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TMI Blog2018 (8) TMI 1021X X X X Extracts X X X X X X X X Extracts X X X X ..... and Works contract Tax. The present rate of Central Excise duty and Sales Tax is Nil. The present rate of works contract tax is 1%. Any revision in these rates will be to Railway accounts. Further in case Excise Duty is levied by government on this work, the same shall be reimbursed by Railways." 3. The contract was subsequently entered into on 15th July, 2003 and was deemed to come into force on 7th July, 2003. The relevant clauses in the said contract read as under: - "1. Article of agreement made this l5.07.2003 between President of India acting through the Chief Track Engineer, Northern Railway, Headquarters office, Baroda House, New Delhi hereinafter called the (Railway) of the one part and M/s. Speed Craft Ltd., Layak Bhawan, Boring Canal Road, Patna hereinafter called the "CONTRACTOR" of the other part(s). 2. Whereas the contractor has agreed with the railway for the performance of work "Welding 60 Kg/52 Kg. 90 UTS rails in 20 rails panels in FBWP Meerut with firm's own Mobile Flash Butt Welding Plant for 50,000 joints including, cleaning, grinding and finishing, transporting loose rails (13m/26m length) to welding site (average lead not, exceeding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le on Business Auxiliary Services. 6. Thereafter, the Railways further obtained a clarification from the Ministry of Finance on 18th August, 2006 which reads as under: - "GOVERNMENT OF INDIA MINISTRY OF RAILWAYS (RAILWAY BOARD) No.Track/21/2004/0110/7/51154 New Delhi, dt.18.08.06 General Managers, All Indian Railways and Production Units. Sub: Service Tax on site works contract - Flash Butt Welding of rails at site. With reference to one of the Railway Board's contracts for Flash Butt Welding of 52/60kg rails at site using Mobile Butt Welding Plant, the firm having been awarded the said contract sought a clarification whether services rendered by a Company for flash butt welding of rails used for welding short rail length into long rail would attract Service Tax. 2. The issue has been examined in consultation with the Ministry of Finance (Department of Revenue)/Central Board of Excise and Customs who have clarified that since the activity of welding rails into long length rails would amount to production or processing of goods for or on behalf of the client, and activity taxable under Business Auxiliary Service; therefore, Service Tax is leviable on the gross ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d counsel for the Respondents submits that the clause in the agreement was quite clear that the price includes all statutory levies which may be imposed by the Central or State governments and under these circumstances, the Railways cannot be saddled with the liability to reimburse service tax. He relied upon the conclusion of the arbitral tribunal, which clearly holds that the liability of service tax is on the service provider, and hence the Railways cannot be made to reimburse the same. 10. On a query from the Court, learned counsel for the Petitioner has clarified that though the contract was executed in 2003 and the services were rendered thereafter, till date, there has been no demand from the service tax department to the Petitioner for payment of service tax on the contracted amount. He also admits that no deposit of service tax has in fact been made by the Petitioner. 11. In this background, firstly, it is noticed that the contract between the parties clearly stated that all taxes have to be paid by the Petitioner. However, it would be too much to assume that a tax which did not exist at the time when the bid was submitted would also be a liabilit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... borne by DIC. The payment of countervailing duty was allowed by both the arbitrators i.e. the majority and minority. But the Division Bench of the High Court reversed the finding. Aggrieved against this part of the order, appeal has been filed by DIC which has been registered as civil appeal arising out of SLP (C) No.4409 of 2007. 17. We have considered the rival submissions of the parties. So far as the legal proposition as enunciated by this Court in various decisions mentioned above, it is correct that courts shall not ordinarily substitute their interpretation for that of the arbitrator. It is also true that if the parties with their eyes wide open have consented to refer the matter to the arbitration, then normally the finding of the arbitrator should be accepted without demur. There is no quarrel with this legal proposition. But in a case where it is found that the arbitrator has acted without jurisdiction and has put an interpretation on the clause of the agreement which is wholly contrary to law then in that case, there is no prohibition for the courts to set things right. In the present case, the aforesaid clauses reproduced above, clearly lay down that all taxes, duties ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se. In this connection, the intention of the parties is to be ascertained, as per the clauses mentioned above." 13. Going by the aforesaid precedent of the Supreme Court, it is clear that the intention of the parties, in the present case, was not to pass on the liability of the service tax to the Petitioner. The Petitioner was liable to the extent of the obligations which existed on the Bid date but not beyond that. As service tax was imposed subsequently, the same would be reimbursable. 14. However, the matter does not end here. The fact that for more than 15 years, the Petitioner has not deposited the service tax, but is merely raising a claim for the entire service tax amount and the interest therein, shows that the Petitioner has not complied with the obligation under Section 68 of the Finance Act. Learned counsel for the Petitioner submits that the arbitral tribunal's award, being contrary to law, should not be sustained and is liable to be set aside, as, if the service tax department raises claims in future, the same would be liable to be reimbursed. 15. Since the entire issue is in the realm of fiction at this point inasmuch as the Petitioner has not deposited ..... X X X X Extracts X X X X X X X X Extracts X X X X
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