2009 (2) TMI 229 - HC - Customs

Arbitration award - Interpretation of contractual terms - Held that - The parties clearly understood that the benefit of reduction in customs duty on the additional 32 units would be to the respondent account. It is obvious that the parties were aware of the fact that the customs duty on the additional 32 units would be lower than the units agreed to be supplied under the earlier contract otherwise it was illogical for the respondent s to have offered a lower unit price of ₹ 20,45,000/- per CFT with the condition that the price variation clause on account of customs duty shall not be applied. In our view, the learned Single Judge has rightly affirmed the award of the arbitrator on the above grounds. The arbitrator, in our view, had correctly analyzed the terms of the contract and, therefore, we see no reason to interfere with the judgment of the learned Single Judge dated 23rd March 1998 and the award dated 24th November 1995. Accordingly, the appeal is dismissed.The Registry is directed to release the bank guarantee furnished by the respondent, not later than six weeks from the date of the filing of the application moved for this purpose by the respondent.

Issues Involved:
1. Interpretation of contract terms regarding price variation due to customs duty.
2. Applicability of customs duty exemption benefit to the appellant.
3. Validity of the arbitrator's award and the Single Judge's judgment.

Detailed Analysis:

Issue 1: Interpretation of contract terms regarding price variation due to customs duty

The contract dated 6th September 1985 between the appellant and the respondent for the supply of 44 Crash Fire Tenders (CFTs) included a clause stating that "any statutory variations to the customs duty shall be to the purchaser's account." The appellant later opted to purchase an additional 26 CFTs and desired to purchase 32 more units. During negotiations on 21st March 1988, it was agreed that the price for the additional 32 units would be Rs. 20,45,000/- per unit, "firm and fixed without provision of the above price variation clause on account of Custom Duty." This agreement was confirmed by a telegram from the appellant dated 30th/31st May 1988 and a formal supply order dated 10th June 1988.

Issue 2: Applicability of customs duty exemption benefit to the appellant

The respondent supplied the 32 CFTs at the agreed fixed price and received full payment. The appellant later sought to recover Rs. 1,77,58,396/- from the respondent, claiming that the respondent had availed of customs duty exemption under Notification No. 62/87-Cus. dated 1-3-1987 but did not pass on the benefit to the appellant. The appellant argued that the certificate issued on 8th June 1988, which enabled the respondent to avail of the customs duty exemption, should result in a proportionate reduction in the price under Clause 3(c) of Schedule B of the contract.

Issue 3: Validity of the arbitrator's award and the Single Judge's judgment

The arbitrator found the appellant's demand for recovery unjustified based on the interpretation of the contractual terms, and the Single Judge upheld this finding. The court emphasized that the interpretation of the contract is within the arbitrator's jurisdiction, and unless the interpretation is implausible, the court should not interfere. The court found the arbitrator's interpretation not only plausible but the only possible one. It was noted that the special terms agreed upon on 21st March 1988, which were incorporated into Schedule A, specifically excluded price variation due to customs duty for the additional 32 units. The appellant's acceptance of this exclusion was confirmed in the supply order dated 10th June 1988. Therefore, no general terms or conditions, including Clause 3(c) of Schedule B, could override this specific provision.

The court also rejected the argument that the issuance of the certificate amounted to "assistance" under Clause 3(c), as it did not involve any expenditure by the appellant and merely recited an existing factual position. The reduction in price from Rs. 21,90,000/- to Rs. 20,45,000/- per CFT was seen as an acknowledgment that the benefit of customs duty reduction would be to the respondent's account.

Conclusion:

The court affirmed the arbitrator's award and the Single Judge's judgment, finding no reason to interfere. The appeal was dismissed with costs quantified at Rs. 10,000/-, and the registry was directed to release the bank guarantee furnished by the respondent within six weeks of the respondent's application.

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