this amount also need to be deducted from the entitlement calculated. The claimant had vehemently contested this argument regarding change in the form. I have carefully considered the facts as well as the legal arguments and decisions in various court cases referred to by both the parties. In order to come to a conclusion that there is a change in the form, it is necessary to apply test of marketability and as none of the items in these BOQ items are marketable as separate product there is no change in the form. I have also no difficulty in reaching the conclusion that there is no process akin to the form. I have also no difficulty in reaching the conclusion that there is no process akin to manufacturing involved in these processes. I have also 42
considered the fact that the property passes at the point of accretion or approval and there is no change in the form at the time when the property was passed to the employer. I, therefore, reject the respondent's plea that as change in form was involved in both these items used in the execution, burden on account of these items as pre-amendment Act should be reduced from the calculations made above."
"20. Thus, the claimant has proved that he is entitled to get reimbursement of Rs.1,21,83,508/-. I have also carefully considered the plea and arguments regarding interest to be paid on this amount. The claimant has provided details of dates of payments as running bill and final bill. According to the respondent the final bill was passed on 28th October 2002. I have also noted that the respondent used to charge interest at the rate of 16% on the advances given to the claimant. I, therefore, consider that the claimant is also entitled to get 16% interest on this amount of Rs.1,21,83,508/- from 28/10/2002 till the date of the Award provided payment 43
is made within 60 days from the date of the Award. If the respondent fails to pay the claim plus interest as Awarded within 60 days then the claimant shall be entitled for the interest till the date of payment. Considering the facts and circumstances of the matter, I reject the other claims as to damages and cost of arbitration. Both the parties have paid the Arbitrator's fees in equal share. If either party has any arbitral proceedings cost incurred for arranging the venue of hearing, transport etc. the same may be shared equally as directed at the preliminary hearing. The papers related to these arbitral proceedings would be kept with me for a period of 60 days from the date of Award after which they would be handed over to respondent for safekeeping."
40] Mr.Bharucha has contended that the basis upon which the Arbitrator proceeded is itself erroneous in law. Inviting my attention to the unamended and amended provisions, it is contended by Mr.Bharucha that the petitioner in this case is concerned with steel (which was declared goods) that was purchased by the respondent and used in the execution of 44
the works contract. Steel was declared item and under original section 6(1)(A)(a) was included if used in the same form. There are also non declared goods which were earlier exempted if they are covered by the notification date of 14th January 1984. Mr.Bharucha's submission is that under section 6(1)(A) the tax is on turnover of sales in respect of goods used during the course of execution of works contract but clause (a) excluded from the turnover tax declared goods purchased from the dealer registered from Bombay Sales Tax Act and sold in the same form in which they were purchased or declared goods purchased from a dealer registered under Bombay Sales Tax Act and sold without doing anything to them which results in any manufacture. Steel is declared goods and, therefore, steel was purchased and used in the same form in construction of the Expressway, then, it should not be liable to tax in terms of provisions stated above. However, if steel was cut or bend or shaped before the same was used in the construction, then, change in the form took place and the same would be liable to tax. Similarly, if steel was used in the manufacture of some goods, which were in turn used in the works contract, then also, the steel would be liable to tax. Mr.Bharucha's contention is that the Arbitrator has failed to notice this distinction and 45
has merely gone by the argument canvassed on behalf of the respondent. He submits that to find out whether there is a change in the form, it is not necessary to apply the test of marketability. Mr.Bharucha's submission is that the judgement of the Division Bench on which respondents have proceeded to rely is itself inapplicable. The criteria as noted above has been not noticed by the Arbitrator. There is no question of confusing the change of form with marketability. Steel may undergo a change of form and yet it would not result in manufacture of any goods which could be stated to be marketable. However, it is still to be taxed. 41] For appreciating this argument, it must be at the outset observed that the Award is not liable to be set aside merely because the Arbitral Tribunal has stated the law erroneously. Once a specific question of law is referred to the Arbitral Tribunal for its decision, then, the Award is not liable to be set aside because some erroneous proposition of law is mentioned or stated in the Award. In the latest decision of the Supreme Court reported in 2009 (12) SCALE 393 (Steel Authority of India Ltd. Vs. Gupta Brother Steel Tubes Ltd.) the principle of law is stated thus:- 46
"24. In Tarapore & Co. a two Judge Bench of this Court considered few decisions of this Court including the decisions in the case of M/s.Sudarsan Trading Co. Vs. Government of Kerala and Anr., Associated Engineering Co. Vs. Government of A.P. And Managing Director, J & K Handicrafts, Jammu Vs. Good Luck Carpets and held that where an arbitrator travels beyond a contract, the award would be without jurisdiction and the same would amount to misconduct and such award would become amenable for being set aside by a Court.
