9911796707
TMI Blog2022 (3) TMI 986X X X X Extracts X X X X X X X X Extracts X X X X ..... proceeded on the basis that since CEC was assessed to Service Tax, albeit, on a Reverse Charge Mechanism, in respect of certain services, it was entitled to reimbursement in terms of Clause 37(i) of GCC read with Clause 14 of the Instructions to Bidders - CEC is not claiming reimbursement of Service Tax in respect of the Agreement executed by it or the works performed by it; CEC claims the Service Tax levied in respect of the services availed by it from third party service providers. This is, obviously, the Service Tax chargeable in respect of contracts between the third-party service providers and CEC. Clearly, this is outside the scope of Clause 37(i) of GCC. Although, it is well settled that matter regarding interpretation of a contract falls within the jurisdiction of Arbitral Tribunal and the Courts would not normally interfere with such interpretation. However, in the present case, this Court is of the view that Arbitral Tribunal s interpretation of Clause 37(i) of the GCC to the extent it includes reimbursement of Service Tax levied in connection with contracts / arrangements between CEC and third parties, is fundamentally flawed and vitiates the impugned award by patent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... On 06.03.2013, the petitioner issued an electronic Notice Inviting Tender (NIT) for the works regarding Comprehensive Development of Corridor (Outer Ring Road) between Mukarba Chowk to Wazirabad Chowk, SH: C/o Flyovers, Loops, Bridges across supplementary drain, FOBs, Footpath, Cycle track, Widening of Road on embankment, Rain Water Harvesting scheme, Electrical works and other allied works (hereinafter the Project ), on the terms and conditions stipulated therein. 6. Pursuant to the said NIT, CEC submitted its bid for executing the Project works on 22.03.2013. CEC s bid was accepted by the petitioner and by a Letter of Acceptance dated 29.04.2013 (hereinafter the LoA ), the contract for implementation of the Project was awarded to CEC for an amount of ₹ 442,95,68,517/-. 7. The petitioner called upon CEC to furnish a Performance Guarantee in accordance with Clause 1 of the General Conditions of Contract for the CPWD works (hereinafter the GCC ) for an amount equivalent to ₹ 22,14,78,426/-, within fifteen days after receipt of the LoA. In terms of the LoA, CEC was required to complete the Project within a period of twenty-four months to be reckoned from twent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... claim by relying on a circular [Circular no. 147/16/2011 dated 21.10.2011] issued by Department of Revenue, Ministry of Finance, Government of India. The petitioner claimed that the services provided by the sub-contractors for the infrastructure project were also exempted from Service Tax. 14. Thereafter, by a letter dated 13.08.2015, CEC, once again, sought reimbursement of a sum of ₹ 15,05,524/- deposited as Service Tax till March, 2015. Further, CEC also submitted an independent opinion obtained from a firm of Chartered Accountants - R.R. Lingsur and Associates. 15. The Chartered Accountants appointed by CEC negated the petitioner s stand in respect of the aforesaid Circular dated 21.10.2011 issued by the Department of Revenue, Ministry of Finance, Government of India and opined that in the instant case, the tax paid on the services by the sub-contractors are classifiable under Goods Transport Agency (GTA) Services not under Work Contract Service (WCS) and therefore, such services were not exempt from payment of Service Tax under Section 65 (105) of the Finance Act, 1994. It was further opined that CEC was right in depositing the Service Tax on such services even tho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on. But, the Chief Engineer failed to do so. 21. Dissatisfied with the decision of the aforesaid authorities, CEC by a letter dated 31.10.2017, preferred an appeal before the Disputes Redressal Committee (hereinafter DRC ). However, the DRC failed to take a decision in respect of the aforementioned claim within the period stipulated under the Agreement. 22. In view of the disputes between the parties, CEC, by a letter dated 27.04.2018, invoked the agreement to refer the disputes to arbitration in terms of Clause 25 of the GCC, and requested the petitioner to appoint an arbitrator for adjudication of the disputes. 23. In the meanwhile, the Minutes of the Meeting of the DRC, which was held on 23.03.2018, were communicated to CEC. This indicated that the DRC had rejected all the claims preferred by CEC. 24. On 10.05.2018, the Project Chief Engineer appointed Shri K.K. Peshin (Retd.) ADG, CPWD as the sole arbitrator. However, by a letter dated 17.05.2018, Shri K.K. Peshin communicated his inability to accept his appointment on the ground that he had been engaged as an arbitrator by the petitioner in five other cases. 