2024 (7) TMI 179 - HC - Indian Laws

Challenge to final award - Section 34 of the Arbitration and Conciliation Act, 1996 - disputes between the parties - deductions made on account of welcome drink - Service Charges - Service tax - GST - Interest - Costs. Inclusion/Exclusion of Wet Tissues - HELD THAT - The learned Arbitrator has noted the admission of the petitioner s witness in his cross-examination that a) Rs. 37,47,824 was deducted by the petitioner towards the amounts paid to the respondent (Rs. 7.23 per unit for tetra pack and Rs. 1.35 per unit towards wet tissue); and b) welcome drinks and wet tissues were supplied by the respondent w.e.f. 05.03.2017. Based on this, the learned Arbirator has awarded a sum of Rs. 37,47,824/- (for deductions made by IRCTC towards supplies made by them from 19.12.2016 to 04.03.2017) and Rs. 41,81,583/- (for production charges of welcome drink, including tetra pack, from 05.03.2017 to 18.06.2017). Hence, the learned Arbitrator has correctly awarded the amount to the respondent and find no infirmity with his reasoning. Service Charges - HELD THAT - There are no infirmity with the findings of the learned Arbitrator. Since there was no contract between the parties for providing the welcome drink (including the wet tissues) to the passengers for the initial period of 6 months as held in the Interim Award (and upheld by the Hon ble Supreme Court), the learned Arbitrator s view that the petitioner was liable to pay production charges, service charges as well as service tax on the same is the correct view. No perversity can be attributed to the conclusion drawn by the learned Arbitrator in holding that in the letters, the respondent had explicitly mentioned that it would be claiming charges for the welcome drink (and wet tissues) in due time, and the same was not objected to by the petitioner in as much as it continued with the contract and kept extending. The service charges claimed by the respondent (under or about 17%) are much less than the charges stipulated in the contract, which ranged from 20-30%, which is duly noted by the learned Arbitrator - the findings of the learned Arbitrator are neither unreasonable nor perverse in this regard and take into account the agreement between the parties as well as their conduct. Service tax - HELD THAT - There was no specific issue framed (or subsequently dropped) on the inclusion of service tax as far as the welcome drink was concerned. Since the dues on welcome drink were yet to be decided at the passing of the Interim Award, it is not unreasonable of the learned Arbitrator to hold that service tax was also payable by the petitioner on the welcome drink since there was no contract between the parties regarding the said services for the initial period of 6 months, and post that, the petitioner had impliedly agreed to being charged for the said services. Merely because a few issues were dropped regarding service tax on specific items/services, the learned Arbitrator is not unreasonable in holding that no general issue on payment of service tax has been dropped by the respondent. Hence, the finding of the learned Arbitrator does not warrant interference by this Court. GST - HELD THAT - It was settled in the Interim Award itself that GST was payable to the respondent over and above the production charges, and the same has attained finality. The petitioner cannot now urge an argument before this Court that production charges, since were inclusive of taxes (VAT), were to be bifurcated before payment of GST. Further, RW-1 has categorically stated in its cross- examination that GST on production charges and extra meal charges have been claimed by the respondent and correctly reflected in Annexure-1 of the affidavit dated 02.01.2021 .The petitioner s argument that GST on production charges were never claimed is thus untenable, as the learned Arbitrator has duly recorded a finding to the contrary. There are no grounds to interfere with the findings of the learned Arbitrator to this extent. Interest - HELD THAT - Referencing to Section 31 (7) of the Act, as well as Section 2(b) of the Interest Act, 1978, it held that since the maximum rate of interest being paid by banks is about 7% per annum, the respondent is entitled to 9% per annum interest on the award amount from 01.11.2018, when the arbitration was initiated, till the date of payment appeared to be reasonable. There are no infirmity with the findings of the learned Arbitrator. Costs - HELD THAT - Imposition of costs is a discretionary power vested with the arbitral tribunal. The learned Arbitrator held that in the present matter, the respondent tried to settle the matter, however, since negotiations failed, hearings had to be conducted - The costs granted by the learned Arbitrator are reasonable and granted after due consideration of different factors and in consonance with Section 31A of the Act, as discussed in the Final Award. There are no infirmity with the findings of the learned Arbitrator. The same is sound and credible. The petitioner has failed to make out any ground for interference with the award under Section 34 of the Act - petition dismissed.

Summary

Issues Involved:

1. Inclusion/Exclusion of Wet Tissues
2. Service Charges
3. Service Tax
4. GST
5. Interest
6. Costs

Detailed Analysis:

A. On Inclusion/Exclusion of Wet Tissues

The petitioner argued that wet tissues and welcome drinks are separate items, and only Rs. 26,32,406.95 was deducted for the welcome drink. However, the Arbitrator awarded Rs. 37,47,824/-, which included both items. The Arbitrator referred to letters from IRCTC indicating that the welcome drink included both the branded Nimbu Pani and refreshing tissue. The Arbitrator found that the petitioner's claim that the items were separate was contradictory and unsupported by evidence. The Arbitrator's interpretation was deemed plausible and not perverse or patently illegal.

B. On Service Charges

The petitioner contended that service charges on the welcome drink were awarded despite no provision in the Interim Award or contract. The Arbitrator found that the respondent had agreed to provide services (welcome drink and wet tissue) against production and service charges, and the petitioner's non-response to the respondent's letters amounted to implied consent. The rate claimed by the respondent was reasonable and less than the stipulated 20-30%. The Arbitrator's findings were neither unreasonable nor perverse.

C. On Service Tax

The petitioner argued that the respondent had given up its claim for reimbursement of service tax. The Arbitrator held that only specific issues were dropped, and no general issue regarding service tax was reframed or dropped. The Arbitrator found it reasonable to hold that service tax was payable on the welcome drink since there was no contract for the initial six months, and the petitioner had impliedly agreed to the charges. The Arbitrator's findings were upheld.

D. On GST

The petitioner contended that GST was wrongly calculated and included in the invoices submitted by the respondent. The Arbitrator noted that the issue of GST was settled in the Interim Award, which had attained finality. The Arbitrator found that the petitioner's argument that GST was included in production charges was untenable. The Arbitrator awarded the respondent Rs. 1,03,79,803.83 towards GST when the rate was 18% and Rs. 23,55,864.20 when the rate was 5%. The Arbitrator's findings were based on evidence and were upheld.

E. On Interest

The Arbitrator exercised its powers under Section 31(7) of the Act to grant interest on the awarded sum. The Arbitrator found it equitable to grant interest over and above production charges since the welcome drink was not part of the contract. The respondent was awarded 9% per annum interest from 01.11.2018 until the date of payment. The Arbitrator's findings were upheld.

F. Regarding Costs

The Arbitrator referenced Section 31A of the Act to determine costs payable by one party to another. The Arbitrator found it justified to award the cost of the proceedings to the respondent, given that substantial claims were decided in favor of the respondent. The Arbitrator awarded Rs. 1,10,000/- as costs, which was reasonable and in accordance with Section 31A of the Act. The findings were upheld.

Conclusion

The petitioner failed to make out any ground for interference with the award under Section 34 of the Act. The petition was dismissed, and the execution petition was allowed. The judgment-debtor was directed to pay the awarded amount along with interest and costs within four weeks.