S. Muralidhar, J.

1. The Petitioners challenge a demand raised by the Respondent Oriental Insurance Company Ltd. (OICL) on Petitioner No. 1 Alstom Projects India Ltd. (APIL) for an additional premium in the sum of Rs. 1,49,88,732/- and applicable service tax in relation to an Erection All Risk Insurance (EARI) cover policy issued by OICL.

Background facts

2. APIL, having its registered office at Mumbai, is stated to be engaged in the business of design, manufacture, installation and servicing of power generation equipments in India and abroad. Petitioner No. 2 is stated to be a shareholder and Director of APIL. APIL and the Gujarat State Electricity Corporation Ltd. (GSECL) entered into an Agreement dated 27th April, 2007 for Onshore Services under which APIL was required to design, engineer, procure equipment, materials, supplies and carry out erection, conduct testing and commissioning of a 370 MW combined cycle power plant in Surat, Gujarat. Alstom Switzerland Ltd. (ASL) entered into an agreement on the same date with GSECL for Offshore Equipment and Spare Parts Supply (CIF) under which ASL was required to design, engineer, procure and manufacture, carry out testing, shop assembly, pack, and transport the equipment, materials, supplies on a CIF basis pertaining to the power plant. Work for the power plant commenced on 29th May 2007 and the reliability run at the site was completed on 18th November 2009.

3. APIL invited bids from OICL, M/s. United India Insurance Company Ltd. (UIIL) and M/s. ICICI Lombard General Insurance Company Ltd. (ILGICL) through its insurance broker, M/s. Aon Global Insurance Brokers Pvt. Ltd. (`Aon Global') for taking an EARI cover for covering material damage, third party liability and other add on covers as well as a Marine Insurance cover for the power plant. The requirements of APL were communicated to each of the aforementioned insurance companies by Aon Global by quote slips on 4th October 2007 and invitation for final quotes was sent on 6th November 2007. It is stated that while OICL submitted a quote of Rs. 6,64,88,287/-, UIIL submitted a quote of Rs. 6,13,96,316/- and ILGICL a quote of Rs. 6,82,74,471. OICL by its letter dated 7th November, 2007 offered to provide EARI cover at a premium of Rs. 6,25,42,060/- and Marine Insurance cover at a premium of Rs. 39,46,227/- to be paid in specified installments. APIL states that although OICL's offer was not the lowest, APIL accepted it in view of the long standing relationship between the parties and the representation and assurance of OICL that it would provide the best standards of services under the policy to be concluded between the parties. Upon APIL's acceptance of OICL's offer, OICL issued both a Marine Policy as well as an EARI Policy. OICL was the lead insurer with a share of 50% in the sum insured and in the premium whereas UIIL and ILGICL were the other insurers with a share of 25% each in the sum insured and in the premium. The EARI Policy stipulated in the collective insurance clause that OICL would be responsible for issuing and administering the policy and the remaining insurers agreed to follow OICL on all issues concerning policy interpretation and indemnification. The policy was extended by a further period of three months by way of endorsement dated 12th October, 2009. The EARI Policy was valid till 7th January, 2010. The period of 24 months of extended maintenance cover commenced from 12th November, 2009 and was to be completed on 11th November, 2011.

4. It is stated that APIL paid the requisite premium under the EARI Policy in six agreed installments, the last of which was paid before the due date. The total premium of Rs. 3,54,39,996/- was paid by the Petitioner to OICL excluding the premium paid for extending the EARI Policy of three months. After accounting for the payment made by ASL, the balance premium of Rs. 5,36,381/- and Swiss Francs 99,098 were paid respectively by APIL and ASL on 8th November, 2007.

5. On 6th July 2