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TMI Blog2025 (5) TMI 1534X X X X Extracts X X X X X X X X Extracts X X X X ..... of the tenders by the defendant, 8 separate agreements with similar terms and conditions have been executed between the parties. 6. Clause 3.12 of the agreements provides that: "The rate quoted by the bidders shall be inclusive of all taxes and duties. However, Service Tax and Educational Cess, if applicable, will be reimbursed by KoPT at actual on production of documentary evidence. Service Tax and Educational Cess will not be considered for the evaluation of the Tender". (emphasis supplied) 7. Initially the plaintiff was under the impression that service tax was payable only in respect of the daily maintenance charges of the vessels and on that basis the plaintiff raised bills on the defendant together with the bills for reimbursement of service tax restricted to daily maintenance charges. These bills were duly accepted and paid by the defendant from time to time. All the eight contracts were initially entered into by Corporated Shipyard Private Limited (hereinafter referred to as the 'said company') with the defendant. However, during the pendency of the said contracts the control and management of the said company was taken over by the plaintiff. Following the merger the pl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n Form VCES-3 to the defendant and relegated the plaintiff to suit with regard to other claims. 11. In terms of the aforesaid order the defendant reimbursed the aforesaid sum to the plaintiff on 10th March, 2017. In view of the fact that the defendant had failed and refused to reimburse service tax prior to 10th March, 2017 and only after an order was passed in the writ proceeding on 24th February, 2017, following the liberty granted by the learned Single Judge in the writ proceeding, the suit was filed claiming interest for delay in reimbursement of the service tax. 12. The learned Single Judge dismissed the suit on the ground that the defendant was not responsible for the delay as reimbursement of the service tax is dependent upon the plaintiff furnishing original discharge certificate issued by the service tax department in Form VCES-3. The learned Single Judge in this regard relied upon the affidavit filed by the service tax department in the writ proceeding, the order passed by the learned Single Judge in the writ proceeding on 9th December, 2016 and Circular no. 176/2/2014-ST dated 20th January, 2014 issued by the Service Tax Department. 13. Mr. Sabyasachi Chowdhury the le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of details of payment of declared tax dues and the interest if any, the designated authority issues an acknowledgement of discharge in VCES-3. The said scheme has no manner of application with regard to the reimbursement of the service tax paid by the plaintiff. 19. It is submitted that the entitlement of the petitioner to receive such service tax is also justified on the basis of the decisions of the Allahabad High Court, Calcutta High Court and Delhi High Court. Mr. Chowdhury has relied upon the decision of the Delhi High court and Calcutta High Court in Pearey Lal Bhawan Association v. Satya Developers Pvt. Ltd. 2010 SCC Online Del 3660: ILR (2011) 1 Del 604: 2010(173) DLT 685, and Bengal Shrachi Housing Development Limited & Anr. V. Union of India & Ors. W.P. No. 4085(w) of 2014, decided on 15th May, 2014 respectively and submits that it has been accepted by all the High Courts that service tax is a statutory liability and it is a tax which is required to be collected by the service provider from the person to whom service is provided. The service provider is merely a collecting agency. 20. The insistence of the defendant for furnishing an irrevocable bank guarantee, the ind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thorities towards interest calculated at the rate of 18% per annum on the remaining balance amount being the rate of interest fixed under Section 75 for the period of delay from 1st July, 2014. 21. Mr. Chowdhury has referred to the Notification no. 12/2014 dated 11th July, 2014 issued by the Government of India, Ministry of Finance in exercise of power conferred by Section 75 of the Finance Act, 1994 to show that the Central Government has fixed simple interest @18% per annum for delayed payment of Service Tax up to six months. It is submitted that if the reimbursement were made by 30th June, 2014 the plaintiff could have paid the remaining tax dues within the extended period i.e. 31st December, 2014 without any interest. 