2023 (5) TMI 1190 - HC - Central Excise

Scope of the supply order placed by the PSU on the manufacturer - impact of the Central excise exemption scheme - area-based exemptions - Refund of Excise Duty under MODVAT Scheme - special conditions of the purchase orders placed by the SICOP, challenged - It was pleaded that since the SSI Units, which had been earlier placed the supply orders and the writ petitioners formed a single class and, therefore, there could not have been different terms and conditions of supply incorporated in the supply orders placed with the writ petitioners - HELD THAT - The plea of discrimination raised by the writ petitioners is predicated on the ground that in the supply orders issued by SICOP for purchase of AAC/ACSR conductors with the local manufacturers as well as two outside manufacturers, there was no condition akin to Clause 13(v). Specific mention is made of the supply order placed with M/s Jaldara Conductors Pvt. Ltd, Jaipur, and supply order placed with M/S Ashok Transmission Wire Pvt. Ltd, Jaipur, both dated 23rd August, 1986. The writ petitioners also invited our attention to certain supply orders made by SICOP to the local manufacturers in the year 1986 and 1987 to hammer the point that clause similar to Clause 13(v) providing for transfer of benefit under MODVAT scheme to the purchaser(s) was not incorporated in the supply orders issued to such local SSI units. The plea is refuted by the respondents - From the reading of pleadings of both the sides, it clearly transpires that there is no dispute with regard to the fact that the supply orders issued by appellant No. 2 directly to M/S Jaldara Conductors Pvt. Ltd, Jaipur, and M/S Ashok Transmission Wire Pvt. Ltd, Jaipur, dated 23rd August, 1986, did not contain any condition, as is contained in Clause 13(v) of the supply order dated 12th January, 1987 and Class (ii) of purchase orders issued by SICOP in favour of the writ petitioners. These supply orders were directly between appellant No. 2 and the units outside the State. From the reading of these two supply orders, it becomes abundantly clear that these were issued after initiating the process of tenders and receiving offers from the intending suppliers. The rates to be charged for different items of goods like AAC/ACSR and the terms and conditions of the supply were those which were mutually settled between the parties. The supply orders in question issued in favour of the writ petitioners and the supply orders issued in favour of local SSI units and some outside units are not issued simultaneously but pertain to different point of time. In the instant case, the supplies from the writ petitioners were procured by the appellants through SICOP. In the supply order issued by the appellants in favour of SICOP, it was clearly mentioned that the SSI units, who would enter into arrangement with SICOP for supply of AAC/ACSR conductors, would transfer the benefit, if any, received by them under MODVAT scheme - The writ petitioners were aware and entered into contract with their eyes wide open. The SICOP framed the supply order after discussion with the writ petitioners and after having regard to all commercial aspects of the transaction. The writ petitioners accepted the supply orders and made the supplies strictly as per the terms and conditions laid down in the supply orders. However, later on, it seems finding that the appellants had directly placed certain orders with outside units without imposing such conduction, the writ petitioners made representation to the respondents. The representation made by the writ petitioners came under active consideration of the respondents, who, after weighing all pros and cons of the matter, concluded that it was not possible to revoke the condition which was included in the supply orders in consultation with the writ petitioners and more particularly when 80% of the supplies had already been made by the writ petitioners - it is very difficult to say that the writ petitioners herein and the local as well outside manufacturers, who were also given supply orders by the appellants for procurement of certain items, form a single class. Each contractual transaction is independent transaction between two parties. The relationship of two contracting parties is governed by the terms and conditions of the contract. Even in the case of Government, it is very unwise to expect that the State would enter into contracts for supply of various items with various persons by having same and identical terms and conditions. Clause 13(v) of the supply order issued by the appellants in favour of SICOP and Clause (ii) of the special conditions of the supply orders issued by SICOP in favour of the writ petitioners and we find that these clauses incorporated in the supply orders were only as a bargain to seek some discount or concession from the suppliers in lieu of placing bulk supply orders with them without even inviting tenders and making the writ petitioners to compete with outside manufacturing units. The transfer of benefit of refund of excise duty by the writ petitioners to the Purchasing Department i.e., the appellants herein, was part of a bargain struck between the two parties under which one party i.e. SICOP, was to issue the supply orders for procurement of AAC/ACSR conductors in favour of the writ petitioners and the other party i.e. the writ petitioners herein, were to make supplies on the mutually agreed/settled rates of the items with a further benefit to the Purchasing Department in the shape of transfer of benefit of refund of excise duty available to the writ petitioners under MODVAT scheme. There are nothing wrong or unholy in the arrangement. The legal position in this regard is well settled. Unless the Court finds a condition in the contract entered into between the two parties unconscionable, it would be loath to interfere in the matter. The impugned condition is found neither unconscionable nor in violation of any statutory provision. Rather this Court has found this condition a result of negotiations between two contracting parties which ultimately resulted into a concluded contract coming into existence between them. Comparing this contract with other contracts executed at different points of time and even between different parties would not be justified. The plea of discrimination raised by the writ petitioners is thus not supported by any legal or fact situation obtaining in the instant case. The Writ Court has not considered all these aspects and has, without any justification, held Clause 13(v) discriminatory in nature. Clause 13(v) is contained in the supply order issued by the appellants in favour of SICOP and, therefore, there was no privity of contract between appellants and the writ petitioners giving them any cause of action or locus to challenge the said Clause. The Clause (ii) of the special conditions of the supply order which the SICOP issued in favour of the writ petitioners has not been considered, discussed or dealt with by the Writ Court - Clause (ii) of the special conditions is similar and akin to Clause 13(v) and in view of discussion, there are no fault found with Clause 13(v), so is the position with Clause (ii). The writ petitioners have not been able to make out any case of discrimination between them and the outside manufacturers/local SSI units and, therefore, the decision of the Writ Court cannot be upheld - Appeal allowed.

