Bangalore District Court
/ : Sri.C.Purushothama Raju vs ) Engineer-In-Charge on 10 October, 2019
IN THE COURT OF THE VI ADDL. CITY CIVIL & SESSIONS JUDGE
AT BENGALURU CITY
(CCCH.11)
Dated this the 10th day of October, 2019
PRESENT: Sri. Rama Naik, B.Com., LL.B.,
VI Addl.City Civil & Sessions Judge,
Bengaluru City.
A.S.NO:88/2014
PLAINTIFF / : Sri.C.Purushothama Raju,
PETITIONER Aged about 64 years,
S/o.Sri.Narayana Raju,
32/1, Ashwini Residency,
Seenappa Layout, RMV 2nd Stage,
Bengaluru -560 094.
/Vs/
DEFENDANTS : 1) ENGINEER-IN-CHARGE
RESPONDENTS Civil Engineering Division,
Central Power Research Institute
Sadashivanagar,
Bengaluru-560 080.
2) Sri.P.Raveendranathan
Additional Director General (Retd)
Central Public Works Department
Raxton-205, Elan Homes,
Sarjapur Road,
Bengaluru -560 035.
--
AS.88/2014
2
JUDGMENT
This suit is filed under Section 34 of the Arbitration and Conciliation Act, 1996, by Plaintif for setting aside the arbitral award dated 23.04.2014 passed by sole Arbitrator/2nd Defendant.
2) Plaintif's case, in brief, is that, Plaintif is a registered Class-1 Contractor carrying on Civil Engineering works in the State of Karnataka. Plaintif, on invitation of tenders for the work by Defendant No.1 for an estimated cost of Rs.2,36,49,643/-, submitted his tender, the tendered amount being Rs.3,44,90,734.43. Tender was negotiated and accepted by Defendant No.1 vide letter dated 15.02.2012. Agreement was executed on 09.03.2012 at Bengaluru. Order to start the work was issued on 7th March, 2012. Possession of site was taken on 09.03.2012 with a view to commence the work immediately. During execution of work, certain disputes arose and they were referred to AS.88/2014 3 Engineer-in-Charge vide letters dated 02.03.2012 and 10.05.2013. Said disputes were not settled at the level of Engineer-in-charge, they were referred to Chairman, High Power Committee, Central Power Research Institute (CPRI), vide letter No.CPRI/EMI/59/2013-14 dated 23.05.2013 as required under Clause-25 of the Contract. As no decision was forthcoming from the Chairman, Plaintif appealed to the Director General, CPRI, Bengaluru, vide letter dated 24.05.2013 to resolve the issues as per Clause 25 of the Contract. Being not satisfied with the order of Director General, Plaintif requested the Director General in terms of Clause-25 of the Contract to appoint an Arbitrator for settlement of disputes. Accordingly, Director General appointed 2nd Defendant as sole Arbitrator vide Order No/CPRI/CED/Works/679/2013 dated 12.09.2013. It is stated that, the sole Arbitrator without taking into consideration the factual aspects of the case, passed the impugned order.
AS.88/2014 4
3) Plaintif has challenged the impugned award on the ground that, Defendant No.1 is recovering service tax in Plaintif's bills without any authority or provision in the contract. These recoveries made by Defendant No.1 are unjust and illegal and whatsoever recoveries have been made so far, have to be refunded to Plaintif with interest at 24% per annum from the date of recoveries. In the instant case, Plaintif has not given any option to Defendant No.1 nor authorized Defendant No.1 to deduct any service tax from the bills. Even otherwise, if Defendant No.1 has withheld the service tax from the portion of bills of Plaintif, Defendant No.1 is bound to make payment, which is clearly agreed under Clause-15, 37(i) and sub- clause (f) of 38. Sole Arbitrator, without analyzing the terms and clauses agreed by parties, has refused to award Claim No.4 in favour of Plaintif, hence, prays for setting aside the award.