25.In Sudarsan Trading Co., this Court held that an error by the arbitrator relatable to interpretation of the contract is not amenable to correction by Courts." "26. It is not necessary to multiply the references. Suffice it to say that the legal position that emerges from the decisions of this Court can be summarised thus:-
1. In a case where an arbitrator travels beyond the contract, the award would be without jurisdiction and would amont to legal misconduct and because of which the award would become amenable for being set aside by a Court.
2. An error relatable to interpretation of the contract by an arbitrator is an error within his jurisdiction and such error is not amenable to correction by courts as such error is not an error within his jurisdiction and such error is not amenable to correction by Courts as such error is not an error on the face of the award.
3. If a specific question of law is submitted to the arbitrator and he answers it, the fact that the answer involves an erroneous decision in point of law does not make the award bad on its face;
4. An award contrary to substantive provision of law or against the terms of contract would be patently illegal;
5. Where the parties have deliberately specified the amount of compensation in express terms, the party who has suffered by such breach can only claim the sum specified in the contract and not in excess thereof. In other words, no award of compensation in case of
breach of contract, if named or specified in the contract, could be awarded in excess thereof;
6. If the conclusion of the arbitrator is based on a possible view of the matter, the court should not interfere with the award;
7. It is not permissible to a court to examine the correctness of the findings of the arbitrator, as if it were sitting in appeal over his findings."
42] Even in the statement of claim, the respondent has stated that the material required to be used in the execution of the works contract were 48
purchased from local registered dealers. The nature of work assigned to the claimants/ respondents involves preparation of semi-concrete mixture which was purchased from registered dealers while the iron and steel material are being used by them in the same form in which they were purchased. The respondents have been using sand for obtaining mixture. They have also used the iron and steel without any change in the form. In view of the above, they were not liable to pay any tax on account of deductions. This position continued till 30th April 1998 after which the ordinance came and the system of levying tax on balance amount of turnover after deducting value of goods which were purchased from registered dealers and used in the execution of works contract without change in form, was done away with. It was provided that from 1st May 1998 as the contractors were liable to pay tax at 15% on the value of goods utilised in execution of works contract without having any bearing on the source of purchase. Thus, there was an incident of tax. 43] The petitioner did not offer any comments on this part of the statement of claim as is evident from a reading of para 5.0.0. of the statement of defence. Their case is that the respondent claimant has not 49
provided any details with regard to any increase. The claim does not state what is the base tax and what is the increase so as to be entitled to claim reimbursement. There is no proof of payment. However, the fact remains that there is a pleading in para 5.4.1 (Statement of defence) that there are number of BOQ items which have changed the shape after material components are purchased and brought at site. Respondent is liable to pay tax as prevalent even prior to the amendment dated 1st May 1998 which fact has been suppressed. Respondents claimants ought to have furnished the details. Thus, the whole basis of the denials of the petitioner is that the claim No.I is contrary to terms of contract, unlawful and that there is no proof of the same.
