1996 (8) TMI 453 - SC - VAT and Sales Tax

Whether the very resort to article 226 for issuance of mandamus or any other writ, order or direction-was misconceived? Held that - Appeal dismissed. So far as the High Court s direction to deduct at the rate of one per cent is concerned, it may be a case of stating the obvious, as contended by the appellants. But it must also be realised that more than that could not have been legitimately granted in a writ petition. It must also be noticed that the declaration granted is effective only for a limited period, i.e., March 31, 1995. It does not apply to payments made on or after April 1, 1995. What does it mean in the facts and circumstances of the case, we do not know. Whatever it means, it cannot certainly be construed as a direction to the appellants to pay over the said sum of ₹ 82,24,969 to the respondent as claimed by it or as upholding the basis of the respondent s claim put forward in the writ petition.

Summary

Issues Involved:
1. Interpretation of contract terms regarding tax deductions.
2. Jurisdiction and appropriateness of writ petitions in contractual disputes.
3. Effect of composition scheme and statutory orders on contractual obligations.

Detailed Analysis:

1. Interpretation of Contract Terms Regarding Tax Deductions:
The primary issue revolves around the interpretation of the contract terms, specifically sub-clause (4a) of clause 78 and sub-clause (4) of clause 70. The contract stipulated that the rates quoted by the contractor were inclusive of sales tax and other taxes. Sub-clause (4a) specified that the contractor was responsible for paying any trade tax levied under the U.P. Trade Tax Act, 1948. The contract also provided for price adjustments due to changes in the law, which could affect the cost of the contract. The appellant argued that the reduction in tax liability due to the composition scheme should benefit the government, as per clause 70(4). The respondent, however, contended that the government's obligation was only to deduct 4% as initially agreed, and any reduction in the rate of deduction at source should not affect their payment.

2. Jurisdiction and Appropriateness of Writ Petitions in Contractual Disputes:
The court emphasized that the contract between the parties was a private law contract, governed by the Contract Act and possibly the Sale of Goods Act. Disputes regarding the interpretation of contract terms and the amounts due under the contract should be resolved through arbitration or civil courts, not through writ petitions. The court noted that the prayer for mandamus to restrain the government from deducting a specific amount was not appropriate under Article 226. The High Court should have dismissed the writ petition on these grounds alone, as the issues raised were not suitable for adjudication in a writ petition.

3. Effect of Composition Scheme and Statutory Orders on Contractual Obligations:
The composition scheme under Section 7-D and the order under the proviso to Section 8-D(1) reduced the rate of tax deduction at source from 4% to 1%. The respondent argued that this reduction did not affect the government's obligation to pay the remaining contract amount. The court, however, held that the interpretation of whether this reduction resulted in a reduction of tax liability within the meaning of clause 70(4) was a matter for arbitration or civil court. The order under Section 8-D(1) merely relieved the government from deducting tax at the rate of 4%, and any further implications of this order on the contract were beyond the scope of a writ petition.

Conclusion:
The Supreme Court dismissed the appeal, emphasizing that the writ petition was not the appropriate remedy for resolving disputes arising from the contract. The court reiterated that such disputes should be addressed through arbitration or civil courts as provided in the contract. The High Court's direction to deduct tax at the rate of 1% was seen as stating the obvious and did not resolve the underlying contractual disputes. The appeal was dismissed with the observation that the respondent could pursue arbitration or civil court remedies to resolve the issues.