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TMI Blog2012 (4) TMI 457X X X X Extracts X X X X X X X X Extracts X X X X ..... whether the interpretation of this clause and the consequent award rendered by the arbitrator was against the terms of the contract and therefore illegal as held by the High Court, or whether the view taken by the arbitrator was a possible, if not a plausible view. The contract and the relevant clause: 4. The appellant - a Govt. of India undertaking is engaged in the manufacture of steel products and pig-iron for sale in the domestic and export markets. The respondent is a partnership firm carrying on the business of transportation of goods. In the year 1997, the appellant appointed the respondent as the handling contractor in respect of appellant's iron and steel materials from their stockyard at Kalamboli, Navi Mumbai. A formal contract was entered into between the two of them on 17.6.1998. 'Terms and conditions for handling of iron and steel materials' though recorded in a separate document, formed a part of this contract. Clause 9.0 of these terms and conditions was concerning the payment of bills. Clause 9.3 thereof read as follows:- "9.3. The Contractor shall bear and pay all taxes, duties and other liabilities in connection with discharge of his obli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to force on 5.11.1997 vide Notification No.44/77 with effect from 16.11.1997. Consequent thereupon, the appellant deducted 5% tax on the bills of the respondent for the period 30.11.1997 to 6.8.1999. The respondent, however, refused to accept the deductions, and raised a dispute for arbitration under clause 15 of the terms and conditions mentioned above. This dispute was referred for the arbitration of a sole arbitrator, a retired Judge of the Delhi High Court. 8. Rules 2 (xii) and 2 (xvii) of the Service Tax Rules, 1994 as amended in 1997 made the customers or clients of clearing and forwarding agents and of goods transport operators as assesses. These amended rules were challenged and were held ultra vires the Act by this Court in Laghu Udyog Bharati vs. Union of India reported in 1999 (6) SCC 418. The Court examined the provisions of the Act and particularly Section 68 and the definition of "person responsible for collecting the service tax" in Section 65(28) and in terms held in paragraph 9 that "the service tax is levied by reason of the services which are offered. The imposition is on the person rendering service." 9. To overcome the law laid down in Laghu Udy ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tor for services in relation to carrying goods by road in a goods carriage and includes the freight charges but does not include any insurance charges'." Proceedings prior to this appeal: 10. The respondent contended before the learned arbitrator that its dominant work was of transporting and forwarding of goods by road, and not of a handling contractor, and that the mere fact that it may be required to handle the goods in a manner and to the extent provided in the contract between the parties, was merely incidental. The learned arbitrator, however, noted that the contract between the parties dated 17.6.1998 referred the respondent as the 'handling contractor', who shall undertake the job of handling iron and steel materials at the yard of the company on the terms and conditions stipulated therein as also in the manner and in all respects as mentioned in the contract. He referred to the notice inviting tender, the declaration of particulars relating to the tender, the schedule of rates, the provision relating to scope of work and the obligations of the contractor detailed in clause 6. In that connection, he referred to the letter dated 27.11.1997 received from the o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d therefore, it is required to be set aside." 13. The appellant preferred an appeal to a Division Bench of Bombay High Court against the said judgment and order. The appeal was numbered as Appeal No. 188/2006. The Division Bench dismissed the appeal by holding as follows: "16. ........As noted, the Respondents are not "Assessee" under the Service Tax Act. The Appellants are, being recipients, resisted and have filed the return. It is, therefore, the appellant's obligation to pay the Service Tax and not that of the Respondents, there is no specific clause that such service tax, liability would be deductible from the amount payable by the Appellants to the Respondent pursuant to the contract in question. The deduction as claimed and as directed by the award in absence of any agreement or clause, therefore, is not correct." 14. Being aggrieved by the said judgment and order, the present appeal has been filed. Mr. S. Ganesh, learned Senior Counsel has appeared for the appellant, and Mr. K.K. Rai, learned Senior Counsel has appeared for the respondent. Submissions on behalf of the appellant: 15. As stated at the outset, the question involved befor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere, therefore, clearly called upon to construe or interpret the terms of the contract. The decision thereon, even if it be erroneous, cannot be said to be without jurisdiction. It cannot be said that the award showed that there was an error of jurisdiction even though there may have been an error in the exercise of jurisdiction by the arbitrators." 