44] I am unable to accept the argument of Mr.Bharucha that the Arbitrator has committed an error of law apparent on the face of the Award. The Arbitrator has before him details of the BOQ items. He had before him the written submissions wherein the explanation has been given with regard to the statement filed on record, the value of steel used in execution of works contract was quantified so also the value of metal crush barriers which were procured for the subject contract. It is on this 50
basis that the petitioner argues that the works contract tax at 10% on these items which changed the form comes to Rs.2815579 and even this amount should be deducted from the entitlement calculated. Thus, this is a pure and simple case where the entitlement was disputed on the ground that the entire sum as claimed by the respondent is not liable to be reimbursed but there must be some adjustment and deduction therefrom. It is while considering that submission and argument that the Arbitrator has held that in order to conclude that there is a change in form, it is necessary to apply the test of marketability as separate and independent product. It is in that context that he holds that there is no change in the form. The argument of change in form made by the petitioner was therefore, rejected. The entire argument that the difference between the base tax paid and the increase was never known or disclosed or that the respondent submitted no proof of the items used in the execution of the works contract does not appear to have been canvassed or rather canvassed in the manner argued before me.
45] Even in the arguments before me so also in the written submissions, it is apparent that the stand is some what contradictory. If 51
the petitioners are contending that the respondents did not work out the tax liability as per the statutory provisions, then, inherent in such submission, is the aspect that there was increase in some tax liability. If there was an increase in the tax liability and the contractual clause permits claiming of reimbursement, then, one fails to understand as to how the petitioner can urge that the arbitrator had no jurisdiction or that the dispute was not arbitrable. If the argument is of burden of proof not being discharged by the respondent, then, implicit in the said argument is the fact that there is indeed increase in the tax liability and clause 8 of the Addendum would be attracted. It is, therefore, obvious that when the petitioners argue that the test applied by the Arbitrator is erroneous, they do not dispute that there was increase in tax. Even otherwise that is apparent from a reading of para 14 to 16 of the Award. Even the issue of T.D.S. is based upon the agreed position before the Arbitrator and the finding in para 17, therefore, cannot be held to be perverse. The Arbitrator has, thus, gone by the agreed position that the quantification of the increase in tax is to be provided by the Contractor/ respondent and the burden is on him and the issue is essentially factual, then, I do not see how the Arbitrator can be faulted for proceeding on these lines. It is 52
while scrutinising the total claim for reimbursement that the Arbitrator in para 18 takes into account the figures and more particularly the BOQ items. The Arbitrator was conscious of the fact that the petitioner argued that the respondent included reimbursement of WCT liability on account additional and extra work done from 1st May 1998 for which separate rates were agreed and the entire liability of the tax on that amount would be on the respondent and to that extent the claim will have to be modified. The petitioner also disputed the claim regarding items of steel and metal crush barrier on account of change in form and, therefore, not entitled for exemption, even under the provisions prior to 1st May 1998. Therefore, assuming that all arguments canvassed before me were indeed canvassed in the same manner before the Arbitrator, yet, what I find from the record that the Arbitrator has not committed such an error which would enable me to interfere with the Award under section 34 of the Arbitration Act.
