TMI Blog2021 (7) TMI 235X X X X Extracts X X X X X X X X Extracts X X X X ..... rtainty of contractual obligations. On the basis of the conduct and the testimony of witnesses, the learned Arbitrator has rightly held that the actions of IRCTC exhibit ambiguity about DC s contractually stipulated obligations, which were then redressed by way of the ex post facto policy decision. The interpretation of the contract, as done by the learned Arbitrator, is based on the conduct of the parties, the contractual stipulations, as well as the evidence on record. This court finds reasoning supporting such interpretation to be rational, balanced, and germane, and sees no reason to disagree with the same, especially when construction of contract falls within the realm of an arbitrator s jurisdiction. For the aforesaid reasons, the court finds no merit in this ground of challenge. GST on production charges / supply of meal, post the introduction of the GST regime - HELD THAT:- GST regime has been introduced by the Central Government and is applicable to the services being provided by DC and is not in lieu of VAT, which has since been abolished. Therefore, the payment of GST on production charges is admissible to DC, which is to be reimbursed upon furnishing proof of de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... USTICE SANJEEV NARULA Petitioner Through: Mr. Nikhil Majithia, and Mr. Piyush Gautam, Advocates. Respondent Through: Mr. Naresh Thanai and Ms. Khushboo Singh, Advocates. JUDGMENT SANJEEV NARULA, J. 1. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ngers 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 ₹ 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 February, 2017, agreed to commence the service from 05th March, 2017. 2.8. On 06th April, 2017, IRCTC sought from DC an unconditional acceptance of the policy decision dated 07th February, 2017. DC was apprised that unless unconditional acceptance is tendered, it would be presumed that they are not interested in extension of the license and then suitable action would be taken by IRCTC. In response, DC gave its unconditional consent vide letter dated 12th April, 2017, and sought extension of the temporary li ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e same from 19th December, 2016 to 04th March, 2017. II. Reimbursement of GST on production charges/supply of meals with effect from 1st July 2017. III. Claim towards wastage of food due to cancellation/non-turning up of passengers. IV. Interest. 2.18. On 15th December, 2020, the Sole Arbitrator passed the Impugned Award allowing two claims of DC, viz. (i) payment with respect to welcome drink; and (ii) reimbursement of GST on production charges w.e.f. 01st July, 2017. He has held, inter alia, that since welcome drink did not form part of the tender document, IRCTC could not have made any deductions with respect to provisioning of said service. Further held that IRCTC is to reimburse the GST deposited by DC to the authorities, as the same was not included in the rates determined in Annexure-F of the tender document. The claim towards wastage of food, was rejected. 2.19. IRCTC filed an objection against the Impugned Award before the District Judge at Patiala House Court Complex, Delhi, however, the claim calculated by IRCTC exceeded its pecuniary jurisdiction as per the provision of Section 12(2) of the Commercial Courts Acts, 2015. Therefore, the application w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g the term inclusive of taxes , does not specify which taxes are being included, hence, by definition, it is to be construed widely as encompassing different types of taxes, regardless of the nature or incidence of taxation. 3.6. Moreover, DC willingly entered into Agreement dated 29th September, 2017 by which the parties expressly agreed to be bound by the terms of the tender document, the financial bid submitted by DC, the Letter of Award dated 06th October, 2016 as well as Letter of Extension of License 07th June, 2017. This Agreement was executed after the introduction of GST (July 2017) and DC never raised any issue about claim of GST on production charge not being covered by the contract between the parties. Moreover, as per Clause 6.8 of the General Conditions of License (contained in Annexure-H of the tender document) no verbal or written arrangement would be binding upon IRCTC until the same was incorporated by a formal signed instrument. In other words, there could be no novation of the contract which was executed pursuant to a written bid. 3.7. Under Clause 11.2 of the General Conditions of License, responsibility for payment of all taxes/duties service tax and o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... before him. 4.2. There is no illegality in the Impugned Award which could call for interference of this Court. It is settled position that even if there are two views possible, the Court would not substitute the view of the Arbitrator s with its own view, unless the view taken by the Arbitrator is perverse. Regarding welcome drink: 4.3. Annexure-E to the tender document specifically contained the services which were required to be rendered by a service provider, and provision of welcome drink did not form a part of it. 4.4. Clause 1.5 of CC No. 32/14 provided that welcome drink was to be served free of cost to the passengers on their commencement of journey, and whenever followed by breakfast, then Frooti was not to be served in breakfast. Further, in 2014 when the said circular was issued, composite contracts were being awarded. The unbundling of services was introduced in the year 2016, and it was admitted by IRCTC s own witness that CC No. 32/14 had rates of composite contract for the service provider. 