Summary

Issues Involved:
1. Validity of Clause 13(v) of the purchase order.
2. Alleged discrimination against the writ petitioners.
3. Appropriateness of the writ petition as a remedy for impeaching a contractual obligation.
4. Locus standi of the writ petitioners to challenge Clause 13(v).

Summary:

1. Validity of Clause 13(v) of the purchase order:
The intra-court appeal by the State of Jammu & Kashmir (now Union Territory of J&K) challenges the judgment of the learned Single Judge, which quashed Clause 13(v) of the purchase order. The clause required SICOP to pass the benefit of MODVAT in respect of excise duty to the purchasing department. The Writ Court found this clause discriminatory and violative of Article 14 of the Constitution of India.

2. Alleged discrimination against the writ petitioners:
The writ petitioners, small scale industrial units (SSI) in Jammu, argued that similar supply orders issued to other SSI units, both within and outside the State, did not contain a clause akin to Clause 13(v). The Writ Court agreed with this contention, noting that the supply orders to outside manufacturers did not include such a clause, thereby establishing discrimination. However, the appellate court found that each contractual transaction is independent and governed by its own terms and conditions, and thus, no discrimination was established.

3. Appropriateness of the writ petition as a remedy for impeaching a contractual obligation:
The Writ Court initially dismissed the writ petition, reasoning that the writ petitioners had already charged the cost of raw materials, including excise duty, and that a writ petition was not an appropriate remedy to challenge a contractual obligation. The Supreme Court remanded the matter to the High Court to determine if the benefit of the MODVAT scheme had been allowed to other similarly situated industries but not to the writ petitioners.

4. Locus standi of the writ petitioners to challenge Clause 13(v):
The appellate court noted that the writ petitioners were strangers to the contract between the appellant No. 2 and SICOP and thus had no locus to challenge Clause 13(v). The court emphasized that the clause was a result of negotiations and was part of a concluded contract, which the writ petitioners had accepted with their eyes wide open.

Conclusion:
The appellate court found no fault with Clause 13(v) or Clause (ii) of the special conditions of the purchase orders issued by SICOP to the writ petitioners. The court held that the writ petitioners failed to establish any discrimination and that the impugned condition was neither unconscionable nor in violation of any statutory provision. Consequently, the appeal was allowed, and the impugned order of the learned Writ Court was set aside.