JAIN BUILDERS, V. UNION OF INDIA

WP(C)/28767/2019

AI Insights

The case involves Jain Builders, a partnership firm and 'S CLASS' contractor, who entered into contracts with the Military Engineer Services. The dispute arose when the GST rate was revised downward from 18% to 12%, and the respondents intended to deduct the differential 6% from the payments due to the petitioner. The petitioner contested this unilateral action, arguing that any adjustments should await the completion of the contract and should be determined by the Garrison Engineer as per the arbitration clause in the contract. The court's decision focused on the contractual provisions regarding tax rate revisions and the role of the Garrison Engineer in determining the financial implications of such revisions.

• Counselvise Citation: [2019] 140 COUNSELVISE.COM (IT) 722241 (HC-KERALA)
• Appeal Type: Others
• Pronouncement Date: 28-10-2019
• Assessment Year: misc
• Laws Referred To: GST Act
• Result in Favour of: Partly Allowed
• Court: HIGH COURT
• Department Lawyers: P VIJAYAKUMAR; JAISANKER NAIR
• Assessee Lawyers: JOSEPH KODIANTHARA; DEEPU THANKAN; UMMUL FIDA; LAKSHMI SREEDHAR
• Keywords: Arbitration clause; Contractual Obligations; Unilateral action; GST rate revision
• Section: 27.0

Judgement Text

"C R IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR. JUSTICE A.K.JAYASANKARAN NAMBIAR MONDAY, THE 28TH DAY OF OCTOBER 2019 / 6TH KARTHIKA, 1941 WP(C).No.22728 OF 2019(M) PETITIONER/S: JAIN BUILDERS, 216 (C), SHIVA COLONY, MAYO LINK ROAD, AJMER-305007, REPRESENTED BY ITS POWER OF ATTORNEY HOLDER MR. PRAFUL JAIN, S/O SHRI SUBODH JAIN. BY ADVS. SRI.JOSEPH KODIANTHARA (SR.) SRI.DEEPU THANKAN SMT.UMMUL FIDA SMT.LAKSHMI SREEDHAR RESPONDENT/S: 1 CHIEF ENGINEER (NW), MILITARY ENGINEER SERVICE NAVAL BASE P.O.KOCHI-682 004. 2 GARRISON, ENGINEER, MILITARY ENGINEERING SERVICES (NAVY) LAKSHWADEEP COAST GUARD KAVARATHI ISLANDS-682555. BY ADVS. SHRI.P.VIJAYAKUMAR, ASG OF INDIA SRI.JAISANKER V NAIR CGC THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY HEARD ON 28.10.2019, ALONG WITH WP(C).28767/2019(U), THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR. JUSTICE A.K.JAYASANKARAN NAMBIAR MONDAY, THE 28TH DAY OF OCTOBER 2019 / 6TH KARTHIKA, 1941 WP(C).No.28767 OF 2019(U) PETITIONER/S: JAIN BUILDERS, 216(C), SHIVA COLONY, MAYO LINK ROAD, AJMER-305007, REPRESENTED BY ITS POWER OF ATTORNEY HOLDER, MR. PRAFUL JAIN S/O SHRI SUBODH JAIN. BY ADVS. SRI.JOSEPH KODIANTHARA (SR.) SRI.DEEPU THANKAN SMT.UMMUL FIDA SMT.LAKSHMI SREEDHAR RESPONDENT/S: 1 UNION OF INDIA REPRESENTED BY CHIEF ENGINEER (NW) MILITARY ENGINEER SERVICE, NAVAL BASE P.O.,KOCHI-682 004. 2 CHIEF ENGINEER (NW), MILITARY ENGINEER SERVICE NAVAL BASE P.O.KOCHI-682 004. CGC , JAISANKER V NAIR THIS WRIT PETITION (CIVIL) HAVING COME UP FOR ADMISSION ON 28.10.2019, ALONG WITH WP(C).22728/2019(M), THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: WP(C).Nos.22728 & 28767 OF 2019 3 C R WP(C).Nos.22728 & 28767 OF 2019 JUDGMENT As both these writ petitions involve a common issue, they are taken up for consideration together and disposed by this common judgment. For the sake of convenience, the reference to facts and exhibits is from W .P .(C)No.22728/2019. 2. The petitioner is stated to be a partnership firm engaged in the business of construction and an enlisted 'S CLASS' contractor of the respondent Military Engineer Services. It is the case of the petitioner that it was awarded two contracts by the 2nd respondent as evidenced by Exts.P9 and P10. As per the general conditions of the contract, a reimbursement/refund on variation in taxes directly related to contract value was envisaged. The relevant clause reads as follows: 27.0 REIMBURSEMENT/REFUND ON VARIATION IN TAXES DIRECTLY RELATED TO CONTRACT VALUE a) The rates quoted by the tenderer/bidder shall be deemed to be inclusive of all the taxes and levies including GST. No reimbursement/refund for variation in rates of taxes, duties, Royalties, Octroi & other levies, and/or imposition/abolition of any new/existing taxes, duties, royalties, octoroi & other levies shall be made except as