4.5. IRCTC s policy decision dated 7th February 2017 was challenged by DC on 10th and 13th February, 2017 to the effect that no tender was floated with respe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lauses in the Impugned Award. 4.10. Further, the input credit/benefit of GST which is payable on production charges as also on service charges by DC, is available to IRCTC, unlike in the VAT regime, whereunder input credit of VAT deposited by DC was not available to IRCTC. 4.11. Even in the Agreement dated 29th September, 2017 which was effectuated post GST regime, there was no exclusion of GST from the word taxes . Hence, GST must be reimbursed to DC by IRCTC. ANALYSIS: 5. The challenge in the present petition is to an award that has been termed as an interim award . But for all intents and purposes, it is final, as it determines the issues that arose for adjudication during the proceedings with finality, and conclusively fixes the liability. Only the calculations of the amounts due, on the basis of the findings in the Impugned Award, have been deferred. 6. That said, in order to decide IRCTC s objections to the Impugned Award, we must be reminded of the scope and ambit of this court s jurisdiction under Section 34 of the Act. The law on the subject is now well settled. It has been held in umpteen number of decisions of the Apex Court as well as this court, that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce Provider is required to provide catering services free of cost to the passengers as per the menu and instructions contained in Railway Board Circular No.32/2014 which is enclosed as Annexure D . The sector wise catering services to be provided to the passengers are enclosed as Annexure E . The menu and sector wise services are subject to revision by IRCTC from time to time. xx xx xx 2.3. Additional catering services due to late running etc. Service Provider will provide additional catering services due to late running of the train for more than 2 hours or other emergencies etc. as per Railway Board Circular No.32/2014 which is enclosed as Annexure D . The additional meal services shall be provided free of cost to the passengers. 2.4. Supply of Lunch/Dinner by IRCTC The IRCTC shall supply duly packed dinner/lunch menu from its own base kitchens/approved sources. Service Provider will be required to depute its representative to pick-up meal from IRCTC units (transportation by IRCTC) for which an indent for number of meals required, along with its veg. and non veg. break up, must be placed to the designated officials. The indent fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndered by a service provider for each pair of stations, during the journey of the subject train, are specifically provided in Annexure-E to the tender document. DC submitted its quotation for such sector-wise services in the format prescribed in Annexure-C. None of the above noted documents mentioned of a welcome drink. 9. However, the controversy arises as the tender document refers to CC No. 32/14. This circular - CC No. 32/14, which is Annexure-D to the tender document, gets incorporated by way of reference vide Clause 2.1, extracted above. This clause requires the service provider to deliver free-of-cost catering to passengers, as per the menu and instructions contained in CC No. 32/14. The menu options are provided in Annexure-A to CC No. 32/14. The said circular mentions provision of welcome drink under Clause 1, titled Rationalization of Menu , relevant portion whereof reads as under: 1.5. Welcome Drink will be served to all passengers of AC Classes (1A/EC 2A/3A/CC) on commencement of the journey, however, whenever the Breakfast is followed immediately after Welcome Drink, then Frooti, the Tetra Pack drink hitherto being provided along with Breakfast will not be s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4. The policy decision issued vide letter dated 7th February, 2017, was a fresh decision taken by IRCTC after the commencement of the licence period, and not a clarification. It determined, for the first time, the items that were required to be served to the passengers in the form of welcome drink. It inter alia states that, It has been decided that onboard service provider will provide the welcome drink as was being done during departmental operation. No extra charge payable to the service provider. (emphasis supplied). No document was placed on record by IRCTC to show the earlier position so that it could be inferred what was being done during the departmental operation, prior to unbundling. Even the regional offices of DC were not clear as to what was to be done in this regard. Therefore, it cannot be said for certain that it was the service provider s duty to supply the welcome drink as was being done earlier when the catering services were being operated by the Railways. The approval for brands of welcome drink was on a temporary basis, which showed that there was a presumption that the supply of welcome drink was the responsibility of IRCTC, before the above policy decision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... umstances, he concluded that the bid was not invited for the service of provision of welcome drink, and thus no charge was quoted towards the same by DC. CC No. 32/14 provides for composite rates, and thus cannot determine the contractual obligation on this issue which emerged from an unbundled model. Hence, the learned Arbitrator gave a finding that there was no contractual stipulation in the tender document that specifically put the obligation on DC to provide welcome drink. The findings noted above have been arrived at by the learned Arbitrator based on evidence, and by taking into consideration the contractual terms placed before him. The reasoning is sound, credible and comprehensive. 