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High Court Of Delhi
C.H.KRISHNAN AND ASSOCIATES - Appellant
Versus
UNION OF INDIA - Respondent
Suit 754 of 1982
Decided On : 08/28/1997
CUSTOMS DUTY - REPAIRED/REPLACED PARTS - LIABILITY: The plaintiff, a contractor, entered into an agreement with the defendant, the Government of India, for the supply, installation, and maintenance of a computer system. The agreement provided that the plaintiff would be responsible for the repair/replacement of defective parts during the warranty period. The system went out of order during the warranty period, and the plaintiff exported the defective parts to the manufacturer for repair/replacement. The plaintiff claimed that it was not liable to pay customs duty on the repaired/replaced parts, as they were exempt from duty under the Customs Tariff. The defendant, however, paid the customs duty and sought to enforce a bank guarantee furnished by the plaintiff. The plaintiff filed a suit for a declaration that it was not liable to pay customs duty on the repaired/replaced parts and for an injunction restraining the defendant from enforcing the bank guarantee.
Fact of the Case:
The plaintiff, a contractor, entered into an agreement with the defendant, the Government of India, for the supply, installation, and maintenance of a computer system. The agreement provided that the plaintiff would be responsible for the repair/replacement of defective parts during the warranty period. The system went out of order during the warranty period, and the plaintiff exported the defective parts to the manufacturer for repair/replacement. The plaintiff claimed that it was not liable to pay customs duty on the repaired/replaced parts, as they were exempt from duty under the Customs Tariff. The defendant, however, paid the customs duty and sought to enforce a bank guarantee furnished by the plaintiff. The plaintiff filed a suit for a declaration that it was not liable to pay customs duty on the repaired/replaced parts and for an injunction restraining the defendant from enforcing the bank guarantee.
Finding of the Court:
The court held that the plaintiff was liable to pay customs duty on the repaired/replaced parts. The court found that the agreement between the parties provided that the plaintiff would be responsible for all expenses incurred in the repair/replacement of defective parts, including customs duty. The court also found that the plaintiff had confirmed in writing that it would bear the expenses of exporting the defective parts and re-importing the repaired/replaced parts.
Issues: 1. Whether the plaintiff was liable to pay customs duty on the repaired/replaced parts. 2. Whether the defendant was entitled to enforce the bank guarantee furnished by the plaintiff.
Ratio Decidendi: The court held that the plaintiff was liable to pay customs duty on the repaired/replaced parts because: * The agreement between the parties provided that the plaintiff would be responsible for all expenses incurred in the repair/replacement of defective parts, including customs duty. * The plaintiff had confirmed in writing that it would bear the expenses of exporting the defective parts and re-importing the repaired/replaced parts.
Final Decision: The court dismissed the plaintiff's suit. The court held that the plaintiff was liable to pay customs duty on the repaired/replaced parts and that the defendant was entitled to enforce the bank guarantee furnished by the plaintiff.
( 1 ) THE present suit has been filed by the plaintiff for recovery of Rs. 4,71,736. 74. The facts as enumerated in paragraphs 2,3,4 and 5 of the plaint may be reproduced as follows :
"2. Under a tripartite agreement entered into by and between the plaintiff, the President of India (Government of India), through the Planning Commission, New Delhi (hereinafter called "the Planning Commission ) and the Inter-data Inc. (a company incorporated under the laws of United States of America; hereinafter called the manufacturer ), the plaintiff was obliged to supply, install, service and upkeep a computer equipment manufactured by the manufacturer as per the terms thereof.
3. As per the terms of the said agreement, the title to the equipment was to pass on to the Planning Commission upon air-freighting of the equipment at the U. S. International Airport and the price for the Computer equipment was U. S. $410,130. 00 being F. O. B. International U. S. Airport value payable byconfirmed and irrevocable Letter of Credit against shipping documents. The Planning Commission undertook to pay all air freight and other transportation charges for carriage of equipment to the installation site, all customs duties and any other applicable taxes and duties in India and insurance of equipment from the point and time of delivery at the international airport in U. S. A. to destination in India.
4. Under the said contract, the plaintiff warranted that the ariticles delivered under the agreement should conform to the equipment specification and should be i of good material components, workmanship and of the latest manufacture and free from defect for a period of one year after acceptance of equipment and successful working thereof. The sole and exclusive remedy of the Planning Commission in the I event of any defect of material or workmanship was expressly limited to the I correction of such defect whether by adjustment, repair or replacement at the plaintiff s election and sole expense within one month of receipt by the plaintiff of a written notice and an explanation of circumstances concerning any claim that the enquipment had proved defective in material or workmanship. If there was any delay in repair/replacement beyond 24 hours of receipt of written notice from the Planning Commission, the warranty period would be extended by the period of such delay. Except as specifically provided therein, there were no other warranties, expressed or implied, including any implied liabilities of merchant ability or fitness for a particular purpose. The plaintiff s furnishing of maintenance service did not include assumption by the plaintiff of liability to repair any damage to the equipment caused by causes external to the equipment, such as electrical power fluctuations and failures; and failure to maintain environmental conditions in the computer room.
5. The plaintiff s obligation in respect of conclusion of acceptance tests and for due and satisfactory performance by the plaintiff of the aforesaid obligations in accordance with the contract was guaratneed by furnishing a Bank Guarantee dated November 3, 1977 from Canara Bank, G-23, NDSE Part-1, New Delhi, in favour of the Planning Commission, for an amount of Rs. 3 lakhs. Such Guarantee has to be in force till one year from the date of final acceptance of the equipment by the Planning Commission.
( 2 ) THE plaintiff further avers in paragraph 6 that the computer system was handed over to the defendant on February 23,1978; and as such, the guarantee was to cease to have force and the liability of the Bank thereunder had to come to an end on February 22, 1979. The system went out of order due to the failure on the part of the defendant Planning Commission to maintain environmental conditions required for the system and due to heavy condensation inside the computer room and use of card-reader with old cards with rust and dust. The plaintiff is alleged to have brought to the notice of the Planning
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