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2019 Supreme(Bom) 985
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
PRADEEP NANDRAJOG, N.M. JAMDAR, JJ.
Central Warehousing Corporation - Appellant
Versus
Aqdas Maritime Agency Pvt. Ltd. - Respondent
Appeal No. 284, 286, 287, 288, 290 of 2019, Arbitration Petition No. 214, 210, 364, 211, 218 of 2014
Decided On : 14-06-2019
Rajesh Mirchandani, Adv.
Headnote:
Constitution of India,1950 – Article 265 - Arbitration and Conciliation Act, 1996 - Section 34 - Finance Act, 2007 - Section 83,72 - Central Excise Act - Section 12 (b) and 12B - Sale of Goods Act, 1930 - Section 64A and 64A (1) - Transport contract - Service tax - Matter of the dispute before the Arbitrator was five contracts of different dates having identical terms whereunder Respondent was functioning as handling and transport contractor of Appellant - Reimbursing contractor service tax deposited by contractor with Income Tax Department, Appellant took a stand that under bona-fide mistake it had reimbursed service tax - Claim before the Arbitrator was praying that Award be passed in favour of Appellant for amount of service tax paid by Appellant to Respondent who had deposited service tax with Income Tax Department - Overruling technical objection raised by contractor, learned Arbitrator has held that Appellant, as service recipient, was liable to pay service tax and that as per clause in question, Respondent had not taken over the liability to bear service tax Whether right to refund or restitution, as it is called, is treated as a constitutional right flowing from Article 265 or a statutory right arising from Section 72 of the Contract Act, it is neither automatic nor unconditional– Held, from legal position as noted it is evident whether the service tax liability has been agreed not to be passed on to the recipient of the service would depend on the interpretation of clauses entered into between the parties - Before adverting to relevant clauses inter se the parties in present case it would be appropriate to note a few decisions on interpretation of a contract - Commercial Object - Commercial object or function of clause in question and its relationship to contract as a whole will be relevant in resolving any ambiguity in the wording - Construction to avoid unreasonable results - If the wording of a clause is ambiguous, and one reading produces a fairer result than alternative, reasonable interpretation should be adopted - It is to be presumed that parties, as reasonable men, would have intended to include reasonable stipulation in their contract - In the instant case, clause in question does not fix liability on contractor to pay service tax that apart from, clause required interpretation and in view of aforenoted Judgments regarding the interpretation of the contract, view taken by learned Arbitrator cannot be faulted - Five Appeals are dismissed.
JUDGMENT :
Pradeep Nandrajog, J.
1. Having heard learned Counsel for the Appellant in the five captioned Appeals which lay a challenge to a singular Judgment dated 18.02.2019 dismissing five Arbitration Petitions filed under Section 34 of the Arbitration and Conciliation Act, 1996 challenging five Awards of even date, we find no case made out to issue notice to the Respondent and thus dismiss the Appeals in limine.
2. The matter of the dispute before the Arbitrator was five contracts of different dates having identical terms whereunder the Respondent was functioning as the handling and transport contractor of the Appellant. Reimbursing the contractor service tax deposited by the contractor with the Income Tax Department, the Appellant took a stand that under bonafide mistake it had reimbursed the service tax. Claim before the Arbitrator was praying that Award be passed in favour of the Appellant for the amount of service tax paid by the Appellant to the Respondent who had deposited the service tax with the Income Tax Department. Reliance was placed on Clause XII, Para (i), which was identical in all the contracts. The Clause reads:
"(i) All the taxes/levies/fees/charges payable to any Government body/Local body shall be paid by the contractor and no claim what so ever shall be against the Corporation on this account."
3. Overruling technical objection raised by the contractor, the learned Arbitrator has held that the Appellant, as the service recipient, was liable to pay the service tax and that as per the clause in question, the Respondent had not taken over the liability to bear the service tax.
4. In the impugned decision, the learned Single Judge has held that the construction of the clause of the contract by the learned Arbitrator fell within the domain of the Arbitrator and thus the decision could not be challenged.
5. In the decision reported as All India Federation of Tax Practitioners & Ors. Vs. UOI & Ors., (2007) 7 SCC 527 the Supreme Court noted that service tax is an indirect tax levied on certain services provided by certain categories of persons including companies, associations, firms, body of individuals etc. The service sector contributes about 64% to the GDP. It noted that in the contemporary world, development of service sector has become synonymous with the advancement of the economy and the Economists hold the view that there is no distinction between the consumption of goods and consumption of services as both satisfy the human needs. It was noted that Value Added Tax (in short VAT) which is a general tax applies in principle to all commercial activities involving the production of goods and provision of services. The Supreme Court held that VAT is a consumption tax as it is borne by the consumer and Service Tax is a VAT which in turn is destination based consumption tax. The Supreme Court noted that just as excise duty is a tax on value addition on goods, Service tax is on value addition by the rendition of services. Broadly "Services" fall into two categories, namely, property-based services and performance based services. Property-based services cover service providers such as architects, interior designers, real estate agents, construction services, mandapwalas etc. and the later being services provided by stock-brokers, practising chartered accountants, practising cost accountants, security agencies, tour operators, event managers, travel agents etc.
6. In the decision reported as Rashtriya Ispat Nigam Ltd.vs. M/s Dewan Chand Ram Saran, (2012) AIR SC 2829 it was held:
"26. As far as the submission of shifting of tax liability is concerned, as observed in 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 sell