17. It was also submitted by the learned counsel that the court is not expected to substitute its evaluation of the conclusion of law or fact arrived at by the arbitrator and referred to the following observation in paragraph 31 in M/s Sudarsan Trading Co. vs. Govt. of Kerala reported in [1989 (2) SCC 38]. "............In the instant case the court had examined the different claims not to find out whether these claims were within the disputes referable to the arbitrator, but to find out whether in arriving at the decision, the arbitrator had acted correctly or incorrectly. This, in our opinion, the court had no jurisdiction to do, namely, substitution of its own evaluation of the conclusion of law or fact to come to the conclusion that the arbitrator had acted contrary to the bargain between the parties..........." ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ect to the interpretation of some of the provisions of the voluntary retirement scheme of 2000 of the appellant bank. In paragraph 32 thereof this Court has observed as follows:- "....32. The fundamental position is that it is the banks who were responsible for formulation of the terms in the contractual Scheme that the optees of voluntary retirement under that Scheme will be eligible to pension under the Pension Regulation, 1995, and, therefore, they bear the risk of lack of clarity, if any. It is a well-known principle of construction of a contract that if the terms applied by one party are unclear, an interpretation against that party is preferred (verba chartarum fortius accipiuntur contra proferentem)." Based on this paragraph, it was submitted that the arbitrator was bound to follow the principle of contra proferentem in the present case. It was contended that since the propounder of the contract was the petitioner in case of vagueness, the rule of contra proferentem will have to be applied in interpreting the present contract. Therefore, the liability to pay service tax was on the appellant as the assessee, and it could not be contended that under Clause 9.3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ax was on the service provider, though it is now provided by the amendment of 2000 that the same is on the person who avails of the service. It is relevant to note that the agreement between the parties was entered into on 7.6.1998. The appellant had deducted 5% service tax on the bills of the respondent for the period 30.11.1997 to 6.8.1999 which in fact it was required to deduct under the service tax law as it then stood. Subsequently, by the amendment of the definition of assessee effected on 12.5.2000 (though retrospectively effective from 16.7.1997) the liability to pay the service tax was shifted to the person who was availing the service as the assessee. We must note that it is thereafter that the parties have gone for arbitration, and the respondent has relied upon the changed definition of assessee to contend that the tax liability was that of the appellant. 23. We are concerned with the question as to what was the intention of the parties when they entered into the contract on 7.6.1998, and how the particular clause 9.3 is to be read. Since clause 9.3 of the contract refers to the liabilities of the contractor in connection with discharge of his obligations, one w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... paragraph 9 of Laghu Udyog Bharati (Supra), service tax is an indirect tax, and it is possible that it may be passed on. Therefore, an assessee can certainly enter into a contract to shift its liability of service tax. Though the appellant became the assessee due to amendment of 2000, his position is exactly the same as in respect of Sales Tax, where the seller is the assessee, and is liable to pay Sales Tax to the tax authorities, but it is open to the seller, under his contract with the buyer, to recover the Sales Tax from the buyer, and to pass on the tax burden to him. Therefore, though there is no difficulty in accepting that after the amendment of 2000 the liability to pay the service tax is on the appellant as the assessee, the liability arose out of the services rendered by the respondent to the appellant, and that too prior to this amendment when the liability was on the service provider. The provisions concerning service tax are relevant only as between the appellant as an assessee under the statute and the tax authorities. This statutory provision can be of no relevance to determine the rights and liabilities between the appellant and the respondent as agreed in the cont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed outside his jurisdiction, or that the view taken by him was against the terms of contract. That being the position, the High Court had no reason to interfere with the award and substitute its view in place of the interpretation accepted by the arbitrator. The legal position in this behalf has been summarized in paragaph 18 of the judgment of this court in SAIL vs. Gupta Brother Steel Tubes Ltd. (supra) and which has been referred to above. Similar view has been taken later in Sumitomo Heavy Industries Ltd. vs. ONGC Ltd. reported in [2010 (11) SCC 296] to which one of us (Gokhale J.) was a party. The observations in paragraph 43 thereof are instructive in this behalf. This paragraph 43 reads as follows: "43. .........The umpire has considered the fact situation and placed a construction on the clauses of the agreement which according to him was the correct one. One may at the highest say that one would have preferred another construction of Clause 17.3 but that cannot make the award in any way perverse. Nor can one substitute one's own view in such a situation, in place of the one taken by the umpire, which would amount to sitting in appeal. As held by this Court in Kwali ..... X X X X Extracts X X X X X X X X Extracts X X X X
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