22. As the defendant was responsible for the delay the plaintiff is entitled to such rate of interest as was charged by the revenue authority for delayed payment. It is submitted that in any event, the plaintiff is entitled to interest from the respective due dates of the debit notes raised by the plaintiff for reimbursement of service tax till 10th March, 2017 at the rate of 18% per annum. The basis of claim is disclosed in annexure F of the plaint to which att ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax. On a meaningful reading of the contract, it would appear that the plaintiff would be required to submit suitable documentary evidence in original for claiming reimbursement. Moreover, the witness of the plaintiff during cross examination has accepted that under Clause 2.13 the plaintiff would be required to submit documentary evidence of service tax so as to enable the defendant to avail of CENVAT credit. Mr. Mitra submits that a meaningful interpretation has to be given to the commercial contracts entered into between the parties between 2005 and 2011. He has referred to Clause 2.13 of one of the contracts which reads as follows- "Clause 2.13 The rate quoted by the bidders shall be inclusive of all Taxes and duties. However, Service Tax & Educational cess if applicable will be re-imbursed by KoPT at actual on production of documentary evidence. Service Tax & Educational Cess will not be considered for the evaluation of the Tender." (emphasis supplied). 25. Mr. Mitra submits that the requirement to submit such document was also within the knowledge of the plaintiff and this fact was admitted by the witness of the plaintiff in answer to Question no. 20. The said questio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any person who makes a declaration under sub-section (1) of Section 107; Section 107 (1) - Subject to the provisions of this Scheme, a person may make a declaration to the designated authority on or before the 31st day of December, 2013 in such form and in such manner as may be prescribed." 28. It is neither the case of the plaintiff nor is it a fact that the defendant has made any such Declaration to the Designated Authority required under Section 107 (1) for making the defendant "a declarant". 29. Mr. Mitra submits that so far as pre-suit interest is concerned, it is settled law that in the absence of an agreement for payment of interest, interest can be claimed under the provisions of any substantive law like, inter alia, Section 80 of the Negotiable Instruments Act, Section 23 of Trust Act, and Section 61 of Sale of Goods Act. In this regard he was referred to the following decisions: (i) Vithal Dass Vs. Rup Chand AIR 1967 SC 188, paragraph 4. (ii) Central Bank of India vs Ravindra & Ors. (2002) 1 SCC 367, paragraphs 36 and 30. In the absence of any other statute, interest can be claimed under the Interest Act, 1978 in case a notice is given under Section 3 (1) (b) th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was bound to reimburse the same. The Learned Judge has completely erred in referring to the provisions of Sections 107 and 108 of the Finance Act with regard to a declaration becoming conclusive only upon issuance of acknowledgement of discharge. It is submitted that acknowledgement of discharge, as contemplated under Section 107 (7) of the Finance Act, makes the declaration given by the appellant/plaintiff under Section 107 (1) of the said Finance Act absolute. Such declaration given by the appellant/plaintiff is in relation to the entire service tax liability which the declarant i.e., the appellant/plaintiff had, which included also service tax component of the contracts in relation to the respondent/defendant. In other words, the appellant/plaintiff would be entitled to take benefit of the scheme only upon such declaration being conclusive. The scheme did not and could not form part of any documentary evidence vis-à-vis the contract in question. 32. The appellant has clarified in its letter dated 15th October 2014 that it was due to the mutual lack of clarity regarding applicability of service tax on the services of manning and operation of the vessels rendered by the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the express provision of the Cenvat Credit Rules 2004 as well as the specific stand of the service tax authorities taken before the writ court. The entitlement of Cenvat Credit vis-à-vis respondent/defendant and that of the appellant/plaintiff was on completely different footings and parameters. In the affidavit filed by the tax authorities before the Hon'ble High Court, it was amply clarified that the respondent/defendant was entitled to Cenvat Credit on the basis of supplementary invoices issued by the appellant/plaintiff, who was the petitioner in the writ petition. It had