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Corporation vs Ijm Corporation Berhad (Ijm) – … on 15 December, 2009

Bombay High Court
Corporation vs Ijm Corporation Berhad (Ijm) – … on 15 December, 2009
Bench: S.C. Dharmadhikari
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            IN THE HIGH COURT OF JUDICATURE AT BOMBAY
               ORDINARY ORIGINAL CIVIL JURISDICTION




                                                      
                 ARBITRATION PETITION NO.76 OF 2007


    Maharashtra State Road Development




                                                     
    Corporation                                        .. Petitioner
          Versus
    IJM Corporation Berhad (IJM) - Satyam
    Construction Ltd. (SCL) (Joint Venture)            .. Respondent.




                                          
    Mr.E.P.Bharucha, Senior Advocate i/b. Amarchand & Mangaldas for
                           
    petitioners
    Mr.Ramesh Dhanuka with Vaishashi Chaudhary i/b. Mrs.A.R.Dhanuka
    for respondents.
                          
                                   CORAM : S.C.DHARMADHIKARI, J.

Reserved on : 29th August 2009

Pronounced on : 16th December 2009

ORAL JUDGEMENT:-

1] By this petition under section 34 of the Arbitration and Conciliation

Act, 1996 (for short “the Act”), the petitioner, Maharashtra State Road

Transport Development Corporation, a Government of Maharashtra

Undertaking, challenges the Award dated 28th November 2006 made by

the Sole Arbitrator.

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2] The Award directs the petitioners to pay to the respondents a sum

of Rs.1,21,83,508 along with interest at the rate of 16% p.a. from 28th

October 2002 till the date of Award provided the said amount is paid

within 60 days from the date of the Award, failing which the respondents

are held to be entitled to interest till the date of payment. A copy of this

Award is annexed as Annexure A to the petition.

3] The facts leading to this petition are that, the petitioner invited bids

for the construction of Mumbai Pune Expressway section from Kon to

Chowk (from 1.6 Kms. To 14.84 Kms. in length) i.e. total stretch of

about 13.2 Kms. The work included construction of bridges, cross

drainage work, via ducts and other structures. The respondents submitted

its bid on 18th December 1997 of approximately Rs.136.82 Crores. The

period of completion was specified as 27 months. It is the case of the

petitioner that the bid amount included sales tax and other taxes on all

materials that may be purchased for the purpose of the contract. The bid

was accepted by letter dated 1st January 1998 and the contract came to be

awarded. The agreement dated 23rd January 1998 was executed and

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instructions were given to proceed with the work on the same date, the

date of completion being 22nd April 2000.

4] It is then alleged that during the execution of the work, disputes

and differences arose between parties on account of payment of works

contract on interpretation of clause 8 of the Addendum to the contract.

Disputes arose, according to parties, in view of the amendment to the

Maharashtra Sales Tax Act on the Transfer of Property and Goods

involved in the execution of Works Contract (Re-enacted) Act, 1989 (for

short (Works Contract Act, 1989).

5] It is then stated that the respondents claimed reimbursement of

their entire liabilities words Works Contract Tax under the amended

provisions (without deduction of any amount therefrom) and alleged that

their liability to pay the said tax prior to the amendment of 1 st May 1998

was NIL. On the other hand it was petitioner’s case that the respondent

was only entitled to increase, if any, in works contract tax and that the

liability to pay the said tax under the pre-amended provisions is in-tact. It

was the case of the petitioner that the respondent failed and neglected

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and/or refused to substantiate their claim by furnishing particulars and

data as stipulated under Clause 8 of the Addendum, including the data,

and particulars as to their liability to pay Works Contract Tax under the

unamended provisions. In the absence of such particulars, it could not be

determined, if there, was any increase at all. The respondent had failed to

discharge the burden and hence it was not entitled to reimbursement.

6] It is stated that the works were completed on 22nd April 2000. The

Road was opened for traffic from 1st May 2000. All other ancillary work

was completed by October 2000 and the Takeover Certificate was issued

on 21st October 2000. The total value of the works paid by the petitioner

to the respondent was approximately Rs.151 Crores, including the price

variations and extra items.

7] However, since the claim for works contract tax reimbursement

was rejected, the respondent by letter dated 24th March 2004 purported to

refer the dispute to the Engineer under clause 67.1 of the Contract. The

Engineer rejected the claim by a letter dated 6th April 2004. Respondent

then purported to refer the decision of the Engineer to the Steering

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Committee under clause 67.2. This they did by their letter dated 24th

April 2004. Finally, the matter came to be referred to the Arbitrator.

Learned Arbitrator issued notices and passed preliminary orders with

regard to filing of pleadings.

8] Respondents filed a statement of claim on 16th February 2006 under

four heads, which are as under:-

1. Claim No.1- Reimbursement of Sales Tax on Works Contract

recovered wrongly – Rs.1,68,48,311/-;

2. Claim No.2 – Claim for losses actually suffered by virtue of illegal

recovery of the amount f Rs.1,00,00,000/-;

3. Claim No.3- Interest @ 18% p.a. till 17th February 2006 being Rs.

2,32,14,663/- ; and

4. Claim No.4 – Costs of arbitration – Rs.27,00,000/-”

9] The petitioner filed the statement of defence on 22nd March 2006 to

which a rejoinder was filed on 6th April 2006 by the respondent. No oral

evidence was led. Further, additional documents and information were

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filed by the parties before the learned Arbitrator.

10] The Arbitrator made the impugned Award by holding that all Taxes

as on the date of contract were deemed to have been included in the price

quoted by the claimants and the claimants – respondent was entitled to

get reimbursement of any increase in respect of tax on completed items as

may be levied after the signing of the contract. Therefore, the entitlement

of 1% tax payable on Rs.1,49,09,61,587 as per the immediate liability

option will have to be further reduced by what could have been the tax

liability of the respondent under the pre-amended Act based on the

purchase data given by it. Relying upon the figures/ data (Exh.C-39), the

learned Arbitrator reduced the amount and finally held that the respondent

is entitled to reimbursement of Rs.1,21,83,508/-. The Arbitrator awarded

interest at 16% on this amount as aforenoted. It is this Award which is

impugned before me.

11] Mr.Bharucha, learned Senior Counsel appearing on behalf of the

petitioner submitted that the impugned award is vitiated as it is against

the specific terms of the Contract. He submits that it was incumbent upon

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the respondent to have worked out the liability to pay tax. Firstly, as per

section 6(1)(A)(a) up to 1st May 1998 and, thereafter, as per Section 6(1)

(A). Secondly, as per section 6(1)(A), after amendment of 1st May 1998

and thirdly on the basis of composition as per Section 6(1)(A). In such

circumstances, respondent should have, thereafter, paid the lesser of the

two amounts under the second and third methods. Lastly, the amount

actually paid by the respondent was more than the amount as per the

liability at the time of entering into contract i.e. the amount worked out

by the first method. Then this excess amount alone would have been on

account of the petitioner as per clause 8. Respondents did not determine

their tax liability as per this difference. They refused to furnish the data

as obliged under clause 8, particularly as to their liability under the

preamended provisions. In the absence of such particulars, it could not be

determined, if there was any increase of the quantum in the tax paid by

the respondent. The respondent completely failed to discharge the burden

placed by clause 8 of the Addendum to the Contract and hence their

claim was untenable.

12] The learned Arbitrator did not consider any evidence of the items to

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be deducted from the turnover under clauses (a) to (d) of the old section

6(1)(A). The respondent also did not prove that the goods had not

undergone a change of form before use in the present contract, as goods

which undergo any change of form or manufacture before use shall not be

deducted under clause (a) of the old section 6(1)(A) of the un-amended

provision.

13] The learned Arbitrator wrongly discharged the respondent of the

above burden by relying upon joint statements which were submitted by

the parties “without prejudice” to their rights, and “so as to avoid any

mistake in recording the facts correctly”. It is pertinent to note that the

without prejudice joint statements did not follow the three steps set out

above.