AS.88/2014 5
4) Defendant No.1 has marked his appearance through his counsel and filed his written statement, wherein, it is stated that, it is settled law that grounds for challenge to arbitral award are limited to the eventualities set out under Section 34 of Arbitration and Conciliation Act, 1996. Courts have no jurisdiction to sit in appeal and examine the correctness of the award on merits. Plaint does not disclose any ground for interference under Section 34 of the Arbitration and Conciliation Act, 1996. It is further stated that, sole Arbitrator is a retired Additional Director General, Central Public Works Department, who has vast experience and is very competent and highly qualified. Arbitrator has considered substantial documents filed by both the parties and after hearing lengthy arguments has passed a detailed and reasoned award. In the circumstances, no interference is called for by this court. Learned sole Arbitrator has held that clauses in the General Rules and Directions of contract make it abundantly clear that, tendered rates are AS.88/2014 6 inclusive of service tax and other tax or cess in respect of contract shall be payable by the Contractor. Therefore, there is no illegality in Defendant No.1 withholding the component of service tax in all the bills paid by Defendant No.1 to Plaintif and as such, the said contention of Plaintif is baseless and untenable; hence, prays for dismissal of the suit.
5) Heard. Perused the records. 6) Points that arise for my consideration are :
(1) Whether Plaintiff proves any of the grounds as enumerated in Section 34 of the Arbitration and Conciliation Act, 1996, to set aside the impugned award?
(2) What Order?
7) My answers to the above points are :
Point No.1 - In the Negative;
Point No.2 - As per final order, for the following :
AS.88/2014 7 REASONS
8) POINT NO.1 : This suit came to be filed by Plaintif [Claimant in arbitral proceedings] for setting aside the award dated 23.04.2014 passed by learned sole Arbitrator/Defendant No.2.
9) Following disputes were referred to Engineer-
in-charge by Plaintif vide letters dated 02.03.2012 and 10.05.2013.
"(a) Dispute regarding the period stipulate in the contract for completion of the work.
(b) Decision whether reinforcement steel for RCC under item No.10 of the BOQ is applicable for steel used upto plinth level only and whether the steel used above the plinth level has to be treated as an extra item and to be paid separately with extra rate.
(c) Treating the item of centering pertaining to columns over and above the height of 3.5 mtrs. For every additional height of 1 Mtr. of part thereof as extra item.
(d) Dispute/issue regarding illegal recoveries of service tax (S.T) made in violation of the contractual provision."
AS.88/2014 8
10) Since said disputes were not settled by Engineer-in-charge, same were referred to Chariman, High Power Committee, Central Power Research Institute (CPRI) vide letter No.CPRI/EMI/59/2013-14 dated 23.05.2013 as provided under Clause 25 of the contract. As no decision was forthcoming from the Chairman, matter was appealed to the Director General, CPRI, vide letter dated 24.05.2013 as provided under Clause 25 of the Contract. Decision of Director General being not satisfactory to Plaintif, on the request of Plaintif, Director General appointed Defendant No.2 as sole Arbitrator vide Order No.CPRI/CED/Works/679/2013, dated 12.09.2013. Defendant No.2 by impugned award rejected Claim No.1, 3 and 4 and upheld Claim No.2 of Plaintif.
11) Initially, Plaintif has challenged the impugned award regarding Claim No.1, 3 and 4. Later, he has filed Memo dated 06.10.2017 stating that he is not pressing Claim No.1 and 3. Now, AS.88/2014 9 challenge is only in respect of Claim No.4 regarding illegal recoveries of service tax, which, Defendant No.2 held as valid.
12) Plaintif's contention is that, Defendant No.1 has recovered service tax in Plaintif's bills without any authority or provision in the Contract. Said recoveries made by Defendant No.1 are unjust and illegal and same would deprive the Contractor's use of his own money for doing contract work. Sole Arbitrator in his award has come to the conclusion that, BOQ rates are inclusive of service tax. Clause 38(1)(d) gives option to Plaintif to make payment or withhold of amount of service tax. In the instant case, Defendant No.1 is bound to reimburse the service tax paid by Plaintif to Department. Secondly, Defendant No.1 is bound to release the withheld amount of service tax from the running bills to Plaintif, irrespective of payment of service tax by Plaintif to department. If at all Defendant No.1 proves that Plaintif has evaded the payment AS.88/2014 10 of service tax to department, Defendant No.1 can make payment to the Service Tax Department instead of reimbursement to Plaintif, as the ultimate responsibility to pay the service tax has to be borne by Defendant No.1.