46] The only remaining aspect is whether the Arbitrator applied only the marketability test and has ignored the change of form test completely. It is not possible to hold that he has only applied marketability test. On 53
this aspect only para 19 of the Award has been pointed out to me which I have already reproduced above. However, the Award must be seen as a whole. The Award proceeds on the basis that the system of levying tax on the balance amount of turnover after deducting the value of goods which were purchased from registered dealer and used in the contract without changing form has been done away with by the Ordinance/ Amendment Act. Therefore, after 1st May 1998 such contractors were liable to pay tax at 15% on the value of goods utilised in the works contract without having any bearing on the source of purchase and without the aspect of change of form being considered. Yet, the argument is that while furnishing the explanation to the statements, the respondents have omitted to point out that Rs.28,15,579/- ought to have been deducted from the entitlement calculated as, according to the petitioner, the test of change of form was not satisfied. This part of the entitlement alone appears to be the contested issue. The Arbitrator has in that context observed that in order to arrive at a conclusion that there is a change in the form, it is necessary to apply the test of marketability. He emphasised on the fact that these are all BOQ items which cannot be taken to be marketable by themselves. It is in this context that he has observed that the test of 54
marketability will have to be applied. What I find from the discussion and the argument now canvassed before me is that the statements were given with regard to the entitlement. There was a dispute with regard to part of the amount being reimbursed. Earlier, the entire reimbursement came to be granted. Now when part of the entitlement is being disputed, naturally, the Arbitrator was required to go into the issue and find out as to whether items within the BOQ allegedly used in the execution of the contract involve any change of form or not. From a reading of the Award, it does not appear to me that the petitioner had placed before the Arbitrator the details of the items, the form in which they were used and the reason why they should be omitted from consideration. Once such details are not placed, then, the Arbitral Tribunal is right in holding that the entitlement as disputed cannot be kept aside. The amount as calculated needs to be reimbursed. Even while this exercise was being undertaken the Arbitrator has deducted from the entitlement a substantial sum as is evident from a reading of para 18 of the Award. In these circumstances, I do not see how any larger issue needs to be gone into and resolved in this case. This was a matter squarely falling within the purview of the Arbitral Tribunal and while interpreting the contractual 55
terms and considering the relevant statutory provisions, the observations aforementioned, have been made. Mr.Dhanuka, therefore, is right in urging that the Award does not require any interference. 47] In this view of the matter, the Award cannot be set aside on the ground that there is an error apparent on the face of law and which is wholly unsustainable.
48] Reliance by Mr.Bharucha on the judgement of this Court in the case of Matushree Textiles (supra) is misplaced. In that decision, this Court was concerned with the interpretation of section 61(1) of the Bombay Sales Tax Act, 1959. The questions framed for determination are in para 1. In para 2, the Division Bench considered the factual aspect whether the respondent Matushree Textile was engaged in the business of Dyeing, bleaching and printing of grey fabrics received from customers. For this purpose, Matushree Textiles used materials such as colours, dyes and chemicals and these materials are converted into a solution and stored in a tank. Thereafter, grey fabric is passed through the above solution several times, till the requisite colour shade is obtained on the fabric as 56
per the specifications of the customer. Thereafter, the dyed fabric is washed through a water solution to drain away the chemical solution remaining on the fabrics. On completion of the job work, the dyed/printed fabrics with the requisite coloured shade are returned to the respective customers. The issue was whether the respondent who undertook the above job work is a dealer within the meaning of Section 2(1)(d) of the Contract Act. The argument was that colours, dyes and chemicals are consumed in the process of dyeing, bleaching and, therefore, the property of those goods were neither transferred as goods nor in other form and hence the provisions of Contract Act were not attracted. The Additional Commissioner did not accept the stand of the textile mill. The matter was carried in Appeal to the Sales Tax Tribunal. The Tribunal after holding that though there was transfer of property in goods, the same is too insignificant to take any cognisance. He further held that the Act is not attracted but a reference application was made by the Commissioner and, therefore, the Tribunal referred the question framed for the opinion of this Court.