provided in sub para(b) here-in-below. (i) The taxes which are levied by Govt at certain percentage rates of contract sum/Amount shall be termed as ''taxes directly related to contract value'' such as GST/Sales Tax/VAT on Works Contracts, Turnover Tax, Labour welfare Cess/tax, service tax and like but excluding Income Tax. The tendered rates shall be deemed to be inclusive of all ''taxes/GST directly related to Contract Value'' with existing percentage rates as prevailing on last due date for receipt of tenders. Any increase in percentage rates of ''taxes/GST directly related to contract Value'' with WP(C).Nos.22728 & 28767 OF 2019 4 reference to prevailing rates on last due date for receipt of tenders shall be reimbursed to the Contractor and any decrease in percentage rates of ''taxes/GST directly related to contract value'' with reference to prevailing rates on last due date for receipt of tender shall be refunded by the Contractor to the Govt./deducted by the Govt from any payments due to the Contractor. Similarly imposition of any new ''taxes increase/in GST directly related to Contract value'' after the last due date for receipt of tenders shall be reimbursed to the contractor and abolition or variation in rate of any ''taxes/GST directly related to contract value'' prevailing on last due date for receipt of tenders shall be refunded by the Contractor to the Govt/deducted by the Govt. from the payments due to the Contractor. (ii) The Contractor shall, within a reasonable time of his becoming aware of variation in percentage rates an/or imposition of any further ''taxes/GST directly related to Contract value'', give written notice thereof to the GE stating that the same is given pursuant to this Special Condition, together with all information relating there to which he may be in a position to supply. The Contractors shall submit the other documentary proof/informations as the GE may require. (iii) The Contractor shall, for the purpose of this condition keep such books of account and other documents as are necessary and shall allow inspection of the same by a duly authorized representative of Govt, and shall further, at the request of the GE furnish, verified in such a manner as the GE may require, any documents so kept and such other informations as the GE may require. (iv) Reimbursement for increase in percentage rates/imposition of ''taxes / GST directly related to contract value'' shall be made only if the Contractor necessarily & properly pays additional ''taxes/ GST directly related to contract value'' to the Govt., without getting the same adjusted against any other tax liability or without getting the same refunded from the concerned Govt Authority and submits documentary proof for the same as the GE may require.'' WP(C).Nos.22728 & 28767 OF 2019 5 The contract also provided for the manner of resolution of disputes through arbitration. The relevant portion of the said clausereads as follows: ''70. Arbitration.- All disputes, between the parties to the Contract (other than those for which the decision of the C.W .E or any other person is by the contract expressed to be final and binding) shall, after written notice by either party to the Contract to the other of them, be referred to the sole arbitration of an Engineer officer to be appointed by the authority mentioned in the tender documents. Unless both parties agree in writing such reference shall not take place until after the completion or alleged competition of the Work or termination or determination of the Contract under Condition Nos.55, 56 and 57 hereof. Provided that in the event of abandonment of the Works or cancellation of the Contract under condition Nos.52, 53 or 54 hereof, such reference shall not take place until alternative arrangements have been finalized by the Government to get the Works completed by or through any other Contractor or Contractors or Agency or Agencies. xxxxxxxxxx xxxxxxxxxx xxxxxxxxx 3. The case of the petitioner in the writ petition is that, while it raised bills on the respondents for the work done in terms of the contract, and the respondents were effecting