14] Reliance of the learned Arbitrator on the said “without prejudice”

statements is an error apparent on the face of the record. The steel used

in the contract was cut and bent so as to form cages, into which concrete

was poured to form structures of the required size and shape called a

“Span”. The “Span” could be regarded either as a new article

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manufactured from the purchased steel or in any event the steel as

purchased had changed its form. In either case the same was not entitled

to any deduction under Section 6(1)(A)(a) of the unamended provision or

Section 6(1)(A) of the amended provision. Steel being declared goods

would be exempted from the turnover and would be not liable to tax only

if it was sold or used in the works contract in the same form in which it

was purchased without any change in form taking place or without any

manufacturing taking place. This provision remained unchanged after the

1st May 1998 amendment. It was thus not necessary for the learned

Arbitrator to go into the question of manufacture. In any event, the

learned Arbitrator having chosen to go into this question of manufacture,

decided the same erroneously.

15] The Arbitrator confused two distinctive criteria that the Statute

imposed. Not only manufacture of new goods from the declared goods

but also any change of form of the declared goods before their use in the

works contract will deprive the declared goods from exemption. The

steel which underwent a change of form even if it did not result in

manufacture of new marketable goods, could not be deducted from the

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turnover under both the provisions amended so also unamended.

16] Mr.Bharucha has contended that the confusion between the test of

marketability/ manufacture and the test of change of form amounts to

complete non application of mind and vitiates the award. He submits that

the steel which underwent change form, even if it did not result in

manufacture of new marketable goods could not be deducted from the

turnover under both amended and unamended provisions.

17] Mr.Bharucha then contended that the respondent had to prove the

increase in the work contract tax as a result of amendment of 1st May

1998 and the quantum of the increase. The burden could not be said to

have been discharged by producing proof of deduction of tax at source

(TDS). This conclusion is wholly erroneous inasmuch as the petitioner

was statutorily obliged to deduct TDS at 2% of the value of each bill,

irrespective of respondent’s liability of work contract tax under section

6(B) of the Work Contract Act. In these circumstances, payment of TDS

has no bearing whatsoever on the respondents burden of proof. The

respondent will have to discharge that burden independently and

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deduction of TDS by the petitioner can in no case be construed as the

burden being discharged by the respondent.

18] Mr.Bharucha assailed the Award on the ground that the Arbitrator

failed to take into consideration the fact that the claims of the respondent

were barred by limitation. Elaborating this submission, Mr.Bharucha

submitted that in the statement of claim and the letter dated 24th April

2004, the respondent claimed that an amount of Rs.1,40,39,813 was

reimbursed towards Works Contract Tax in January 2000. The further

request was made for advance of Rs.25,31,796 in October 2000. The

complaint of the respondent was that instead of reimbursing this further

amount, the petitioner deducted and/or reversed the earlier reimbursement

of works contract on 15th October 2001. Therefore, the right to claim this

amounts accrued in October 2000 and in any event from 15th October

2001. The statement of works contract tax with interest has been annexed

by the respondent. Assuming without admitting the statements, it is clear

that the alleged due date of the last installment is 1st May 2002. However,

by letter dated 10th May 2005, the respondent referred the dispute to

Arbitration. In such circumstances, the claim was ex-facie time barred.

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The arbitrator failed to take into account the relevant statutory provisions

and erroneously concluded that the claim is within limitation.

19] Mr.Bharucha then raised some ancillary submissions on the issue

of jurisdiction of the Arbitrator and the Award of interest at 16%. He

submitted that the claim for works contract tax made by the respondent is

excepted matter. The arbitration agreement cannot apply to such a claim.

Thus, the arbitrator had no jurisdiction to entertain claims of respondent

in this regard. The arbitrator was bound to decide the claim only in

accordance with the terms of contract. Further, once the claim was

quantified by the respondent to Rs.2,37,49,735/- inclusive of everything,

then, the Arbitrator was bound by this figure and could not have awarded

interest. Further, in any event, the interest could not have been awarded

at 6%. The learned Arbitrator failed to assign any reasons while granting

16% interest and hence, the award is vitiated. For all these reasons, the

Award deserves to be quashed and set aside.

20] Mr.Bharucha has relied upon the following decisions in support of

his abovementioned submissions.

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21] Mr.Dhanuka learned Counsel appearing for respondent on the other

hand supported the Award. He submits that this is a petition under

section 34 of the Arbitration and Conciliation Act, 1996. The award of

the Arbitrator is rendered as the disputes were referred to him for

adjudication. The dispute itself pertain to the reimbursement of works

contract tax paid by the claimant/ contractor/ respondent. That claim was

squarely covered by the terms and conditions of the contract. Once the

claim squarely fell within the purview of the contract and all differences

and disputes could have been referred to arbitration as per the Arbitration

Agreement thereunder, then, it is erroneous to urge that the Arbitrator had

no jurisdiction to entertain and try the claim. Mr.Dhanuka submits that

the Arbitrator, therefore, has not assumed jurisdiction erroneously but

proceeded to adjudicate the claim arising out of the contract.

22] Thus, the Arbitrator had complete jurisdiction to adjudicate upon

the claims. The claims are not time barred as falsely contended. In this

behalf, Mr.Dhanuka submitted that the running account bill No.35 was

submitted on 13th October 2000. The respondent claimed reimbursement

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of sales tax on works contract and enclosed copy of the assessment order

from sales tax authorities for the period of assessment viz., 1st April 1999

to 31st March 2000, determining the tax liability at Rs.1,09,76,109. On

this very date the Consultants forwarded a copy of the assessment order

received by them from the respondents so also copy of the R.A. Bill to

the petitioners and requested them to look into the matter.

23] Thereafter, the consultants on 5th October 2001 addressed a letter to

the petitioners and informed that the reimbursement of works contract tax

was recommended by them in R.A.Bill No.40 and the same has been

considered in pre- final bill. Petitioners reimbursed to the respondent Rs.

1,40,39,816 in two installments as per clause 8 of the Corrigendum/

Addendum to the contract. Suddenly, there was recovery from the bills of

respondents for October 2001 and the respondent proceeded with regard

to this recovery on 8th November 2002. Thereafter, on 10th November

2003, respondent requested the petitioners to refer the matter to Steering

Committee under clause 67.2 of the Conditions of Contract, which

request was reiterated on 24th April 2004. The Consultants rejected the

claim on 6th April 2004. That is how on 10th May 2005 the request to

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appoint an arbitrator has been made. Mr.Dhanuka, therefore, submitted

that the recovery was commenced suddenly from the bills of respondents

from October 2001. At that stage, there was a request for further

reimbursement pending with the petitioner. The matter was taken up with

the steering committee in January 2003 and, thereafter, the notice under

clause 67.1 was sent to the petitioners on 26th February 2003. There was

a meeting held on 21st October 2003 wherein it was pointed out that

because of the objection from the CAG (Audit), the petitioners had

decided not to reimburse the amount of tax paid by the respondent. In

these circumstances, how the claim could be said to be time barred has

not been clarified by the petitioners. Therefore, Mr.Dhanuka submits that

the claim was within limitation and not barred. In any event, this issue

has been considered by the Arbitrator and his reasoning cannot be

questioned now as if this Court is sitting in appeal over the decision and

the Award of the Arbitrator. Therefore, there is no substance in the

complaint that the claims were time barred. Mr.Dhanuka then contended

that the respondents have pointed out in great details that the amount was

withheld. It was initially reimbursed but recovery commenced and,

therefore, the matter went to arbitration. Once it is found that the

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amounts have been withheld without any basis, then, the Arbitrator was

empowered to award interest. Mr.Dhanuka has invited my attention to

section 31(7)(a) of the Arbitration Act, 1996. The power under this

provision has been rightly exercised. The rate of interest is within the

exclusive power of the Arbitrator. The rate of interest is considered from

October 2002 till the date of the award, rightly, as the petitioners have

illegally deducted the amounts from the bill of respondents. With regard

to quantum of interest and the manner in which the same has to be paid,

the petitioners cannot make any complaint as it is well within the powers

of the Arbitrator. Further, the petitioners themselves had charged interest

at 16% p.a. on various advances. Therefore, it is now not permissible for

them to dispute the rate determined by the Arbitrator. Thus, on the issue

of jurisdiction, the limitation and interest the award is not vitiated and

does not deserve to be set aside.