13. Regarding IRCTC s emphasis on the binding effect of DC s unconditional acceptance of the policy decision dated 7th February 2017, one can notice that the learned Arbitrator has carefully perused the chain of correspondence between the parties to determine the legal effect of the acceptance. IRCTC, vide letters dated 22nd February, 2017 and 28th February, 2017, insisted for welcome drink to be provided by DC. It is significant to note that DC vide letter dated 2nd March, 2017, by categori ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inds no merit in this ground of challenge. Regarding GST 16. Learned Arbitrator has allowed DC s claim entitling it to GST on production charges / supply of meal, post the introduction of the GST regime, for reasons disclosed in para 19 of the Impugned Award, which are condensed as follows: 16.1. CC No. 44/17 pertains to the applicability of GST on catering services in railways. Para 1 thereof stated that: For Rajdhani/ Shatabadi/Duronto and other Mail/Express trains 18% with full Input Tax Credit (ITC). Para 3 provided the revised catering apportionment charges for the said trains. Para 4 stipulated that in case of such trains, where catering charges are part of the ticket fare, amount of GST is to be reimbursed to the service providers on submission of proof of deposit of the same with the concerned authorities. Zonal railways/ IRCTC shall ensure that the GST collected from the passengers is deposited with the concerned Authorities as per the guidelines/ procedures laid down by the Ministry of Finance. To ensure the same, Zonal Railways shall also obtain monthly proof of compliance of tax deposit by the service providers as per procedure. From the above, it is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was made on the basis of verification of the records submitted by DC, as well as GSTR-1. He also admitted that IRCTC did not pay GST amount on the production charges as claimed by DC. 17. The quotes for supply/production of food in terms of Annexure-F were inclusive of taxes. There was no GST on production of food, neither on the date of tender nor on the date of award of licence. It was introduced much later, with effect from 1st July 2017. Would this tax be reimbursable to DC, or, in light of contractual provisions, it would be included in the rates quoted in the tender, was the question before the Arbitrator. 18. On this issue, Clause 5.1 5.2 of CC No. 32/14, dealing with applicability of taxes, are relevant and the same read as under: 5.1 Service Tax is to be paid separately subject to proof of payment which has been calculated at the present rate notified @8.66%. The difference between the charges mentioned in column 2 and 3 above would be available with the Railways for payment of service tax etc. Due to changes in catering charges the license lee must be reassessed and realized as per the guidelines issued vide CC-35/2010 (Catering Policy 2010), CC-82/2012 (cor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 21. The learned Arbitrator has based his findings by relying upon the Circulars issued by the Railway Board which as per the contractual scheme, are binding on IRCTC. The contention of IRCTC that the production charges being inclusive of taxes would also encompass GST and/or restrict inclusion of any other tax is thus not in consonance with the terms of the contract. 22. The court also does not find any merit in the contention of IRCTC that claim of service tax on production charges was identical and since the same has been given up, the claim of GST does not survive. Although service tax has been subsumed in it, GST is nevertheless a new tax. Applicability of service tax on production charges is a different plea intertwined with determination of factual position of whether there is an incidence of service in the activity of production or if the nature of service could be held as a composite supply. In fact, the decision of the Delhi Authority for Advance Ruling Advance Ruling No. 02/DAAR/2018 dated 28th March, 2018 (in Application No. 02/DAAR/2017 dated 29th December, 2017). , relied upon by IRCTC, which clarifies the legal position, has been completely misinterpreted and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IRCTC, which is auto populated on the basis of GSTR-1. The tax paid to DC would thus be available as ITC for IRCTC to pay its outgoing tax liability. Further, in the train fare, GST charges are being included and recovered from the passengers on production of catering services (i.e. meals) at the agreed rates in terms of CC No. 44/17 as extracted above. For the above reasons, the court does not find any fault with the interpretation of the relevant terms of the contract. 27. Next, the judgments relied upon by IRCTC are not applicable in the facts of the case. Although there can be no quarrel on the legal proposition canvassed by IRCTC that, while interpreting the contract, the document(s) forming the contract have to be read as a whole; and that the Arbitrator cannot travel outside the bounds of the contract. In the opinion of the court, the interpretation of the terms of the contract by the learned Arbitrator is fair and reasonable, and none of the grounds for interference provided under the Act are attracted. Upholding the claim for payment of GST is not stepping out of the confines of the terms agreed upon by the parties. The learned Arbitrator has decided the dispute within ..... X X X X Extracts X X X X X X X X Extracts X X X X
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