also been clarified that applicable rules to ascertain the documents required for availing benefit of CENVAT Credit are Rules 9 (1) (bb) and 9 (1) (e) of the Cenvat Credit Rules, 2004. Under said Rules the only two documents that were required to satisfy the test of "documentary evidence" would be the supplementary invoice, bill or challan issued by the provider of output service and the challan evidencing payment of service tax. 36. The debit notes referred hereinbefore admittedly had both the enclosures and duly complied the requirement of Rule 9 (1) (bb) and Rule 9 (1) (e) of the Cenvat Credit R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 48,96,073/- Rs. 65,40,987/- Rs. 25,004/- and Rs. 6,64,117/-). 39. In so far as clause 6.8 is concerned it is submitted that the reimbursement of service tax does not fall under clause 6. The said clause pertains to terms of payment. Clause 6.1 provides in the right-hand marginal note that "All interim payments are advances till issue of Certificate in Form G.C.2." Clause 6.1 further provides that "no sum shall be considered as earned by or due to the Contractor in respect of the work till final and satisfactory completion thereof... given by the Engineer." (emphasis supplied) Therefore, the expression "due to the Contractor" in Clause 6.8 has to be harmoniously read with Clause 6.1 and is in relation to interim and final payments in terms of Clause 6 and not otherwise. Therefore, the clause of interest not being admissible to the contractor envisaged in Clause 6.8 would apply only to such payments if it satisfies two-fold conditions, namely:- (a) Such payment has to be "in respect of the work"; and (b) Such payment has to be "due to the Contractor" in respect whereof a certificate of final completion in Form G.C.2 has been given by the Engineer. 40. The entitlement of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The plaintiff objected to furnishing of irrevocable bank guarantee or indemnity bond and challenged the said demand in a writ petition being W.P. No. 948 of 2016. In the said writ proceeding on 9th June 2016, one of us (Soumen Sen, J) on a prima facie opinion that KoPT could not have refused to refund the service tax paid on account of manning, handling and operation, directed the Commissioner of Service Tax to appear and clarify the issue. In the said writ petition the Deputy Commissioner (Legal) Service Tax filed an affidavit in which he has disclosed the stand of the service tax authorities in paragraph 3. The said paragraph is reproduced below. "(a) That the dispute relates to release/ reimbursement of payment to the tune of Rs.4,08,31,202/- to the petitioner no. 1 by the respondent no. 1. (b) That the petitioner no. 1 being the service provider has provided service to Calcutta Port Trust and they have paid the service tax as being the provider of the said service. Whether the petitioner is entitled to get back the service tax which was paid by them is the dispute between the petitioner and the respondent no. 1 and the service tax authority is not involved in the said matte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecessary Cenvat Credit for the said sum of Rs. 3,94,34,035/- paid wards service tax on the basis of the supplementary invoices and the original discharge certificate as aforesaid issued by the Service Tax Department as per the statement made in paragraph 3(e) and 3(1) of the affidavit in opposition affirmed on 22nd day of January, 2017 by and on behalf of the Service Tax authority, and thus shall not demand the original discharge certificate from the writ petitioner No. 1 for any related or other purpose whatsoever." 45. The writ court however did not decide any other claim and disposed of the writ petition with the observation that the parties shall be at liberty to claim any other reliefs before appropriate forum. 46. The plaintiff after receiving the reimbursement has filed a suit claiming interest on the aforesaid sum. Under the contract the defendant is required to reimburse service tax on production of documentary evidence. At the time of the contract the VCES Scheme was not in force. The said scheme was introduced on 10th May 2013. The plaintiff availed of the said Scheme and after having paid the said amount has claimed reimbursement. The contention of the plaintiff that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h July, 2016 issued by the Assistant Commissioner. The reply by the Assistant Commissioner has been reproduced below: "Q.22. a) Whether the tax dues amount paid under VCES would be eligible as Cenvat Credit to the recipient of service under a supplementary invoice? b) Whether Cenvat Credit would be admissible to the person who pays tax dues under VCES as service recipient under reverse charge mechanism? Rule 6 (2) of the Service Tax Voluntary Compliance Encouragement Rules, 2013, prescribes that CENVAT Credit cannot be utilized for payment of tax dues under the scheme. Except this condition, all issues relating to admissibility of Cenvat Credit are to be determined in terms of the provisions of the Cenvat Credit Rules. As regards, admissibility of Cenvat Credit in situations covered under part (a) and (b), attention is invited to Rule 9 (1) (bb) and 9 (1) (e) respectively of the Cenvat Credit Rules. 