24] As far as the main plank of the submissions of Mr.Bharucha and

more particularly with regard to work contract tax liability, Mr.Dhanuka

submits that the argument proceeds on a complete misconception. The

disputes and differences arose between the parties because of the

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amendment to the Contracts Act. He submits that as per Section 6(1)(A)

(a) and (b) of the said Act, the contractor could claim benefit of resale in

respect of purchase of goods used in the execution of works contract and

where the transfer of property had taken place in the form in which the

goods were purchased in respect of the construction contract. Under the

Notification issued by the State Government when cement is mixed with

rubble/ sand and concrete is prepared for use in the construction benefit

of resale could be claimed. However, from 1st May 1998 the system of

levying tax on the balance amount of turnover after deducting value of

goods which are purchased from registered dealer and used in the

execution of works contract without changing form, was done away with.

It was provided that from 1st May 1998, such contractors were made

liable to pay tax at 15% on value of goods utilised in the execution of

works contract without having any bearing on the source of purchase.

The provision was amended to clarify that notwithstanding anything

contained in section 6 and sub-section 1 thereof, the dealer who had

entered into any contract for execution of work during the period from 1st

April 1992 to 30th April 1998 and commenced execution during such

period and the execution continued on or after 1st May 1998, he may opt

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in lieu of tax payable by him under the said Act in lumpsum by way of

composition of an amount equivalent to 1% of the contract.

25] Mr.Dhanuka, therefore, contended that mixing of various material

used in construction activity were not considered as change of form in the

earlier notification. It did not attract, therefore, payment of Works

Contract Act. In view of the amendment with effect from 1st May 1998,

earlier notification was withdrawn thereby imposing additional incident

of tax after award of the contract. Instant contract was treated as on

going contract by assessing authorities and accordingly, they assessed the

respondent at 1% under the amended provisions of Sales Tax. In view of

the demand raised by Sales Tax Authorities for the year 1st April 1998 to

31st March 1999, respondents were required to pay a sum of Rs.48,89,563

and Rs.7,05,033 towards Taxes under the Contracts Act. This amount

was paid under two different challans and the copies thereof were

annexed by the respondents to their statement of claim. These facts have

also been set out by the authorities in their assessment order dated 22nd

December 1999. This document was produced and a copy of the

assessment order is exhibited as Exh.C-36 by the learned Arbitrator.

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Thereafter, the assessment for the year 1st April 1999 to 31st March 2000,

the petitioners deducted 2% TDS from their various bills totaling to Rs.

1,53,31,319 and deposited the said amount with the Sales Tax

Department. These facts are also recorded in the assessment order, a

copy of which is exhibited as Exh.C-37. The Sales Tax Department has

given credit of the said amount deducted from the bills of the respondent

and issued an order for refund of Rs.45,96,937/- which was inclusive of

Rs.43,54,210 as excess amount and Rs.2,42,727 as interest. These

documents being produced and the sales tax authorities also allowing the

refund of the amount deducted over and above 1%, then, the claim made

for reimbursement was fully justified. The amount was by way of further

increase in taxes under the Contract Act on completed items of work. It

cannot be said, therefore, that the claim of the respondent was not

tenable.

26] Mr.Dhanuka contended that all these pleas are raised and complete

facts set out in the statement of claim and rejoinder. Necessary

documents were also produced. In fact, by virtue of the last amended

notification, benefits of various exemption available to respondents were

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taken away thereby resulting in increased tax liability. The matter was

covered by clause 8 of the Addendum to the contract. The respondents

had approached the consultants/ engineers and requested that the amount

of Rs.55,95,596 paid by them to the Sales Tax Authorities due to the

amendment be reimbursed/ released. The demand was raised by further

letter dated 12th April 1999. On the recommendation of the Engineer, the

employer/ petitioner rightly reimbursed the sum of Rs.1,40,39,813 after

submission of sales tax assessment till March 2002. After reimbursing

the said amount, a false and frivolous objection appears to have been

raised and in view thereof, petitioners illegally decided to recover the

amount already reimbursed. This decision was recorded in the Minutes

of the Meeting held on 21st October 2003. (Exh.C-16). On the basis of

this position, petitioners recovered Rs.1,40,39,813/- from the bills of

October 2001, which was delayed for substantial period by the petitioners

themselves. The demand was raised for refund of this amount and,

therefore, the matter was referred to arbitration.

27] Mr.Dhanuka submitted that once such is the nature of the dispute,

then, whether there was any liability on account of the provisions being

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amended or whether the amended provision imposed increased tax

liability or not and whether the respondent could have sought

reimbursement of the amount of tax paid pursuant to the amendment or

not are matters which were within the domain of the Arbitrator. He could

have even considered as to whether the tax liability had increased at all or

not. The parties proceeded before the Arbitrator on the basis that not only

the extent of the liability but the quantum of the tax are matters which

can be gone into by the Arbitrator. Thus, this is a matter where the

question of law was specifically referred to the Arbitrator. The Award

may not be worded or rendered by the Arbitrator like a Judgement of a

Court of Law with elaborate and complete reasoning, however, once the

matter has been considered by the Arbitrator, then, merely because the

Award is erroneous, is no ground to set aside the same. In these

circumstances, the award rendered by the Arbitrator being justified should

not be set aside.

28] Mr.Dhanuka has relied upon the following decisions in support of

his contentions:-

(i) (2006) 11 S.C.C. 181 (McDermott International Inc. Vs. Burn

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Standard Co.Ltd. And Ors.)

(ii)A.I.R. 1999 S.C. 1614 (Oil & Natural Gas Commission Vs.

M/s.M.C.Clelland Engineers S.A.)

29] For properly appreciating the rival contentions, it is necessary to

refer to the contract between the parties. It is clear that the contractor/

respondent had submitted a bid which was accepted for execution and

completion of the works specified in the agreement/ contract between

parties. There is an agreement wherein clause 4 states that the documents

mentioned and enlisted therein shall be deemed to form and be read and

construed as part of the Agreement. One of the documents is “General

Conditions of Contract – Conditions for contract for works of Civil

Engineering Construction and “General Conditions of Contract –

Conditions of pre-application”. It is clear that the bid document consists

of volumes in which these general conditions are also included. It is

common ground that clause 8 of the addendum to the contract deals with

tax and reads as under:-

“8. The rates quoted by the Contractor shall be

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deemed to be inclusive of the Sales and other taxes on all

materials that the contractor will have to purchase for

performance of this contract. Any further increase in Central

or State Sales Tax or other taxes on completed items of work

of this contract as may be levied and paid by the Contractor

shall be reimbursed by the Employer to the contractor on proof

of payment.”

30] A bare perusal of the same would indicate that the rates quoted by

the contractor shall be deemed to include Sales and other taxes on all

materials that the contractor will have to purchase for performance of this

contract. Any further increase in Central or State Sales Tax or other tax

on completed items of work of this contract as may be levied and paid by

the contractor shall be reimbursed but the reimbursement is on proof of

payment being produced by the contractor. Clause 67 of the Contract

reads thus:-

“67.1 If a dispute of any kind whatsoever arises

between the Employer and the Contractor in connection with,

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or arising out of, the Contract or the execution of the Works,

whether during the execution of the Works or after their

completion and whether before or after repudiation or other

termination of the contract, including any dispute as to any

opinion, instruction, determination, certificate or valuation of

the Engineer, the matter in dispute shall, in the first place, be

referred in writing to the Engineer, with a copy to the other

party. Such reference shall state that it is made pursuant to

this Clause. No later than the eight-fourth day after the day on

which he received such reference the Engineer shall give

notice of his decision to the Employer and the Contractor.