payments of the amounts covered by the said bills, the respondent, by Ext.P15 communication, intimated the petitioner that due to the downward revision of GST rates from 18% to 12%, the differential 6% on the contractually agreed amount, towards GST, would be deducted from the next running account/final bill. It is the case of the petitioner that the terms of the contract entered into between the petitioner and the respondents do not admit of any unilateral action being taken by the respondents towards deducting amounts from the bill amounts payable to the petitioner during the subsistence of the contract, and that any dispute raised by the respondents, with regard to payments to be made to the petitioner must necessarily await the completion of the work under the contract as contemplated in the arbitration clause referred above. WP(C).Nos.22728 & 28767 OF 2019 6 4. In the counter affidavit filed on behalf of the 2nd respondent, while a reference is made to be relevant clauses of the contract extracted above, it is stated that the petitioner cannot impugn Ext.P15 communication through a writ petition without first exhausting the remedy provided under the contract. It is further stated that the demand made by the respondents in Ext.P15 communication, was essentially on account of the reduction in the rate of GST from 18% to 12%. Relying on the contractual clauses extracted above, it is the case of the respondents that they were entitled to the benefit of the reduction in rate of tax to an extent of 6% and it is this amount that they were seeking to withhold from the payments due to the contractor based on the bills raised on them by the said contractor. 5. Through a reply affidavit filed by the petitioner, details of the contracts executed with the respondents are enumerated and it is contended that a unilateral action on the part of the respondents in the contract under consideration may not be justified since there are other contracts subsisting between the parties where instances abound where the respondents are obliged to refund amounts to the petitioner under similar clauses. The contention, in other words, is that the respondents must await the completion of all works before embarking upon a determination as to whether or not there is any amount due from the petitioner and proceeding to realise the same from the payments outstanding to the petitioner. 6. W .P .(C)No.28767/2019 is one that is filed by the same petitioner referring to another contract entered into between the same parties, and producing the bill raised on the respondents thereunder where the benefit of the WP(C).Nos.22728 & 28767 OF 2019 7 contractual clauses referred above would enure to the benefit of the petitioner to seek a re-imbursement from the respondents. The prayer in the writ petition is for a direction to the respondents to reimburse the excess amounts paid towards GST consequent to an upward revision in the rate of tax in respect of the work completed by the petitioner for the respondents. 7. I have heard learned Senior Counsel Sri. Joseph Kodianthara, duly assisted by Adv. Deepu Thankan, on behalf of the petitioner and Sri.Jaisankar V . Nair, the learned Central Government Counsel on behalf of the respondents. 8. On a consideration of the facts and circumstances of the case and the submissions made across the Bar, I find from a perusal of the contractual clauses extracted above that the contract itself envisaged the quoting of rates, inclusive of taxes, by the contractors. The bills raised by the petitioner contractor, therefore, did not show an element of tax separately, since the rate quoted had to be inclusive of taxes. While the main clause under the contract would suggest that subsequent revisions in the rate of tax would have no bearing on the respective obligations of the parties under the contract, Clause 27(b) carves out an exception in cases where there is an upward/downward revision of the rate of “Taxes/GST directly related to the contract value” during the subsistence of the contract. In such an event, the benefit of the revision in the rate of tax, has to enure