13) On the contrary, Defendant contends that, tendered rates are inclusive of service tax and any other tax or cess payable by Plaintif/Contractor. There is no ambiguity in the contract and no illegality in withholding the component of service tax. Defendant No.1 further contends that, learned Arbitrator has held that, clauses in the General Rules and Directions of the contract make it clear that, tendered rates inclusive of service tax shall be payable by Contractor, there is no illegality in 1 st Defendant withholding the component of service tax in all the bills paid by 1st Defendant to Plaintif.
14) At this juncture, it is necessary to mention findings of learned Arbitrator in respect of Claim No.4 with respect to dispute regarding illegal AS.88/2014 11 recoveries of service tax from the bills of Plaintif. Findings on Claim No.4 reads as follows :
" 9.10. Award : Clause 15 of the General Rules & Directions of the contract and Clause 37(i) of the Clauses of Contract, as amended vide page 7 of the tender, are reproduced below :
Clause 15 - "Sales-tax/VAT including service tax, purchase tax, turnover tax, or any other tax applicable in respect of this contract shall be payable by the contractor and Government will not entertain any claim whatsoever in respect of the same except service tax. In respect of service tax, same shall be paid by the contractor to the concerned department on demand and it will be reimbursed to him by the Engineer-in-charge after satisfying that it has been actually and genuinely paid by the contractor."
Clause 37(i) - "Sales Tax/VAT inclusive of Service Tax, Building and other Construction Workers Welfare Cess or any other tax or cess in respect of this contract shall be payable by the contractor and the Central Power Research Institute, except in the case of Service Tax, shall not entertain any claim whatsoever in this regard. In respect of service tax, the same shall be paid by the contractor to the concerned department on demand and it will be reimbursed to him by the Engineer-in- charge after satisfying that it has been actually and genuinely paid by the contractor."
9.11. These clauses make it clear that the Service Tax shall be paid by the contractor to the concerned department and it will be reimbursed to him by the Engineer-in-charge after satisfying that it has been actually and genuinely paid by the contractor. The dispute is whether the AS.88/2014 12 contract rates include Service Tax or not. In this regard, Clause 38(i) of the Clauses of Contract, as amended vide page 7 of the tender, is relevant. By the amendment, existing clause 38(i) was replaced with clause 38(i)(a) to 38(i)(h). Clause 38(i)(a) reads as below :
" 38(i)(a) All tendered rates shall be inclusive of all taxes and levies (including service tax) payable under respective statute. However, if any further tax or levy or cess is imposed by statute ...."
9.12 The Claimant, however, relied on the marginal note of Clause 38 on p.54 of General Conditions of Contract -
"Conditions for reimbursement of levy/taxes if levied after receipt of tenders" - and contended that Clause 38 with sub-clauses (I) to (iii) is applicable only on new taxes levied after receipt of tenders. This argument does not hold water because :
i. Service Tax was an existing tax and not one imposed after receipt of tenders and amended Clause 38(i)(a) specifically states that tendered rates are inclusive of service tax.
ii. Other amended sub-clauses (b) to (h) also refer to various aspects of payment of Service Tax. Sub-clause 38(i)(b) refers to the option to be exercised by the contractor for payment of service tax. Sub-clause 38(i) (c) states that the onus of paying service tax is on the contractor. Sub-clause 38(i)(d) refers to "withholding suitable amounts from the bills payable to him/her in running and final account bills towards Service Tax".