49] Thus, it is while considering that argument and stand of the textile 57
mill, so also that of the Commissioner of Sales Tax to the contrary that the observations relied upon by Mr.Bharucha have been made by the Division Bench. These observations could not be said to be binding on the Arbitrator in this case. The applicability of the Contract Tax Act was in issue. Before the Division Bench, the basic argument raised by the respondent Textile Mill itself was found to be erroneous inasmuch as the relevancy of that argument qua the Contract Act was being tested. The Division Bench held that passing of the property of goods used for dyeing is relevant. Once that property of goods used in dyeing has passed to the consumer in any form, then under the Contract Act, there is a deemed sale of these materials and the test of marketability under the Sale of Goods Act or the Bombay Sales Tax Act cannot be imported into the Contract Act. By reading this part in isolation one cannot urge that the Arbitrator in this case has applied the test of marketability. The Arbitrator was dealing with the issue as to whether there is any change of form in the BOQ items. It was nobody's argument that the property in these goods has not been passed on. The issue was whether there is any change in the form. While testing that issue and particularly considering the argument that steel being cut and bend for executing the works in this case amounts 58
to changing its form or not or whether it remains the same as such, that the findings in para 19 are rendered. I do not feel that the judgement in Matoshree Textiles's case has been brushed aside or that it being binding, the test applied was completely erroneous and, therefore, the Award must be set aside. Apart from the fact that the Award must be seen and read as a whole. I am of the opinion that the learned Arbitrator has not committed any error of law of the nature enabling this Court to interfere under section 34 of the Arbitration and Conciliation Act. 50] In any event, in Matoshree Textile's case this Court was not concerned with Section 6(1)(A)(a) of the pre 1998 Act and Section 6(1) (A) of the post 1998 Act, both of which stipulate the conditions subject to which the turn over of sales of certain declared goods purchased from the registered dealer are to be deducted from the taxable turnover of the Sales/ deemed sales. Both these provisions stipulate that deductions will have to be effected from taxable turnover pertaining to such goods which were sold in the same form in which they were purchased or if the goods are sold without doing anything to them which amounted to or resulted in any manufacture. Therefore, the test for imposing the tax under the 59
Works Contract Act is necessarily different from the test for deduction and exclusion of sales turnover under these provisions prior to and post amendment. It is in the context of the deductions that the learned Arbitrator made the observations and I do not see as to how they are erroneous or vitiated to such an extent as would require this Court to interfere with the Award. Once, the backdrop in which the observations have been made and the findings rendered are seen, then, to my mind the award does not suffer from infirmity. In any event, merely because another view is possible does not mean that this Court should interfere with the Award. If what has been held is a possible view, then, the Award cannot be set aside, is the settled principle.
51] As far as the issue of limitation and jurisdiction is concerned, I do not find any infirmity in the Award. The clear case of the respondent was that reimbursement of sales tax amount already paid should be made. That claim was rejected. After considerable correspondence, ultimately, the petitioner started reimbursing the amounts paid on works contract tax. However, from 1st October 2001, the deduction started and demands for refund were made by the respondents in writing. The demand raised by 60
the respondent is not just refund of the recovery amount but also deductions from the bills by way of TDS for subsequent period. There was time taken when the matter was pending before the Engineer and the Petitioner. In any event, the payment was made under various running account bills and it is not by itself decisive for commencement of the period as suggested by Mr.Bharucha. It is also the final bill and its passing which is relevant. Hence, apart from the fact that the issue of limitation is being raised for the first time before me and there was no plea raised before the Arbitrator in that behalf, I am of the view that the claim is not barred by limitation. The very dates which have been set out in the defence/ written statement of the petitioner, would go to show that the claim was within limitation. It is not the right to claim the amount which was an issue but it was the alleged and erroneous recovery by the petitioner from the running bill from October 2001 was the issue. It is in this context that the learned Arbitrator could have proceeded with the Reference and made the Award. More so, when the respondent referred the disputes by the letter dated 10th May 2005. In these circumstances, I am of the view that it was not incumbent upon the Arbitrator to dismiss the claim as being time barred. The decisions relied upon by 61
Mr.Bharucha set out the settled principles. Assuming that the period spent when the dispute was pending before the Engineer cannot be excluded, yet, in this case, it is clear that the issue of reimbursement was raised right from 1999 by the respondent. Petitioners reimbursed to the respondent a sum of Rs.1,40,39,816/- on 5th December 2001. On 8th November 2002, respondents protested against the recovery of Rs. 1,40,39,816 suddenly from the bill of respondents from October 2001. They pointed out that the sales tax assessment were already submitted upto 2001 and an amount of Rs.2,79,206 was to be further reimbursed to them by the petitioner. They requested that further reimbursement should also be made coupled with stopping illegal recovery. The petitioners informed the members of the Steering Committee that they had proposed to refer the matter of reimbursement of works contract act to them and submitted certain documents. Respondents issued notices under clause 67(1) and, thereafter, meeting was held in the Chambers of Joint Managing Director on 21st October 2003 wherein the issue of CAG objection was pointed out and raised. Thereafter, the matter was referred to Steering Committee. There was rejection of the claim of the respondents and re-confirmation of the earlier decision on 6th April 2004 62
and that is how the matter went to Arbitrator. In such circumstances, when such is the factual position and the issue being a mixed question, I do not see as to how the Award can be set aside on the ground that the claims being ex facie time barred. The pleas in that behalf are, therefore, untenable and deserve to be rejected. In this factual scenario, I do not see any necessity to go into the applicability of the decisions on the point of limitation. In any event, their applicability would depend upon the facts and circumstances of each case.