2004. Further, Circular No. 176/2/2014-ST dated 20-01-2014 issued by CBEC clarifies that "CENVAT Credit shall only be available after payment of entire Service Tax dues with interest, if any, and obtaining discharge certificate in form of VCES-3 since the declaration made unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vailed CENVAT Credit. A copy of the service tax return for the period from October, 2016 to March, 2017 is annexed hereto and marked with letter "R-3". 11. In the facts and circumstances it is submitted that from the aforesaid statement and documents it is evident that respondent has been able to avail of CENVAT credit after payment of Rs. 3.94 crores to the appellant and after receiving the original discharge certificate in the Form VCES-3 from the appellant." 51. The claim for interest in the instant case essentially sounds in damages. The plaintiff is not claiming any interest under any statute. It is on account of alleged delay in reimbursing the service tax paid by the plaintiff as a service provider. The plaintiff has provided service to the KoPT and they have paid the tax as being provider of the said service. The correspondence exchanged by and between the parties including the communication made with KoPT independently by the parties would show that till 12th July 2016 both the parties were under some confusion with regard to the effect of payment of service tax under the Scheme of 2013 and the impact of duly discharged certificate issued under the said scheme. KoPT was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . However, in the instant case the immediate justification for not releasing the amount cannot be said to be willful or without any basis at least till 20th July, 2016. Although the KoPT could not have insisted for the bank guarantee and indemnity bond cum undertaking as a condition precedent for release of the amount towards reimbursement, the correspondence made with the authorities concerned by the parties independent of each other would show that all of them have been seeking clarifications with regard to the requirement of submitting original discharge certificate in VCES-3. We do not agree with the learned single judge that the original discharge certificate was a pre-requisite for claiming reimbursement. The payment of the service tax through the Scheme of 2013 has complicated the issue as it requires a valid discharge certificate so as to absolve the service provider from all liabilities. We accept the submission on behalf of the plaintiff that the production of the challans conforms to Rule 9 (1) (bb) and Rule 9 (1) (e) of the Cenvat Credit Rules 2004 and as regards admissibility of Cenvat credit the said rules are to be followed. However, on consideration of the whole fac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... December, 2013 on account of the service tax out of a total of Rs. 3,94,34,035/- in aggregate in respect of the eight agreements to the Office of the Commissioner of Service Tax-II, Kolkata. Thereafter, the plaintiff had communicated to the defendant about the said payment and requested for reimbursement of the same but the defendant had failed to make payment necessitating the plaintiff to arrange necessary funds and make balance payment on 31st December, 2014. 57. The plaintiff had made balance payment of Rs. 1,54,34,035/- under VCES and a further sum of Rs. 13,97,767/- on account of interest thereon. It was alleged by the plaintiff that the said interest had arisen solely due to the neglect and failure of the defendant to reimburse the first instalment of Rs. 2,40,00,000/- to the plaintiff on time. In view of the clarification of the service tax department on 20th July, 2016 the aforesaid amount was payable on the basis of the documents furnished. A timely payment would have saved the payment of interest. It is clear that the entire service tax liability has been cleared by the plaintiff and the defendant had also reimbursed the said service tax of Rs. 3,94,34,035/- simultaneo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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