Such decision shall state that it is made pursuant to this

Clause.”

“Unless the Contract has already been repudiated or

terminated, the Contractor shall, in every case, continue to

proceed with the Works with all due diligence and the

Contractor and the Employer shall give effect forthwith to

every such decision of the Engineer unless and until the same

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shall be revised, as hereinafter provided, in an amicable

settlement or an arbitral award.”

“If either the Employer or the Contractor be dissatisfied

with any decision of the Engineer, or if the Engineer fails to

give notice of his decision on or before the eighty-fourth day

after the day on which he received the reference, then either

the Employer or the Contractor may, on or before the

seventieth day after the day on which he received notice of

such decision, or on or before the seventieth day after the day

on which the said period of 84 days expired as the case may

be, give notice to the other party, with a copy for information

to the Engineer, of his intention to commence arbitration, as

hereinafter provided, as to the matter in dispute. Such notice

shall establish the entitlement of the party giving the same to

commence arbitration, as hereinafter provided, as in such

dispute and, subject to sub-clause 67.4 no arbitration in

respect thereof may be commenced unless such notice is

given.”

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” If the Engineer has given notice of his decision as

to a matter in dispute to the Employer and the Contractor and

no notice of intention to commence arbitration as to such

dispute has been given by either the Employer or the

Contractor on or before the seventieth day after the day on

which the parties received notice as to such decision from the

Engineer, the said decision from the Engineer, the said

decision shall become final and binding upon the Employer

and the Contractor.”

31] It is the case of the parties that section 6 of the works contract act

prior to its substitution read as under:-

“6(1)(A) There shall be levied a tax on the turnover of

sales in respect of goods other than those covered by the

Schedule at the rates specified in clause (B), after deducting

from such turnover —

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     (a)     the turnover of sales in respect of the declared




                                            
     goods         purchased from a dealer registered under

     the Bombay Sales Tax       Act and sold in the same form




                                           
     in which they were purchased or        without       doing

     anything to them which amounts to or results in any




                                
     manufacture;
                 
     (b)     the turnover of sales in respect of the goods
                
     covered by Schedule A to the Bombay Sales Tax Act;
      


     (c)     the turnover of sales in respect of the goods which
   



     are exempt from payment of the whole of tax

unconditionally under any notification issued under

section 41 of the Bombay Sales Tax Act;

(d) the turnover of purchases of goods other than

declared goods in which transfer of property takes place

(either in the same form in which such goods were

purchased or in any other changed form, where such

change in the form in which such goods were purchased

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28

is caused by the application of such process or method,

as the State Government may, by notification in the

Official Gazette, specify) in the execution of the works

contract provided such purchases are effected from :-

(i) a dealer registered under the Bombay Sales

Tax Act and whose registration certificate is in

force on the date of such purchase;

(ii) a person not registered under the Bombay

Sales Tax and tax under the said Act has been

paid on the goods so purchased;

(B) The tax shall be levied at the following rates,

namely;

(i) in respect of declared goods, the rate of tax

shall be four paise in a rupee on the turnover of

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29

sales of such goods;

(ii) in respect of goods other than declared

goods, the rate of tax shall be ten paise in a rupee

on the turnover of sales of such goods;

32] After the amendment the same reads thus:-

“6(1)(A) There shall be levied a tax on the turnover

of sales in respect of goods at the rates specified in clause (B),

after deducting from such turnover the turnover of sales of

declared goods purchased from a dealer registered under the

Bombay Sales Tax Act, 1959 and sold in the same form in

which they were purchased; or without doing anything to them

which amounts to or results in any manufacture.

(B) The tax shall be levied at the following rates,

namely,

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30

(i) in respect of declared goods, whether used

in the same form or otherwise, the rate of tax

shall be four paise in a rupee of the turnover of

sales of such goods;

(ii)

in respect of goods specified in the

schedule if they are manufactured, produced or

constructed, and supplied in such form or used in

the execution of works contract then, subject to

sub-clause (i) tax shall be levied at the rate set out

against each of them in column (3) of the said

Schedule;

(iii) in respect of goods other than those

covered by sub-clauses (i) and (ii), the rate of tax

shall be fifteen paise in a rupee on the turnover

of sales of such goods;

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33] The claim made by the respondent was that there is illegal

recovery of amounts from the running bills. This recovery is made by the

petitioner. The recovery is illegal because various sums were paid to the

sales tax authorities and challans/ copies thereof were produced with the

claim for reimbursement, made from 10th April 1999. However, the

Senior Resident Engineer responded on 14th April 1999 (Exh.C-4) that

the respondent is not entitled for reimbursement of Sales Tax paid. The

respondent once again took up the matter and on 19th April 1999, the

Consultant accepted that the claim for sales tax must be reimbursed as per

the Addendum No.8 of the Contract Tax Act. However, in the same letter

respondent was asked to clarify the position as to why they paid more

money than assessed and why receipt was not obtained for the full

amount by them. It is also stated that the case of the respondent would be

forwarded to the Corporation on receipt of clarification and respondents

were requested to produce proof of payment for the amount of cheque

paid towards Sales Tax.

34] Copies of two challans evidencing payment of sales tax on works

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contract were forwarded and, thereafter, it was pointed out that due to the

amendment to the provisions, subsequent to the award of contract, the

respondents are incurring sales tax on works contract liability and,

therefore, the amount be reimbursed to them. Thereafter, the

correspondence followed and the aforementioned events took place.

35]

After referring to the correspondence and the ultimate outcome of

the same, the respondents contended that the contract value was of Rs.

136,81,93,946/-. The contract was falling within the purview of this

Works Contract Act. After inviting attention of the Arbitrator to the

various provisions and the amendment so also the addendum, the

respondents contended that by virtue of the amendment they were liable

to pay tax at 15% of the value of goods utilised in the execution of works

contract without having any bearing on the source of purchase. The

attention of the Arbitrator was also invited to Ordinance No.11 of 1999

issued on 6th February 1999, whereby, in addition to the earlier

composition scheme of 8%, the option of paying 2% of the total contract

value was given to the contractor. There was further amendment by

which new subsection 1(a) was added to section 6(1) with effect from 1st

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May 1998. By this amendment in respect of contracts entered into on or

after 1st April 1992 but before 30th April 1998, where the execution of

such contract has commenced during such period but continued on or

after 1st May 1998, the dealer can opt to pay a lumpsum by way of 1% for

construction contract and 3% for other contracts. It was also submitted

that due to above amendments, respondents had to pay 1% towards

construction contract as the execution in the present case was after 1st

April 1992 but before 30th April 1998. The contract admittedly

commenced during the further period and execution continued after 30th

April 1998. The contract, therefore, comes into the definition “Ongoing

contract” and hence, the respondent was liable to pay tax at 1% on total

receipts being civil construction contract.

36] In paras 12 to 20 of the Statement of Claim, respondents pointed

out as to how the liability accrued and the payment of tax was made to

the sales tax Authorities. They also referred to the assessment orders. It

is, thereafter, contended that the Engineer and the petitioner had rightly

reimbursed the sales tax amount which have been deducted from the

claimant’s running account bills. The reimbursement was made in two

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installments in the month of January 2000. It was pointed out that the

Maharashtra Sales Tax on Transfer of property of goods involved in

execution of works contract has provided a scheme as on 1st May 1998.