25. Thereafter, CEC approached this Court by way of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Arbitral Tribunal also allowed Claim nos. 2 and 3 of CEC and held that that the burden to pay the ECC arose pursuant to a Notification dated 20.10.2015 issued by the Department of Environment, Government of NCT of Delhi in compliance with an order dated 09.10.2015 passed by the Supreme Court in I.A. no 345 and 365 of 2015 in W.P. (Civil) 13029 of 1985 captioned as MC Mehta v Union of India and Ors. The Arbitral Tribunal further referred to Clause 38 of the GCC, which specifically dealt with the statutory liability of the petitioner, in terms of any taxes/levies/cess imposed by any statute after the last stipulated date for the receipt of tender. The Arbitral Tribunal held that the petitioner could not deny the said claim of reimbursement of ECC, in view of the said clause. Accordingly, the Arbitral Tribunal allowed Claim no. 2 and awarded a sum of ₹ 3,14,06,709/-, in favour of CEC. 30. The Arbitral Tribunal allowed CEC s claim for interest and awarded interest at the rate of 10% per annum on the aforesaid claims. Additionally, a sum of ₹ 15,00,000/- was awarded in favour of CEC as costs of arbitration in respect of Claim no. 4. 31. Aggrieved by the impugned a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the contractor himself Whereas Contract Tax, DVAT, Labour Cess and Income Tax etc. as applicable shall be deducted by the department from the WA bills. The contractor shall quote his rates considering all such Taxes. However regarding the Service Tax, the same shall be reimbursed by the department on production of proof of actual payment of Service Tax in the concerned department made on demand. 35. It is important to note that the Agreement was, essentially, an Item Rate Contract, whereby CEC had submitted all inclusive rates for various BOQ items. CEC claimed that during the course of execution of the works in question, it had paid Service Tax amounting to ₹ 5,02,47,953/- in respect of various input services and was thus, entitled to reimbursement of the same. 36. The said amount comprises of two distinct components. The first component is in respect of certain input services availed by CEC on which Service Tax was payable under the Reverse Charge Mechanism. In terms of the Reverse Charge Mechanism, Service Tax on certain services is chargeable from the service recipient and not the service provider. CEC claimed that it had paid Service Tax aggregating to ₹ 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pect for such services as the Service Tax was assessed in the hands of the service provider that had provided the services to CEC. 40. CEC was registered as a service provider in respect of commercial or industrial buildings and civil structure . It is important to note that there was no Service Tax payable in respect of the works executed by CEC under the Agreement as such works were specifically exempted from the levy of Service Tax. By a Notification dated 20.06.2020 issued by the Government of India, Ministry of Finance (Notification No.25/2012 Service Tax), inter alia, following services were exempted from levy of service tax: 12A. Services provided to the Government, a local authority or a governmental authority by way of construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, or alteration of (a) a civil structure or any other original works meant predominantly for use other than for commerce, Industry, or any other business or profession; 41. In terms of a Notification dated 01.03.2016, the services pertaining to construction of flyovers was also exempted from Service Tax. 42. Concededly, CEC ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ention that the award of reimbursement of Service Tax is contrary to the express terms of Clause 37(i) of the GCC. 48. Although, it is well settled that matter regarding interpretation of a contract falls within the jurisdiction of Arbitral Tribunal and the Courts would not normally interfere with such interpretation. However, in the present case, this Court is of the view that Arbitral Tribunal s interpretation of Clause 37(i) of the GCC to the extent it includes reimbursement of Service Tax levied in connection with contracts / arrangements between CEC and third parties, is fundamentally flawed and vitiates the impugned award by patent illegality. 49. Insofar as CEC s Claim no.2 is concerned (reimbursement of ECC), CEC had placed a Certificate issued by its Statutory Auditor certifying that it had a paid sum of ₹ 3,14,06,709/- for additional expenses on account of ECC during the period November, 2015 to August, 2018. The Arbitral Tribunal found that the said amount was payable by the petitioner, in view of Clause 38 of the GCC. The petitioner has accepted the award in regard to the claim of reimbursement of ECC. 50. The learned counsel for the petitioner had conten ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
