The court upheld the arbitral award determining that welcome drinks were not part of the catering contract obligations and that GST reimbursement on production charges is due under the new tax regime.

JUDGMENT

Sanjeev Narula, J. IRCTC by way of the present petition under Section 34 of the Arbitration and Conciliation Act, 1996 [hereinafter `the Act'], seeks the setting aside of the interim arbitral award dated 15th December, 2020 [hereinafter `Impugned Award'], whereby, the learned Sole Arbitrator has allowed certain claims of the Respondent-Deepak & Co, the Claimant in the arbitration proceedings [hereinafter referred to as `DC' or the `service provider'].

BRIEF FACTS:

2. The events giving rise to the present petition are summarized as follows:

The Tender:

2.1. DC is a private railway catering service provider, empaneled with IRCTC and entitled to be considered for allotment of temporary licenses on Category `A' trains. Catering services in railways, which were being provided in a composite mode, were unbundled with the introduction of Railway Budget for 2016-17 by creating a distinction primarily between food preparation and distribution. In furtherance of the said restructuring plan, on 07th September, 2016, IRCTC published a limited tender inviting bids from empaneled parties for providing on-board catering services in respect of Train No. 12951-52/12953-54 (Rajdhani/August Kranti Express) for six months. [hereinafter referred to as the `tender document'].

2.2. DC participated in the afore-said tender and emerged as the highest bidder. It was awarded a temporary license vide a Letter of Award dated 06th October, 2016. The Letter of Award mentioned the amounts payable by IRCTC to DC towards production charges as well as service charges for meals (breakfast, lunch, tea and dinner) served by DC in various A.C. classes on the train. Production charges, pertaining to the cost of actual production of the meal, were inclusive of tax; whereas service charges, for the cost of serving the meals, were exclusive of tax.

The Dispute:

2.3. Upon commencement of catering services from 19th December, 2016 till 04th March, 2017, the welcome drink served to the passengers was provided by IRCTC.

2.4. In the meantime, on 07th February, 2017, IRCTC took a policy decision as follows: (i) service provider to provide welcome drink to passengers at no extra-charge receivable by it, and if unwilling to do so, it could opt to exit the temporary license; (ii) where service provider was providing meals to passengers on account of short supply by IRCTC, it would be reimbursed production charges @ Rs. 84/- (inclusive of taxes) per passenger for lunch/dinner for 2nd and 3rd A.C. passengers; (iii) where additional meals were being served due to late running of train for more than 2 hours, service provider would be reimbursed @ Rs. 26.40 + service tax, per passenger.

2.5. The above policy decision was conveyed to DC vide letter dated 10th February, 2017. On the same date, DC responded by raising the following grievances/contentions: (i) DC reasoned that welcome drink was not included in the tender document; (ii) expressed reservation with regard to reimbursement of charges on account of late running of trains for more than 2 hours; (iii) emphasised that having made substantial investment in setting up a base kitchen and infrastructure, it was unwilling to exit from the contract.

2.6. On 13th February, 2017, DC wrote to IRCTC intimating that it would provide welcome drink to passengers in case the same was not done by IRCTC or the Indian Railways; but it would be charging for services as well as production charges for the same. Further, if the train was late, it would be entitled to charge Rs. 30/- plus service tax for additional meal to be served to the passengers, as per decision of the Railway Board which formed part of the tender document.

2.7. On 22nd February, 2017, IRCTC instructed DC to immediately initiate the provision of welcome drink as per policy decision dated 07th February, 2017. This was followed by a reminder sent on 28th February, 2017. On 2nd March, 2017, DC, without prejudice to its rights as claimed in the letter dated 10th