There was no tax if the goods were purchased from registered dealer and

used in the same form while executing the works contract. Preparing

concrete was specified process. Cement, sand was considered as used in

the same form and, there was no incidence of Tax and the steel being

declared goods, there was no tax. Attention was also invited to the

unamended provisions and it was stated that with effect from 1st May

1998, the amendment is for road construction contract. The process of

making concrete is not exempted from tax. Use of cement, sand, metal

and use of other ingredients for making concrete became taxable. The

effect is tax is at 15% on the ingredients to make concrete. Further, the

concrete which was being used in execution of work from 1st January

1998 to 30th April 1998 was not attracting tax as the process of making

concrete was specified and the goods used in the said making were

treated as used in the same form. After the amendment, the system of

levying tax on balance amount of turnover, after deducting the value of

goods which were purchased from the registered dealers and used in the

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works contract without changing form, was done away with. As observed

above, it was provided that from 1st May 1998 as the contractors were

liable to pay tax at 15% on the value of the goods utilised in the execution

of contract without having any bearing on the source of purchase. It was

urged by the respondent that with the amendment, contractors were asked

to pay twice i.e. when they purchased the goods from registered dealers

as per the provisions of Bombay Sales Tax Act, 1959 and again when

they use that material in execution of works contract at 15% on the basis

of the amended provisions. For the reasons that were set out by the

respondent under the heading “Claim No.I”, they prayed that an amount

of Rs.1,68,48,311/- be paid to them.

37] As against this, the defence of petitioner was that the respondents

have misinterpreted the condition No.8 of the Contract Terms and

Conditions and have wrongfully raised their claim. The petitioner has

recovered the payment made to the respondent during the Intermediate

bill stage itself. The petitioner pointed out that the respondent has

claimed reimbursement of whole of works contract tax at 1% made

applicable from 1st May 1998 and not on the increase part of 1% of its

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liability. Thus, it appears that the stand is that petitioner should bear the

entire burden of works contract tax. It is stated that the respondent has

not claimed before the Engineer anything over and above the base tax.

The claim is, therefore, untenable because what the respondent is seeking

is reimbursement of whole tax at 1% and not for any increase. In any

event, the claim as made is contrary to the terms of the contract. It was

then contended that even if the respondent formed joint venture for the

contract work only, they are deemed to have worked out their work tax

liability as per applicable law prior to 1st May 1998. They cannot be

permitted to urge that they were not liable to pay any work contract tax

prior to 1st April 1998. Respondent has not given any details about their

cost of works contract tax while bidding and since they have claimed for

total works contract it implies that they had no intention to take any

benefit under the Addendum No.8 of the Conditions of Contract. In such

circumstances, the claim is illegal and could not have been awarded.

Thereafter and without prejudice to the aforesaid submissions, the

petitioner objected to claim No.1 on various grounds including that no

proof of payment has been produced. Respondents are producing two

sheets of papers terming them as challans for the work. The documents

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are not admitted and their contents are seriously disputed. The petitioners

pointed out that the documents are not relevant and admissible for the

reasons that they do not contain details of the nature pointed out in para

5.3.1 of the statement of defence.

38] Further, without prejudice it is pointed out by the petitioners that

there is no evidence insofar as this claim is concerned. The respondent

has suppressed material facts. Petitioners have pointed out that no details

are placed on record insofar as the position prevailing prior to the

amendment. The details, such as steel brought at site etc. and

incorporated in the work, pre-cast concrete items prepared at site or

elsewhere and installed at work railing items etc. converting them in

railings etc. are matters which cannot be assumed and unless details are

furnished the Tribunal cannot consider the claim No.1. It was urged that

the onus is on the respondent. It may be that the petitioner has

reimbursed certain amount to the respondent but that by itself is not

decisive. The petitioner dealt with the documents produced and hence

urged that the claim should not be awarded.

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39] The Arbitrator in the Award at para 12 observed that with the

consent of both parties and without prejudice to their rights, it was

decided to prepare agreed data based on the final bill and other

documents so as to avoid any mistakes in recording the facts.

Accordingly, statements indicating quantification of various items were

submitted and they were taken on record (Exh.38). Copy of the final bill

(Exh.40) was also taken on record. Learned Arbitrator has in para 14

held that the intention of parties from the contract document and more

particularly clause 8 is that all taxes as on the date of contract were

deemed to have been included in the price quoted by the respondent. The

respondent is only entitled to get reimbursement of any increase in

respect of any tax on completed items. As far as the issue as to whether

there is any increase in tax after amendment on 1st May 1998 to the Works

Contract Act is concerned, the Arbitrator proceeded on the admitted basis

that there is an increase in tax on account of deletion of permissible

deductions from turnover of sales under section 6(1)(A) of declared

goods purchased from registered dealers and sold in the same form in

which they were purchased. Secondly, there is an increase on account of

change in the rates of taxes. The Arbitrator compared the provisions

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existing prior to and after amendment and concluded that there is an

increase in tax liabilities. The learned Arbitrator referred to the material

produced by the respondent to discharge the burden with regard to the

increase in taxes. While dealing with the materials produced, the

Arbitrator referred to Trade Circulars and, thereafter, the learned

Arbitrator had before him the statements/ details and he invited comments

of both sides.

The learned Arbitrator concluded that the amount of

contract for which the respondent could be entitled to reimbursement of

tax has to be determined at Rs.149,09,61,587/-. Thus, the respondent is

entitled to get reimbursement of any increase in respect of any tax on

completed items as may be levied after signing of the contract. Learned

Arbitrator then observed that the entitlement of 1% payable on this sum,

as per the minimum liability option, will have to be further reduced by

what would have been tax liability of the respondent based on pre-

amendment Act as per the purchase data. Learned Arbitrator referred to

Exh.C-39 and held that the value of goods purchased outside Maharashtra

other than declared goods comes to Rs.2,72,61,076 and tax liability under

the pre-amended Act on this purchase at 10% would be Rs.27,26,108/-.

This needs to be deducted from the entitlement of Rs.149,09,61,587/-

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arrived at earlier, leaving the increase entitlement of Rs.1,21,83,508/-.

Thus, this is the sum which will have to be reimbursed, according to the

Arbitrator. In paras 19 and 20 of the Award, this is what is held:-

“19. There was considerable discussion and arguments

advanced from both sides regarding items within BOQ items

which are alleged to be used in the execution of the contract

by changing the form. The claimant had in their written

submissions given on 18/7/2006 to explain the statements filed

estimated that the value of steel used in the execution of works

contract comes to Rs.17,329,554/- and value of Metal Crash

Barrier which was procured through the sub-contractor comes

to Rs.10,82.624/-. The respondent has argued that the WC tax

of 10% on these items which were changed in the form comes

to Rs.28,15,579 and hence this amount also need to be

deducted from the entitlement calculated. The claimant had

vehemently contested this argument regarding change in the

form. I have carefully considered the facts as well as the legal

arguments and decisions in various court cases referred to by

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both the parties. In order to come to a conclusion that there is

a change in the form, it is necessary to apply test of

marketability and as none of the items in these BOQ items are

marketable as separate product there is no change in the form.

I have also no difficulty in reaching the conclusion that there

is no process akin to the form. I have also no difficulty in

reaching the conclusion that there is no process akin to

manufacturing involved in these processes. I have also

considered the fact that the property passes at the point of

accretion or approval and there is no change in the form at the

time when the property was passed to the employer. I,

therefore, reject the respondent’s plea that as change in form

was involved in both these items used in the execution, burden

on account of these items as pre-amendment Act should be

reduced from the calculations made above.”