Sub-clause 38(i)(f) refers to reimbursing the amounts "so withheld in intermediate/running and final bill for want of payment of Service Tax". Sub- clause 38(i)(g) specifies the formula to determine the "amount to be withheld in AS.88/2014 13 each and every bill" towards payment of service tax and finally, sub-clause 38(i)
(h) authorises recovery of balance amount, if amounts withheld is found insufficient, from the final bill/performance guarantee/security deposit.
iii) Para 4 on p.10 of the General Conditions of Contract states :
"Headings and Marginal notes to thse General Conditions of Contract shall not be deemed to form part thereof or be taken into consideration in the interpretation or construction thereof of the contract." Clause 38 is part of the General Conditions of Contract.
9.13. In view of the above, I award that withholding of Service Tax from bills of Claimant is in accordance with the contractual provisions.
15) Findings of learned Arbitrator make this court once again to look at Clauses of 15, 37 and 38(i) of General Rules and Directions of CPWD Form 8 as amended.
Clause 15 and 38(i) of General Rules and Directions as amended reads as follows :
"
Reference to As per the standard Amended/ clause of CPWD CPWD Form 8 - existing now Form 8 introduced Clause 15 of Sales-tax/VAT(except Sales-tax/VAT General Rules service tax), purchase including service tax, and Directions tax, turnover tax or any purchase tax, other tax applicable in turnover tax or any respect of this contract other tax applicable AS.88/2014 14 shall be payable by the in respect of this Contractor and contract shall be Government will not payable by the entertain any claim Contractor and whatsoever in respect of Government will not the same. However, in entertain any claim respect of service tax, whatsoever in same shall be paid by respect of the same the contractor to the except service tax. In concerned department respect of service on demand and it will be tax, same shall be reimbursed to him by paid by the the Engineer-in-charge contractor to the after satisfying that it concerned has been actually and department on genuinely paid by the demand and it will be contractor. reimbursed to him by the Engineer-in-
charge after
satisfying that it has
been actually and
genuinely paid by
the contractor.
Clause 38(i) All tendered rates shall 38(i) All tendered
be inclusive of all taxes rates shall be
and levies (except inclusive of all taxes
Service Tax) payable and levies (including
under respective service tax) payable
statutes. However, it under respective
any further tax or levy statute. However, if
or cess is imposed by any further tax or
Statute, after the last levy or cess is
stipulated date for the imposed by statute,
receipt of tender after the last
including extensions, if stipulated date for
any and the contractor receipt of tender
thereupon necessarily including extensions
and properly pays such if any and the
taxes/levies/cess, the contractor thereupon
contractor shall be necessarily and
reimbursed the amount properly pays such
so paid, provided such taxes/levies/cess, the
payments, if any, is not, contractor shall be
in the opinion of the reimbursed the
Superintending engineer amount so paid,
(whose decision shall be provided such
final and binding on the payments, if any, is
contractor) attributable not, in the opinion of
to delay in execution of the Chairman,High
work within the control Power Committee
of the contractor. (HPC) (whose
AS.88/2014
15
decision shall be final
and binding on the
contractor)
attributable to delay
in execution of work
within the control of
the contractor.
"
(underlined by me)
16) A bare reading of above clauses make it clear that, service tax shall be paid by Contractor to the concerned department. If Contractor (Plaintif) paid service tax to the concerned department, same will be reimbursed to him by Engineer-in-charge after being satisfied that it has been actually and genuinely paid by Contractor. It is also clear that, tendered rates shall be inclusive of all taxes and levies including service tax. Learned Arbitrator, having regard to Clauses-15 and 38(i) of General Rules and Directions, has rightly held that, tendered rates are inclusive of service taxes and service tax shall be payable by Contractor to the concerned department and same will be reimbursed to him by Engineer-in-charge after satisfying that it has been actually and genuinely paid by Contractor.
AS.88/2014 16
17) Learned counsel for Plaintif is pleased to rely upon CPWD Works Manual, 2012. It is relevant to mention Section 20.4.3.1. It reads as follows :
" 20.4.3.1 Justification of tenders Effect of following taxes is to be added :-
(i) Building and other construction workers cess as applicable in the state/union territory.
