2022 (6) TMI 531 - HC - GST

Reimbursement of Service Tax / GST - Scope of mutual contract - Levy of Service Tax - onboard catering services provided by the respondent under a temporary license issued to it - respondent is obliged to serve a welcome drink to the passengers who boarded the subject trains or not - Goods and Services Tax (GST) on production charges/supply of meals after 01.07.2017 - person liable for financial burden concerning the food which got wasted due to cancellation or the failure of the passengers to turn up - entitlement of relief alongwith interest. HELD THAT - It is only on 06.04.2017, when IRCTC indicated to the respondent, that unless it gave its unconditional acceptance to the policy framework captured in its communication dated 07.02.2017, its temporary license, which was expiring on 18.06.2017, would not be extended, that the respondent agreed to provide a welcome drink and bear the financial burden qua the same - Faced with this difficult choice, and having regard to the fact that it had already invested funds in the contractual arrangement arrived at with IRCTC, on 12.04.2017, the respondent accepted the terms indicated in the communication dated 07.02.2017, concerning the supply of welcome drink for the period that was to extend beyond 18.06.2017 - the claim of the respondent qua welcome drink was restricted to the period spanning between 19.12.2016 and 18.06.2017. To be noted, the temporary license was extended by IRCTC till 04.07.2018. The learned arbitrator, correctly concluded that IRCTC could not have deducted the amounts expended by them towards serving welcome drink to the passengers from the bills of the respondent. Whether IRCTC is obliged to reimburse the amount deposited by the respondent towards GST levied, with effect from 01.07.2017, on production charges? - HELD THAT - IRCTC also does not seem to have disputed the fact, that it has recovered GST from the passengers by factoring the same in the train fare - the argument advanced by IRCTC, that it is not obliged to reimburse GST to the respondent, even if it establishes proof of payment of same, seems completely untenable. As correctly concluded by the arbitrator, GST from 01.07.2017 would have to be reimbursed to the respondent by IRCTC, upon the proof of deposit of the same with the concerned statutory authority - IRCTC has already factored GST in the train fare, lends heft to the stand taken by the respondent, that it should be reimbursed GST deposited by it with the concerned statutory authority. Furthermore, IRCTC was in a position to, in fact, perhaps, claim ITC, at least for the period spanning between 01.07.2017 and 31.03.2018. The partial/interim award dated 15.12.2020, rendered by the learned arbitrator is neither patently illegal nor perverse, as was sought to be portrayed by Mr Majithia, on behalf of IRCTC - Appeal dismissed.

Summary

Issues Involved:

1. Whether the respondent was obliged to serve a welcome drink to passengers under the temporary license.
2. Whether the respondent was entitled to claim Goods and Services Tax (GST) on production charges/supply of meals after 01.07.2017.
3. Whether the financial burden concerning the food wasted due to cancellation or failure of passengers to turn up was to be borne by the respondent.
4. Whether the respondent was entitled to the relief claimed, including interest.

Issue-wise Detailed Analysis:

1. Obligation to Serve Welcome Drink:

The appellant, IRCTC, argued that the respondent was obliged to provide a welcome drink to passengers based on clause 2.1 of the tender and Commercial Circular 32/2014 (CC 32/2014). The respondent countered that this obligation was not part of the original tender or the Letter of Award (LOA) dated 06.10.2016, and the decision to impose this responsibility was taken post the commencement of the license period on 07.02.2017. The learned arbitrator found that the initial contract did not include the provision of a welcome drink, and IRCTC's deduction of expenses for providing the same was unjustified. The arbitrator noted that IRCTC's stance was self-contradictory and that the respondent was forced to accept the new terms under duress to extend the temporary license. The court upheld the arbitrator's decision, concluding that IRCTC could not deduct the costs of the welcome drink from the respondent's bills.

2. Entitlement to Claim GST:

The appellant contended that the charges for the supply of meals were inclusive of taxes and that the respondent was not entitled to additional GST reimbursement. The respondent argued that GST, which came into effect on 01.07.2017, was not included in the original contract and should be reimbursed upon proof of payment. The learned arbitrator referred to Commercial Circular 44/2017 (CC 44/2017) and Commercial Circular 32/2014 (CC 32/2014), which mandated the reimbursement of applicable taxes upon proof of payment. The court agreed with the arbitrator's finding that GST should be reimbursed to the respondent, noting that IRCTC had already factored GST into the train fare and could claim Input Tax Credit (ITC) for the relevant period.

3. Financial Burden of Wasted Food:

The learned arbitrator ruled against the respondent regarding the financial burden of food wasted due to passenger cancellations or no-shows. The court did not address this issue in detail as the respondent did not appeal or make submissions on this aspect.

4. Relief Claimed Including Interest:

The fourth aspect concerning the respondent's entitlement to relief, including interest, was not dealt with by the arbitrator as it was part of a partial/interim award. The court did not address this issue in the judgment.

Conclusion:

The court dismissed the appeal, upholding the arbitrator's partial/interim award dated 15.12.2020 and the learned single judge's judgment dated 05.07.2021. The court found no patent illegality or perversity in the arbitrator's interpretation of the contract terms and appraisal of evidence. The appeal was dismissed, and parties were directed to bear their own costs.