“20. Thus, the claimant has proved that he is entitled

to get reimbursement of Rs.1,21,83,508/-. I have also

carefully considered the plea and arguments regarding interest

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to be paid on this amount. The claimant has provided details

of dates of payments as running bill and final bill. According

to the respondent the final bill was passed on 28th October

2002. I have also noted that the respondent used to charge

interest at the rate of 16% on the advances given to the

claimant. I, therefore, consider that the claimant is also

entitled to get 16% interest on this amount of Rs.1,21,83,508/-

from 28/10/2002 till the date of the Award provided payment

is made within 60 days from the date of the Award. If the

respondent fails to pay the claim plus interest as Awarded

within 60 days then the claimant shall be entitled for the

interest till the date of payment. Considering the facts and

circumstances of the matter, I reject the other claims as to

damages and cost of arbitration. Both the parties have paid

the Arbitrator’s fees in equal share. If either party has any

arbitral proceedings cost incurred for arranging the venue of

hearing, transport etc. the same may be shared equally as

directed at the preliminary hearing. The papers related to

these arbitral proceedings would be kept with me for a period

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of 60 days from the date of Award after which they would be

handed over to respondent for safekeeping.”

40] Mr.Bharucha has contended that the basis upon which the

Arbitrator proceeded is itself erroneous in law. Inviting my attention to

the unamended and amended provisions, it is contended by Mr.Bharucha

that the petitioner in this case is concerned with steel (which was declared

goods) that was purchased by the respondent and used in the execution of

the works contract. Steel was declared item and under original section

6(1)(A)(a) was included if used in the same form. There are also non

declared goods which were earlier exempted if they are covered by the

notification date of 14th January 1984. Mr.Bharucha’s submission is that

under section 6(1)(A) the tax is on turnover of sales in respect of goods

used during the course of execution of works contract but clause (a)

excluded from the turnover tax declared goods purchased from the dealer

registered from Bombay Sales Tax Act and sold in the same form in

which they were purchased or declared goods purchased from a dealer

registered under Bombay Sales Tax Act and sold without doing anything

to them which results in any manufacture. Steel is declared goods and,

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therefore, steel was purchased and used in the same form in construction

of the Expressway, then, it should not be liable to tax in terms of

provisions stated above. However, if steel was cut or bend or shaped

before the same was used in the construction, then, change in the form

took place and the same would be liable to tax. Similarly, if steel was

used in the manufacture of some goods, which were in turn used in the

works contract, then also, the steel would be liable to tax. Mr.Bharucha’s

contention is that the Arbitrator has failed to notice this distinction and

has merely gone by the argument canvassed on behalf of the respondent.

He submits that to find out whether there is a change in the form, it is not

necessary to apply the test of marketability. Mr.Bharucha’s submission is

that the judgement of the Division Bench on which respondents have

proceeded to rely is itself inapplicable. The criteria as noted above has

been not noticed by the Arbitrator. There is no question of confusing the

change of form with marketability. Steel may undergo a change of form

and yet it would not result in manufacture of any goods which could be

stated to be marketable. However, it is still to be taxed.

41] For appreciating this argument, it must be at the outset observed

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that the Award is not liable to be set aside merely because the Arbitral

Tribunal has stated the law erroneously. Once a specific question of law

is referred to the Arbitral Tribunal for its decision, then, the Award is not

liable to be set aside because some erroneous proposition of law is

mentioned or stated in the Award. In the latest decision of the Supreme

Court reported in 2009 (12) SCALE 393 (Steel Authority of India Ltd.

Vs. Gupta Brother Steel Tubes Ltd.) the principle of law is stated thus:-

“24. In Tarapore & Co. a two Judge Bench of this Court

considered few decisions of this Court including the decisions

in the case of M/s.Sudarsan Trading Co. Vs. Government of

Kerala and Anr., Associated Engineering Co. Vs. Government

of A.P. And Managing Director, J & K Handicrafts, Jammu

Vs. Good Luck Carpets and held that where an arbitrator

travels beyond a contract, the award would be without

jurisdiction and the same would amount to misconduct and

such award would become amenable for being set aside by a

Court.

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25.In Sudarsan Trading Co., this Court held that an error

by the arbitrator relatable to interpretation of the

contract is not amenable to correction by Courts.”

“26. It is not necessary to multiply the references. Suffice it

to say that the legal position that emerges from the decisions

of this Court can be summarised thus:-

1. In a case where an arbitrator travels beyond the
contract, the award would be without jurisdiction and
would amont to legal misconduct and because of which
the award would become amenable for being set aside

by a Court.

2. An error relatable to interpretation of the contract by an

arbitrator is an error within his jurisdiction and such
error is not amenable to correction by courts as such
error is not an error within his jurisdiction and such
error is not amenable to correction by Courts as such

error is not an error on the face of the award.

3. If a specific question of law is submitted to the
arbitrator and he answers it, the fact that the answer
involves an erroneous decision in point of law does not
make the award bad on its face;

4. An award contrary to substantive provision of law or
against the terms of contract would be patently illegal;

5. Where the parties have deliberately specified the
amount of compensation in express terms, the party
who has suffered by such breach can only claim the sum
specified in the contract and not in excess thereof. In
other words, no award of compensation in case of

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breach of contract, if named or specified in the contract,
could be awarded in excess thereof;

6. If the conclusion of the arbitrator is based on a possible
view of the matter, the court should not interfere with
the award;

7. It is not permissible to a court to examine the

correctness of the findings of the arbitrator, as if it were
sitting in appeal over his findings.”

42] Even in the statement of claim, the respondent has stated that the

material required to be used in the execution of the works contract were

purchased from local registered dealers. The nature of work assigned to

the claimants/ respondents involves preparation of semi-concrete mixture

which was purchased from registered dealers while the iron and steel

material are being used by them in the same form in which they were

purchased. The respondents have been using sand for obtaining mixture.

They have also used the iron and steel without any change in the form. In

view of the above, they were not liable to pay any tax on account of

deductions. This position continued till 30th April 1998 after which the

ordinance came and the system of levying tax on balance amount of

turnover after deducting value of goods which were purchased from

registered dealers and used in the execution of works contract without

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change in form, was done away with. It was provided that from 1st May

1998 as the contractors were liable to pay tax at 15% on the value of

goods utilised in execution of works contract without having any bearing

on the source of purchase. Thus, there was an incident of tax.

43] The petitioner did not offer any comments on this part of the

statement of claim as is evident from a reading of para 5.0.0. of the

statement of defence. Their case is that the respondent claimant has not

provided any details with regard to any increase. The claim does not state

what is the base tax and what is the increase so as to be entitled to claim

reimbursement. There is no proof of payment. However, the fact

remains that there is a pleading in para 5.4.1 (Statement of defence) that

there are number of BOQ items which have changed the shape after

material components are purchased and brought at site. Respondent is

liable to pay tax as prevalent even prior to the amendment dated 1st May

1998 which fact has been suppressed. Respondents claimants ought to

have furnished the details. Thus, the whole basis of the denials of the

petitioner is that the claim No.I is contrary to terms of contract, unlawful

and that there is no proof of the same.

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44] I am unable to accept the argument of Mr.Bharucha that the

Arbitrator has committed an error of law apparent on the face of the

Award. The Arbitrator has before him details of the BOQ items. He had

before him the written submissions wherein the explanation has been

given with regard to the statement filed on record, the value of steel used

in execution of works contract was quantified so also the value of metal

crush barriers which were procured for the subject contract. It is on this

basis that the petitioner argues that the works contract tax at 10% on these

items which changed the form comes to Rs.2815579 and even this

amount should be deducted from the entitlement calculated. Thus, this is

a pure and simple case where the entitlement was disputed on the ground

that the entire sum as claimed by the respondent is not liable to be

reimbursed but there must be some adjustment and deduction therefrom.

It is while considering that submission and argument that the Arbitrator

has held that in order to conclude that there is a change in form, it is

necessary to apply the test of marketability as separate and independent

product. It is in that context that he holds that there is no change in the

form. The argument of change in form made by the petitioner was

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therefore, rejected. The entire argument that the difference between the

base tax paid and the increase was never known or disclosed or that the

respondent submitted no proof of the items used in the execution of the

works contract does not appear to have been canvassed or rather

canvassed in the manner argued before me.