(ii) VAT @ 2% applicable on works contract drawn under the jurisdiction of Govt. of Delhi. The effect of these two taxes shall be added as under on :
a) Justification of tenders :
To be added at the end of justified cost worked out on the basis of net prevailing market rates inclusive of all taxes I/c VAT on each material considered in justification.
(b) Sanction of extra item, substituted item and rate after adding contractors profit & over heads.
But nothing shall be added in analysis of rates for service Tax since being reimbursed to the contractor separately. The rate of VAT is different in different states/Union territories. Therefore, for other states/union territories, the ADG of the region shall notify the rate of VAT to be considered."
(underlined by me)
18) Plaintif is harping upon the sentence "But nothing shall be added in analysis of rates for AS.88/2014 17 service Tax since being reimbursed to the contractor separately" and contends that, tendered rates are not inclusive of service tax. A meaningful reading of the above sentence makes it clear that, "nothing shall be added" shall be read in conjunction to the taxes to be added i.e. building and other constructions, workers cess. It means, in analysis of rates for service tax, building and other construction, workers cess, shall not be added. It does not in any way signify that tendered rates are not inclusive of service tax. When matter being thus, no interpretation is possible as contended by Plaintif, since Clauses 15 and 38(i) of General Rules and Directions are explicit in this aspect of the matter.
19) Hence, It is abundantly clear that, learned Arbitrator has decided the claim of Plaintif within the purview of contract. Learned counsel for Plaintif is pleased to rely upon the following judgments.
(i) 2003(2) Arb.LR 5 (SC) [Oil & Natural Gas Corporation Ltd. V. AS.88/2014 18 SAW Pipes Ltd.] " (1) If the award is contrary to the substantive provision of law or the provisions of the Act or against the terms of the contract, it would be patently illegal, which could be interfered under Section 34."
(ii) 2010( Suppl.2) Arb.LR 33 (Karnataka) (DB) [The Chief Engineer, Karnataka Health Systems Development Project Bangalore and Anr. Vs. J.Chengama Naidu and Anr.] " (1) The scope of an application under Section 34 of the Arbitration and Conciliation Act, 1996 is only to set aside the award or to leave the award as it is, without being disturbed, and the Act does not provide for any via media, more so, an application under Section 34 of the Act not being in the nature of either an appeal or a revision or a review of the award passed by the Arbitrator, but the award getting vitiated due to illegalities such as being against either statutory provisions or the settled legal principles accepted in our legal system and enforced in courts."
(iii) 2014(4) Arb.LR 102 (SC) [Oil & Natural Gas Corporation Ltd. V. Western Geco International Ltd.] " (4) A decision which perverse or so irrational that no reasonable person would have arrived at the same will not be sustained in a court of law."
20) Principles of law as laid down in above judgments cannot be made applicable to present AS.88/2014 19 facts of the case in the absence of patent illegality in the award. In this case, learned Arbitrator has decided the claim of Plaintif within the ambit of contract, having regard to the true spirit of contract. Under such circumstances, it cannot be said that, award passed is in violation of terms of contract. Award can be set aside only on the grounds as set out in Section 34 of Arbitration and Conciliation Act, 1996. Plaintif has not made out any of the grounds as enumerated in Section 34 of the Arbitration and Conciliation Act, much less, the grounds mentioned in the plaint. Merely because award has been passed against Plaintif, it cannot be said that, no perversity or illegality can be attributed to the award. In that view of the matter, this court is of the view that, learned Arbitrator has passed the award within the terms of contract.; accordingly, I answer the above point in the negative.
AS.88/2014 20
21) POINT NO.2 : In view of the foregoing discussion and answer to Point No.1, I pass the following :
ORDER (1) Suit filed by Plaintiff under Section 34 of the Arbitration and Conciliation Act, 1996, for setting aside the arbitral award dated 23.04.2014 passed by learned sole Arbitrator/Defendant No.2; is hereby dismissed.
(2) No order as to costs.
[Dictated to the Judgment Writer, transcribed and computerized by her, transcript thereof corrected and then pronounced by me in open Court, on this the 10th day of October, 2019.] [RAMA NAIK] VI Addl.City Civil & Sessions Judge Bengaluru City.