Reimbursement of Service Tax under construction contracts requires explicit entitlement in the contract; claims for taxes not directly related to services provided under the contract are not compensable.

JUDGMENT

Vibhu Bakhru, J. The petitioner has filed the present petition under Section 34 of the Arbitration and Conciliation Act, 1996 (hereinafter `the A&C Act') impugning an arbitral award dated 10.12.2019 (hereinafter `the impugned award') delivered by the Arbitral Tribunal comprising of a Sole Arbitrator.

2. The impugned award was rendered in the context of the disputes that have arisen between the parties in connection with an agreement dated 14.05.2013 (hereinafter `the Agreement'). The dispute before the Arbitral Tribunal related to the respondent's claim for reimbursement of Service Tax and Environmental Compensation Cess (Claim no. 1 and Claim no. 2). The Arbitral Tribunal partly accepted the claim for reimbursement of Service Tax in respect of certain services availed by the respondent (hereinafter `CEC') and entered an award for a sum of Rs.1,38,58,095/- in respect of Claim no. 1. The Arbitral Tribunal also accepted CEC's claim for reimbursement of Environmental Compensation Cess (hereinafter `ECC') and awarded a sum of Rs.3,14,06,709/-, in its favour. In addition, the Arbitral Tribunal awarded interest at the rate of 10% per annum on the aforesaid awarded amounts. The Arbitral Tribunal also awarded costs for arbitral proceedings quantified at Rs.15,00,000/-.

3. At the outset, it is material to note that the petitioner has accepted the impugned award in respect of CEC's claim for reimbursement of ECC (Claim no. 2) and has confined its challenge to the award relating to reimbursement of Service Tax (Claim no. 1) and interest (Claim no.3)

4. The controversy in the present case arises in the following context:

5. On 06.03.2013, the petitioner issued an electronic Notice Inviting Tender (NIT) for the works regarding "Comprehensive Development of Corridor (Outer Ring Road) between Mukarba Chowk to Wazirabad Chowk, SH: C/o Flyovers, Loops, Bridges across supplementary drain, FOBs, Footpath, Cycle track, Widening of Road on embankment, Rain Water Harvesting scheme, Electrical works and other allied works" (hereinafter `the Project'), on the terms and conditions stipulated therein.

6. Pursuant to the said NIT, CEC submitted its bid for executing the Project works on 22.03.2013. CEC's bid was accepted by the petitioner and by a Letter of Acceptance dated 29.04.2013 (hereinafter `the LoA'), the contract for implementation of the Project was awarded to CEC for an amount of Rs.442,95,68,517/-.

7. The petitioner called upon CEC to furnish a Performance Guarantee in accordance with Clause 1 of the General Conditions of Contract for the CPWD works (hereinafter `the GCC') for an amount equivalent to Rs.22,14,78,426/-, within fifteen days after receipt of the LoA. In terms of the LoA, CEC was required to complete the Project within a period of twenty-four months to be reckoned from twenty-two days after the issuance of the LoA. Thus, the stipulated date of commencement of the Project was 21.05.2013 and the stipulated date of completion of the Project was 20.05.2015.

8. On 13.05.2013, CEC furnished the Performance Security as required. Thereafter, on 14.05.2013, the petitioner issued the Letter of Commencement of Work to CEC. Thereafter, in ter