45]

Even in the arguments before me so also in the written

submissions, it is apparent that the stand is some what contradictory. If

the petitioners are contending that the respondents did not work out the

tax liability as per the statutory provisions, then, inherent in such

submission, is the aspect that there was increase in some tax liability. If

there was an increase in the tax liability and the contractual clause

permits claiming of reimbursement, then, one fails to understand as to

how the petitioner can urge that the arbitrator had no jurisdiction or that

the dispute was not arbitrable. If the argument is of burden of proof not

being discharged by the respondent, then, implicit in the said argument is

the fact that there is indeed increase in the tax liability and clause 8 of the

Addendum would be attracted. It is, therefore, obvious that when the

petitioners argue that the test applied by the Arbitrator is erroneous, they

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do not dispute that there was increase in tax. Even otherwise that is

apparent from a reading of para 14 to 16 of the Award. Even the issue of

T.D.S. is based upon the agreed position before the Arbitrator and the

finding in para 17, therefore, cannot be held to be perverse. The

Arbitrator has, thus, gone by the agreed position that the quantification of

the increase in tax is to be provided by the Contractor/ respondent and the

burden is on him and the issue is essentially factual, then, I do not see

how the Arbitrator can be faulted for proceeding on these lines. It is

while scrutinising the total claim for reimbursement that the Arbitrator in

para 18 takes into account the figures and more particularly the BOQ

items. The Arbitrator was conscious of the fact that the petitioner argued

that the respondent included reimbursement of WCT liability on account

additional and extra work done from 1st May 1998 for which separate

rates were agreed and the entire liability of the tax on that amount would

be on the respondent and to that extent the claim will have to be

modified. The petitioner also disputed the claim regarding items of steel

and metal crush barrier on account of change in form and, therefore, not

entitled for exemption, even under the provisions prior to 1st May 1998.

Therefore, assuming that all arguments canvassed before me were indeed

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canvassed in the same manner before the Arbitrator, yet, what I find from

the record that the Arbitrator has not committed such an error which

would enable me to interfere with the Award under section 34 of the

Arbitration Act.

46] The only remaining aspect is whether the Arbitrator applied only

the marketability test and has ignored the change of form test completely.

It is not possible to hold that he has only applied marketability test. On

this aspect only para 19 of the Award has been pointed out to me which I

have already reproduced above. However, the Award must be seen as a

whole. The Award proceeds on the basis that the system of levying tax on

the balance amount of turnover after deducting the value of goods which

were purchased from registered dealer and used in the contract without

changing form has been done away with by the Ordinance/ Amendment

Act. Therefore, after 1st May 1998 such contractors were liable to pay tax

at 15% on the value of goods utilised in the works contract without

having any bearing on the source of purchase and without the aspect of

change of form being considered. Yet, the argument is that while

furnishing the explanation to the statements, the respondents have omitted

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to point out that Rs.28,15,579/- ought to have been deducted from the

entitlement calculated as, according to the petitioner, the test of change of

form was not satisfied. This part of the entitlement alone appears to be

the contested issue. The Arbitrator has in that context observed that in

order to arrive at a conclusion that there is a change in the form, it is

necessary to apply the test of marketability. He emphasised on the fact

that these are all BOQ items which cannot be taken to be marketable by

themselves. It is in this context that he has observed that the test of

marketability will have to be applied. What I find from the discussion

and the argument now canvassed before me is that the statements were

given with regard to the entitlement. There was a dispute with regard to

part of the amount being reimbursed. Earlier, the entire reimbursement

came to be granted. Now when part of the entitlement is being disputed,

naturally, the Arbitrator was required to go into the issue and find out as

to whether items within the BOQ allegedly used in the execution of the

contract involve any change of form or not. From a reading of the Award,

it does not appear to me that the petitioner had placed before the

Arbitrator the details of the items, the form in which they were used and

the reason why they should be omitted from consideration. Once such

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details are not placed, then, the Arbitral Tribunal is right in holding that

the entitlement as disputed cannot be kept aside. The amount as

calculated needs to be reimbursed. Even while this exercise was being

undertaken the Arbitrator has deducted from the entitlement a substantial

sum as is evident from a reading of para 18 of the Award. In these

circumstances, I do not see how any larger issue needs to be gone into

and resolved in this case. This was a matter squarely falling within the

purview of the Arbitral Tribunal and while interpreting the contractual

terms and considering the relevant statutory provisions, the observations

aforementioned, have been made. Mr.Dhanuka, therefore, is right in

urging that the Award does not require any interference.

47] In this view of the matter, the Award cannot be set aside on the

ground that there is an error apparent on the face of law and which is

wholly unsustainable.

48] Reliance by Mr.Bharucha on the judgement of this Court in the

case of Matushree Textiles (supra) is misplaced. In that decision, this

Court was concerned with the interpretation of section 61(1) of the

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Bombay Sales Tax Act, 1959. The questions framed for determination

are in para 1. In para 2, the Division Bench considered the factual aspect

whether the respondent Matushree Textile was engaged in the business of

Dyeing, bleaching and printing of grey fabrics received from customers.

For this purpose, Matushree Textiles used materials such as colours, dyes

and chemicals and these materials are converted into a solution and stored

in a tank. Thereafter, grey fabric is passed through the above solution

several times, till the requisite colour shade is obtained on the fabric as

per the specifications of the customer. Thereafter, the dyed fabric is

washed through a water solution to drain away the chemical solution

remaining on the fabrics. On completion of the job work, the

dyed/printed fabrics with the requisite coloured shade are returned to the

respective customers. The issue was whether the respondent who

undertook the above job work is a dealer within the meaning of Section

2(1)(d) of the Contract Act. The argument was that colours, dyes and

chemicals are consumed in the process of dyeing, bleaching and,

therefore, the property of those goods were neither transferred as goods

nor in other form and hence the provisions of Contract Act were not

attracted. The Additional Commissioner did not accept the stand of the

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textile mill. The matter was carried in Appeal to the Sales Tax Tribunal.

The Tribunal after holding that though there was transfer of property in

goods, the same is too insignificant to take any cognisance. He further

held that the Act is not attracted but a reference application was made by

the Commissioner and, therefore, the Tribunal referred the question

framed for the opinion of this Court.

49] Thus, it is while considering that argument and stand of the textile

mill, so also that of the Commissioner of Sales Tax to the contrary that

the observations relied upon by Mr.Bharucha have been made by the

Division Bench. These observations could not be said to be binding on

the Arbitrator in this case. The applicability of the Contract Tax Act was

in issue. Before the Division Bench, the basic argument raised by the

respondent Textile Mill itself was found to be erroneous inasmuch as the

relevancy of that argument qua the Contract Act was being tested. The

Division Bench held that passing of the property of goods used for dyeing

is relevant. Once that property of goods used in dyeing has passed to the

consumer in any form, then under the Contract Act, there is a deemed sale

of these materials and the test of marketability under the Sale of Goods

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Act or the Bombay Sales Tax Act cannot be imported into the Contract

Act. By reading this part in isolation one cannot urge that the Arbitrator

in this case has applied the test of marketability. The Arbitrator was

dealing with the issue as to whether there is any change of form in the

BOQ items. It was nobody’s argument that the property in these goods

has not been passed on. The issue was whether there is any change in the

form. While testing that issue and particularly considering the argument

that steel being cut and bend for executing the works in this case amounts

to changing its form or not or whether it remains the same as such, that

the findings in para 19 are rendered. I do not feel that the judgement in

Matoshree Textiles’s case has been brushed aside or that it being binding,

the test applied was completely erroneous and, therefore, the Award must

be set aside. Apart from the fact that the Award must be seen and read as

a whole. I am of the opinion that the learned Arbitrator has not

committed any error of law of the nature enabling this Court to interfere

under section 34 of the Arbitration and Conciliation Act.

