2013 (10) TMI 1406 - HC - VAT and Sales Tax

Compensation for additional cost on account of increase in the rate of service tax on insurance premium under the insurance policy - compensation towards additional cost incurred on account of increase in the rate of service tax, though qua bank guarantee charges.

Summary

Issues involved:
1. Compensation for additional cost due to an increase in service tax on insurance premium under the insurance policy for the project.
2. Compensation for additional cost due to an increase in service tax on bank guarantee charges.

Analysis:

1. The first issue in the case pertains to compensation for additional costs incurred due to an increase in the rate of service tax on the insurance premium under the insurance policy related to the project. The arbitral tribunal ruled in favor of the respondent based on the interpretation of clause 70.8 of the General Conditions of the Contract (GCC). This clause allows for adjustments in costs arising from changes in national or state statutes, ordinances, decrees, laws, or regulations. The tribunal acknowledged the increase in service tax rates from 5% to 8% in 2003 and subsequent increments. The petitioner argued that clause 70.8 only applies to costs with a constructional input element, a contention dismissed by the court citing precedents from previous judgments.

2. The second issue involves compensation for additional costs due to an increase in the service tax rate on bank guarantee charges. Similar to the insurance premium scenario, the service tax rate on bank charges increased from 10.2% to 12.24% in 2006, followed by further increments. The court noted that the facts regarding these tax rate increases were undisputed by both parties. The petitioner's argument that clause 70.8 of the GCC should only cover costs with a constructional input element was rejected by the court, which cited previous Division Bench judgments in related cases to support its decision.

3. The court highlighted that the judgments from cases involving the National Highways Authority of India addressed issues of cost increases due to various factors such as local VAT, toll tax, service tax on transportation, and sales tax on fuels. Based on the interpretation of clause 70.8 of the GCC and the precedents set by previous judgments, the court dismissed the objections raised in the captioned petitions, ruling in favor of the respondent in both instances of compensation for additional costs incurred due to the increase in service tax rates.