2019 (10) TMI 1029 - SC - Indian Laws

Jurisdiction of arbitrator to consider the counter claim relating to CENVAT credit - dispute arose between the parties when the appellant raised a claim for interest for the delayed payments of the fuel supplied during the period from 01.04.2009 to 31.03.2011. Whether the counter claim regarding CENVAT invoices was beyond the scope of reference to arbitration? - whether the High Court was right in holding that the learned Arbitrator had jurisdiction to consider the counter claim regarding CENVAT invoices raised by the respondent? HELD THAT - The respondent did not make any claim of CENVAT invoices and only for the first time on 05.05.2010 that is after the commencement of the arbitration proceeding, the respondent called upon the claimant to issue CENVAT invoices. According to the appellant, as per the terms of the agreement, the appellant was not bound to issue CENVAT invoices to the respondent and levy of service tax on domestic air travel came into force only by the Finance Act, 2010 and therefore, the learned Arbitrator has rightly held that the counter claim is beyond the specific reference and would not fall within the jurisdiction of the Arbitrator. The questions whether the issue regarding CENVAT invoices was outside the terms of agreement or whether CENVAT invoices relates to the agreement dated 01.01.2007 and 01.04.2009 and whether it is arbitrable and whether it falls beyond the scope of reference to arbitration and such other related questions, are to be determined only during the enquiry. It may be that after enquiry, the Arbitrator might reject the counter claim for CENVAT invoices as not arbitrable and the counter claim beyond the scope of reference to arbitration. But to reject the counter claim at the threshold on the ground that the Arbitrator has no jurisdiction would not be proper. The High Court has rightly set aside the order of the learned Arbitrator dated 18.04.2011 - the impugned judgment of the High Court of Bombay is affirmed - Appeal dismissed.

Summary

Issues Involved:
1. Jurisdiction of the Arbitrator to consider the counter claim relating to CENVAT credit.
2. Scope and terms of the arbitration agreement.
3. Interpretation of Clause 7(ii) of the Aviation Fuel Supply Agreement.
4. Validity of the counter claim for CENVAT invoices.
5. High Court's decision on the Arbitrator's jurisdiction.

Detailed Analysis:

1. Jurisdiction of the Arbitrator to Consider the Counter Claim Relating to CENVAT Credit:
The central issue revolves around whether the Arbitrator had the jurisdiction to entertain the counter claim filed by the respondent concerning the issuance of CENVAT invoices. The appellant argued that the counter claim was beyond the scope and jurisdiction of the Arbitrator, as it did not arise from the terms and conditions of the contract under which the Arbitrator was appointed. The respondent, however, contended that the counter claim fell within the terms of the agreement and should be adjudicated by the Arbitrator.

2. Scope and Terms of the Arbitration Agreement:
The arbitration clause in the agreement dated 01.01.2007 allowed the Arbitrator to adjudicate disputes arising out of the agreement's terms and conditions. The appellant suggested that the counter claim did not arise from these terms and conditions. Conversely, the respondent relied on Clause 7(ii) of the agreement, arguing that it required the appellant to issue invoices, including those for taxes and duties applicable on the date of delivery, which implicitly included CENVAT invoices.

3. Interpretation of Clause 7(ii) of the Aviation Fuel Supply Agreement:
Clause 7(ii) of the agreement required the appellant to issue invoices containing details such as the date of delivery, location, aircraft registration number, grade, quantity of fuel, unit price, and taxes and duties applicable on the date of delivery. The respondent argued that this clause implicitly required the issuance of CENVAT invoices. The appellant countered that the need for CENVAT invoices only arose after the introduction of service tax on domestic air travel by the Finance Act, 2010, and therefore, it was not covered under the agreement which expired on 31.03.2009.

4. Validity of the Counter Claim for CENVAT Invoices:
The appellant contended that the counter claim for CENVAT invoices was an afterthought, as it was first demanded only on 05.05.2010, after the commencement of arbitration. The respondent argued that the counter claim was within the scope of the arbitration and should not have been rejected at the threshold. The Arbitrator initially rejected the counter claim, holding that it was beyond the scope and jurisdiction. However, the High Court overturned this decision, stating that the Arbitrator should determine the validity of the counter claim after due enquiry.

5. High Court's Decision on the Arbitrator's Jurisdiction:
The High Court held that the Arbitrator had the jurisdiction to entertain the counter claim relating to non-furnishing of invoices for CENVAT credit. The High Court reasoned that the rejection of the counter claim at the threshold was not justified, and the Arbitrator should consider whether the counter claim was part of the reference and arbitrable after conducting an enquiry. The Supreme Court affirmed the High Court's decision, stating that rejecting the counter claim at the threshold was improper, and the Arbitrator should proceed with the matter on its merits.

Conclusion:
The Supreme Court upheld the High Court's judgment, affirming that the Arbitrator had jurisdiction to consider the counter claim regarding CENVAT invoices. The Arbitrator should determine the validity of the counter claim after due enquiry, and the matter should proceed on its merits in accordance with the law. The appeal was dismissed, and the Arbitrator was directed to continue with the proceedings without any preconceptions from the observations made.