52] Similarly, the issue of jurisdiction of the Arbitrator is too belated to be permitted to be raised. It is not as if the petitioners did not reimburse the amount claimed. They reimbursed the amount and, thereafter, commenced alleged illegal recovery. The contract provided for resolution of disputes by Arbitration. The contract also covered issue of reimbursement. Once the claim arises out of the contract and pertains to the contract and the Arbitrator's jurisdiction being very wide as is evident from the phraseology of clause 67.3, then, it is not possible to hold that the Arbitrator did not have the jurisdiction. Admittedly, the clauses in question and more particularly clause 67.3 is an arbitration clause/ 63
agreement between parties and that was never in dispute. In such circumstances, the submission that the Arbitrator had no jurisdiction should be rejected. Once this view is taken, it is not necessary to refer to the decisions cited and in any event, they relate to what could be said to be excepted claims and what could be arbitrable. Before me, it is not the argument that the words "any decision" appearing in clause 67.3 would not include the decision to reject the claim for reimbursement. Rejection of the claim was a decision taken and, therefore, it was wholly arbitrable. 52] As far as the interest aspect is concerned, it is stated that the learned Arbitrator has awarded excessive rate of interest. It ought not to have exceeded 6% in this case. What the Arbitrator has done is that the final bill date has been reckoned by him. It was passed on 28th October 2002. The learned Arbitrator has noted that the petitioner used to charge interest at the rate of 16% on the advances given to the respondent contractor and, therefore, that is the rate which should be taken into account, if the amounts as awarded in favour of the contractor, are directed to be paid. I do not see how the Award is vitiated on this count because of absence of any reasons. Sufficiency or adequacy of the 64
reasons is not the ground on which the Award can be set aside. Further, the respondents in the reply affidavit have pointed out that the provisions of section 31(7)(a) of the Arbitration Act, 1996 have been applied by the Arbitrator. The said provisions empower the Tribunal to include in the sum for which the award is made, the interest at such rate as it deems reasonable. The discretion has been exercised by the Arbitrator and considering that this was the claim of an amount initially reimbursed but later on illegally deducted from the running bill, I do not see how the interest awarded can be said to be excessive. There is substance in the contentions of Mr.Dhanuka that the aspect of interest was sought to be clarified by the petitioners themselves by applying for clarification before the Arbitrator. The Arbitrator clarified that he has granted simple interest calculated on annual basis. That part is also suppressed before me. Further, I do not find that the rate determined is so excessive or unreasonable so as to warrant interference in my limited jurisdiction under section 34 of the Act. The Award, therefore, cannot be said to be vitiated on the point of interest as well.
53] I cannot accede to the submissions of Mr.Bharucha that this Court 65
should in its inherent jurisdiction reduce the rate of interest because even if it is assumed that the contract is commercial and, therefore, those rates are to be applied, the rate awarded is far in excess of the bank rate. All these arguments are canvassed across the bar and the Court is called upon to take judicial notice of the lending rate prevailing. I am of the view that merely because such a case has been put forward across the bar is no ground to reduce the rate of interest, assuming the Court has any inherent jurisdiction. The larger issue raised by Mr.Dhanuka that the Court has no such inherent jurisdiction and its jurisdiction has been circumscribed by section 34 of the Act, therefore, need not be gone into in the peculiar facts of the case. I do not find that the award should be set aside on the issue of Award of interest.
54] As a result of the above discussion, the Arbitration Petition fails and it is accordingly dismissed but without any directions with regard to costs.