to the party concerned based on the effect of the revision as determined by the Garrison Engineer concerned. In the instant case, the deduction proposed by the respondents, as also the claim for re-imbursement made by the petitioner, have been pursued without prior determination by the Garrison Engineer concerned. I am of the view that in as much as the contract provides for determination by the Garrison Engineer of the benefit/burden of a variation in the rate of tax during the WP(C).Nos.22728 & 28767 OF 2019 8 subsistence of the contract, any consequential action by either party to the contract, for re-imbursement/deduction, can only be pursuant to a determination by the Garrison Engineer of the extent of benefit/burden enuring to the party concerned. Accordingly, any unilateral action by one of the contracting parties, without a prior determination of the amounts that can be recovered from the other party, at the instance of the Garrison Engineer, cannot be justified. I, therefore, quash Ext.P15 in W .P .(C)No.22728/2019 and relegate the parties to the Garrison Engineer (the designated authority under the contract) for a determination of the impact of the rate revision on the party concerned. The parties shall, during the subsistence of the contract and in the event of rate revision, approach the Garrison Engineer in the manner stipulated under the contractual provision, and the Garrison Engineer shall determine, on a case to case basis, the amounts payable from one party to the other. I further make it clear that while the Garrison Engineer may determine the amounts payable to either party, recovery thereof shall await the completion of the contract, or the stage immediately prior to the settlement of the final bill, when a reconciliation of the figures arrived at by the Garrison Engineer, pursuant to the referrals made to him during the subsistence of the contract, can be undertaken. Such a course of action would, in my opinion, be in accordance with the understanding between the parties as reflected in the contractual clauses extracted above. With the above directions, both the writ petitions are disposed. Sd/- A.K.JAYASANKARAN NAMBIAR JUDGE sd WP(C).Nos.22728 & 28767 OF 2019 9 APPENDIX OF WP(C) 22728/2019 PETITIONER'S/S EXHIBITS: EXHIBIT P1 TRUE COPY OF THE NOTIFICATION NO 11/2017 (CENTRAL) DATED 28.6.2017 EXHIBIT P2 TRUE COPY OF THE NOTIFICATION NO 11/2017(UT) DATED 28.6.2017 EXHIBIT P3 TRUE COPY OF THE EXTRACT OF NOTIFICATION GO(P) NO 72/2017/TAXES DATED 30.6.2017 EXHIBIT P4 TRUE COPY OF THE NOTIFICATION NO 20/2017 ISSUED BY THE CENTRAL GOVERNMENT DATED 22.8.2017 EXHIBIT P5 TRUE COPY OF THE NOTIFICATION NO 24/2017 DATED 21.9.2017 EXHIBIT P6 TRUE COPY OF THE NOTIFICATION GO(P) NO 136/2017/TAXES DATED NIL EXHIBIT P7 TRUE COPY OF THE NOTICE INVITING TENDERS ISSUED BY THE 2ND RESPONDENT DATED 5.6.2017 EXHIBIT P8 TRUE COPY OF THE NOTICE INVITING TENDERS ISSUED BY THE 2ND RESPONDENT EXHIBIT P9 TRUE COPY OF THE LETTER AWARDING THE CONTRACTS TO THE PETITIONER ISSUED BY THE 2ND RESPONDENT DATED 27.7.2017 EXHIBIT P10 TRUE COPY OF THE LETTER AWARDING THE CONTRACTS TO THE PETITIONER ISSUED BY THE 2ND RESPONDENT DATED 16.8.2017 EXHIBIT P11 TRUE COPY OF THE REGISTRATION CERTIFICATES DATED 17.7.2018 EXHIBIT P12 TRUE COPY OF THE REGISTRATION CERTIFICATES DATED 28.2.2018 EXHIBIT P13 TRUE COPY OF THE RAR DATED 14.6.2019 EXHIBIT P14 TRUE COPY OF THE RAR DATED 12.3.2019 EXHIBIT P15 TRUE COPY OF THE COMMUNICATION OF THE 3RD RESPONDENT DATED 6.4.2019 WP(C).Nos.22728 & 28767 OF 2019 10 RESPONDENT'S/S EXHIBITS: EXHIBIT R2(a) TRUE COPY OF THE RELEVANT PAGES OF THE TENDER DOCUMENT CONTAINING CLAUSE 70 OF THE GENERAL CONDITION OF THE CONTRACT. EXHIBIT R2(b) TRUE COPY OF THE RELEVANT PAGES OF CLAUSE 27 OF SPECIAL CONDITION. sd WP(C).Nos.22728 & 28767 OF 2019 11 APPENDIX OF WP(C) 28767/2019 PETITIONER'S/S EXHIBITS: EXHIBIT P1 TRUE COPY OF THE NOTICE INVITING TENDER PUBLISHED BY THE SECOND RESPONDENT DATED 29.4.2017 EXHIBIT P2 TRUE COPY OF THE LETTER ISSUED BY THE SECOND RESPONDENT DATED 4.7.2017 EXHIBIT P3 TRUE COPY OF THE LETTER SUBMITTED BY THE PETITIONER DATED 20.1.2019 sd "