50] In any event, in Matoshree Textile’s case this Court was not

concerned with Section 6(1)(A)(a) of the pre 1998 Act and Section 6(1)

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(A) of the post 1998 Act, both of which stipulate the conditions subject to

which the turn over of sales of certain declared goods purchased from the

registered dealer are to be deducted from the taxable turnover of the

Sales/ deemed sales. Both these provisions stipulate that deductions will

have to be effected from taxable turnover pertaining to such goods which

were sold in the same form in which they were purchased or if the goods

are sold without doing anything to them which amounted to or resulted in

any manufacture. Therefore, the test for imposing the tax under the

Works Contract Act is necessarily different from the test for deduction

and exclusion of sales turnover under these provisions prior to and post

amendment. It is in the context of the deductions that the learned

Arbitrator made the observations and I do not see as to how they are

erroneous or vitiated to such an extent as would require this Court to

interfere with the Award. Once, the backdrop in which the observations

have been made and the findings rendered are seen, then, to my mind the

award does not suffer from infirmity. In any event, merely because

another view is possible does not mean that this Court should interfere

with the Award. If what has been held is a possible view, then, the Award

cannot be set aside, is the settled principle.

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51] As far as the issue of limitation and jurisdiction is concerned, I do

not find any infirmity in the Award. The clear case of the respondent was

that reimbursement of sales tax amount already paid should be made.

That claim was rejected. After considerable correspondence, ultimately,

the petitioner started reimbursing the amounts paid on works contract tax.

However, from 1st October 2001, the deduction started and demands for

refund were made by the respondents in writing. The demand raised by

the respondent is not just refund of the recovery amount but also

deductions from the bills by way of TDS for subsequent period. There

was time taken when the matter was pending before the Engineer and the

Petitioner. In any event, the payment was made under various running

account bills and it is not by itself decisive for commencement of the

period as suggested by Mr.Bharucha. It is also the final bill and its

passing which is relevant. Hence, apart from the fact that the issue of

limitation is being raised for the first time before me and there was no

plea raised before the Arbitrator in that behalf, I am of the view that the

claim is not barred by limitation. The very dates which have been set out

in the defence/ written statement of the petitioner, would go to show that

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the claim was within limitation. It is not the right to claim the amount

which was an issue but it was the alleged and erroneous recovery by the

petitioner from the running bill from October 2001 was the issue. It is in

this context that the learned Arbitrator could have proceeded with the

Reference and made the Award. More so, when the respondent referred

the disputes by the letter dated 10th May 2005. In these circumstances, I

am of the view that it was not incumbent upon the Arbitrator to dismiss

the claim as being time barred. The decisions relied upon by

Mr.Bharucha set out the settled principles. Assuming that the period

spent when the dispute was pending before the Engineer cannot be

excluded, yet, in this case, it is clear that the issue of reimbursement was

raised right from 1999 by the respondent. Petitioners reimbursed to the

respondent a sum of Rs.1,40,39,816/- on 5th December 2001. On 8th

November 2002, respondents protested against the recovery of Rs.

1,40,39,816 suddenly from the bill of respondents from October 2001.

They pointed out that the sales tax assessment were already submitted

upto 2001 and an amount of Rs.2,79,206 was to be further reimbursed to

them by the petitioner. They requested that further reimbursement should

also be made coupled with stopping illegal recovery. The petitioners

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informed the members of the Steering Committee that they had proposed

to refer the matter of reimbursement of works contract act to them and

submitted certain documents. Respondents issued notices under clause

67(1) and, thereafter, meeting was held in the Chambers of Joint

Managing Director on 21st October 2003 wherein the issue of CAG

objection was pointed out and raised. Thereafter, the matter was referred

to Steering Committee.

ig There was rejection of the claim of the

respondents and re-confirmation of the earlier decision on 6th April 2004

and that is how the matter went to Arbitrator. In such circumstances,

when such is the factual position and the issue being a mixed question, I

do not see as to how the Award can be set aside on the ground that the

claims being ex facie time barred. The pleas in that behalf are, therefore,

untenable and deserve to be rejected. In this factual scenario, I do not see

any necessity to go into the applicability of the decisions on the point of

limitation. In any event, their applicability would depend upon the facts

and circumstances of each case.

52] Similarly, the issue of jurisdiction of the Arbitrator is too belated to

be permitted to be raised. It is not as if the petitioners did not reimburse

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the amount claimed. They reimbursed the amount and, thereafter,

commenced alleged illegal recovery. The contract provided for resolution

of disputes by Arbitration. The contract also covered issue of

reimbursement. Once the claim arises out of the contract and pertains to

the contract and the Arbitrator’s jurisdiction being very wide as is evident

from the phraseology of clause 67.3, then, it is not possible to hold that

the Arbitrator did not have the jurisdiction. Admittedly, the clauses in

question and more particularly clause 67.3 is an arbitration clause/

agreement between parties and that was never in dispute. In such

circumstances, the submission that the Arbitrator had no jurisdiction

should be rejected. Once this view is taken, it is not necessary to refer to

the decisions cited and in any event, they relate to what could be said to

be excepted claims and what could be arbitrable. Before me, it is not the

argument that the words “any decision” appearing in clause 67.3 would

not include the decision to reject the claim for reimbursement. Rejection

of the claim was a decision taken and, therefore, it was wholly arbitrable.

52] As far as the interest aspect is concerned, it is stated that the

learned Arbitrator has awarded excessive rate of interest. It ought not to

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have exceeded 6% in this case. What the Arbitrator has done is that the

final bill date has been reckoned by him. It was passed on 28th October

2002. The learned Arbitrator has noted that the petitioner used to charge

interest at the rate of 16% on the advances given to the respondent

contractor and, therefore, that is the rate which should be taken into

account, if the amounts as awarded in favour of the contractor, are

directed to be paid. I do not see how the Award is vitiated on this count

because of absence of any reasons. Sufficiency or adequacy of the

reasons is not the ground on which the Award can be set aside. Further,

the respondents in the reply affidavit have pointed out that the provisions

of section 31(7)(a) of the Arbitration Act, 1996 have been applied by the

Arbitrator. The said provisions empower the Tribunal to include in the

sum for which the award is made, the interest at such rate as it deems

reasonable. The discretion has been exercised by the Arbitrator and

considering that this was the claim of an amount initially reimbursed but

later on illegally deducted from the running bill, I do not see how the

interest awarded can be said to be excessive. There is substance in the

contentions of Mr.Dhanuka that the aspect of interest was sought to be

clarified by the petitioners themselves by applying for clarification before

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the Arbitrator. The Arbitrator clarified that he has granted simple interest

calculated on annual basis. That part is also suppressed before me.

Further, I do not find that the rate determined is so excessive or

unreasonable so as to warrant interference in my limited jurisdiction

under section 34 of the Act. The Award, therefore, cannot be said to be

vitiated on the point of interest as well.

53] I cannot accede to the submissions of Mr.Bharucha that this Court

should in its inherent jurisdiction reduce the rate of interest because even

if it is assumed that the contract is commercial and, therefore, those rates

are to be applied, the rate awarded is far in excess of the bank rate. All

these arguments are canvassed across the bar and the Court is called upon

to take judicial notice of the lending rate prevailing. I am of the view that

merely because such a case has been put forward across the bar is no

ground to reduce the rate of interest, assuming the Court has any inherent

jurisdiction. The larger issue raised by Mr.Dhanuka that the Court has no

such inherent jurisdiction and its jurisdiction has been circumscribed by

section 34 of the Act, therefore, need not be gone into in the peculiar facts

of the case. I do not find that the award should be set aside on the issue

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of Award of interest.

54] As a result of the above discussion, the Arbitration Petition fails

and it is accordingly dismissed but without any directions with regard to

costs.

(S.C.DHARMADHIKARI, J)

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