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Madhya Pradesh High Court · body

2005 DIGILAW 1237 (MP)

Hindustan Copper Ltd. v. United Forgings, Bhilai

2005-12-05

K.K.LAHOTI, S.S.DWIVEDI

body2005
ORDER K.K. Lahoti, J. 1. This is an appeal under section 39(1)(vi) of The Arbitration Act, 1940 against the order dated 19-1-1998 by First Additional District Judge, Balaghat in Civil Misc. Case No. 7/91, by which the Court has made the award rule of the Court in following manner :- (i) That respondent M/s United Forgings is entitled for, withheld amount Rs. 1,09,645.11 p., Rs. 44,185/- of sales tax, interest Rs. 1,99,979/- , a total of Rs. 3,60,908/- from appellant. (ii) That the appellant shall also pay 6% interest per annum on Rs. 1,09,645.11 p. from the date of award dated 24-10-1994 till payment. (iii) Counsel fee Rs. 1,000/- . (iv) Costs of litigation be paid by the appellant. 2. This order has been assailed by the appellant on the following grounds:- (a) That a dispute was raised by respondent in respect of liability to pay excise and the respondent on incorrect pretext of payment of excise has not supplied the goods within the time, while the liability to pay excise was on respondent. (b) That the respondent is not entitled for the amount of sales tax, which was also payable by the respondent. (c) The Court below erred in allowing damages by way of interest to the respondent. 3. Contention of appellant is that as per the terms of NIT and contract, the price of material was inclusive of all the taxes. In these circumstances, the respondent was not entitled to claim excise duty on the aforesaid supply. From the perusal of purchase order, minutes of the meeting, schedule of supply, its billing with the respondents, claim toward the excise duty was unfounded and the appellant has rightly deducted the amount from the bills of respondent. The time was the essence of contract and the arbitrator has committed an error, which is apparent on the face of the record and in fact without considering the terms of contract and NIT, the award has been passed and the Arbitrator committed misconduct. There was short supply of material. In these circumstances, the appellant has rightly deducted the aforesaid amount and the Arbitrator committed a grave error/misconduct in allowing the claim of respondent, which deserves to be set aside. 4. There was short supply of material. In these circumstances, the appellant has rightly deducted the aforesaid amount and the Arbitrator committed a grave error/misconduct in allowing the claim of respondent, which deserves to be set aside. 4. The respondent supported the award and the order passed by the Additional District Judge and submitted that as per the conditions of purchase order no excise duty was payable, but subsequently when the Excise Department disputed this position, the respondent drawn the attention of appellant in respect of excise duty payable on the goods. At the time of NIT, or offer or the purchase order no such excise duty was payable and subsequently, when the Excise Department raised this issue the respondent immediately informed to the appellant in respect of liability of payment of excise duty. Under section 64-A of Sales of Goods Act, the excise duty and sales tax as was made applicable under the statutory provision, the appellant was liable for payment of aforesaid duty and tax. The Arbitrator has considered this aspect and found the claim of respondent justified and has rightly awarded the aforesaid amount in favour of respondents. The appellant has not raised these contentions before the Additional District Judge and for the first time these contentions cannot be entertained in this appeal, which were not raised or pressed before the Additional District Judge. 5. To appreciate rival contentions of the parties the facts of present case may be seen, which are stated in brief as under :- (A) Appellant Hindustan Copper Limited issued an NIT for the purchase of 1700 metric ton forged steel grinding media balls and 1500 metric ton cast alloy steel grinding media balls on 17-7-1986. The respondent submitted his tender on 15-9-1986. Thereafter there was a negotiation between both the parties and a meeting was held as per Annexure P-2 on 28-10-1986. But due to dispute arose between the parties, the appellant terminated contract vide Annexure P-1. The respondent submitted modified tender offer in respect of which a meeting was held again on 2-12-1986 as per Annexure P-3. On 29-1-1987 as per Annexure P-4 another meeting was held between the parties and it was settled that the respondent shall supply 600 metric tons material @ Rs. 11,650/- per metric ton. Thereafter on 24-3-1987 appellant issued purchase order which was received by respondent on 25-3-1987. Thereafter respondent supplied part of goods as per order. On 29-1-1987 as per Annexure P-4 another meeting was held between the parties and it was settled that the respondent shall supply 600 metric tons material @ Rs. 11,650/- per metric ton. Thereafter on 24-3-1987 appellant issued purchase order which was received by respondent on 25-3-1987. Thereafter respondent supplied part of goods as per order. (B) That it was understanding between the parties that the goods are not excisable, but the Superintendent of Excise, Bhilai by order dated 20-7-1987 directed that the goods are excisable by 15% excise duty and without payment of excise duty the goods be not sent. Thereafter the respondent intimated appellant in respect of aforesaid excise demand, but the appellant failed to send any reply. (C) The respondent sent a telegram dated 22-2-1987 for finalizing the schedule of delivery, but the schedule of delivery could not be finalised instead a representative was sent by the appellant. On 13-3-1987 another telegram was sent by which the respondent was directed to again supply all the material and to supply 175 metric tons by the end of April, 1987. Thereafter the respondent sent a letter Annexure P-8 to the appellant that no schedule of delivery has been finalised. Thereafter another letter on 19-3-1987 Annexure P-9 was sent to the appellant. Thereafter Annexure P-10 purchase order was sent to respondent. (D) In the meantime the respondent filed an appeal against the order of Superintendent of Central Excise and on 20-10-1989 the order of Superintendent of Central Excise was set aside. Before it on 20-7-1987 the Assistant Collector, (Excise) directed that an excise of Rs. 5,00,000/- is payable in respect of goods. The respondent deposited Rs. 2.5 lacs to the Excise Department and thereafter filed an appeal. On 26-7-1987 itself the respondent sent a letter to the appellant that in the purchase order the terms in respect of excise duty be corrected. Thereafter on 24-8-1987, 23-9-1987 and 11-12-1987 the letters were sent but the appellant sent no reply. On 1-4-1987 the rate of sales tax was increased from 2% to 3%, which was payable by the appellant. The respondent intimated in respect of increase of sales tax to the appellant but the appellant failed to sent any reply and on 11-7-1988 by order Annexure P-21 the contract was terminated and the amount of Rs. 1,09,645. lip. was deducted from the bills of respondent. The respondent intimated in respect of increase of sales tax to the appellant but the appellant failed to sent any reply and on 11-7-1988 by order Annexure P-21 the contract was terminated and the amount of Rs. 1,09,645. lip. was deducted from the bills of respondent. (E) The respondent after issuance of notice raising the dispute and filed an application under section 8 of Indian Arbitration Act for appointment of arbitrator. This application was accepted on 29-6-1993 and Shri G. C. Chouhan, former Government Advocate, Waraseoni, District Balaghat was appointed as sole arbitrator. On the aforesaid facts the respondent claimed Rs. 1,09.645.1 lp. in respect of deduction from the bills. Rs. 44,185/- in respect of increase of 1% of sales tax, Rs. 1,99,979/- towards the interest and loss of profit. The total claim of Rs. 3,60,960/- was made before the sole Arbitrator. The Arbitrator after hearing both the parties passed award dated 24-10-1994, which was filed before the Court in which the appellant raised objection which were decided by the 1st Additional District Judge, Balaghat by the impugned order. The claim before the sole Arbitrator by respondent was that the price of goods was settled @ Rs. 11,650/- per metric ton including 2% sales tax but excluding excise duty. 6. The appellant contested the matter before the Arbitrator and contended : (i) that in the price of Rs. 11,650/- per metric tons amount of sales tax was included and the excise duty was payable by the respondent. (ii) that the schedule of supply was settled between the parties in the meeting held and as per schedule, the respondent was to supply 75 metric ton material upto March, 1987. In this regard a telegram was sent on 22-2-1987 and respondent was intimated that by end of April, 1987, 175 metric tons material is to be supplied. Again a telegram on 13-3-1987 was sent. But in this regard, the respondent had not sent any representative though alleged in the claim. The purchase order was issued as per the terms settled between the parties. So far as the excise duty is concerned, the respondent was duly informed that it was payable by the respondent. The respondent failed to supply the goods within the time period and the material which was supplied was not upto the standard. The amount was rightly deducted. Each and every letter was replied by the appellant. So far as the excise duty is concerned, the respondent was duly informed that it was payable by the respondent. The respondent failed to supply the goods within the time period and the material which was supplied was not upto the standard. The amount was rightly deducted. Each and every letter was replied by the appellant. The respondent failed to supply goods as per the terms of purchase order and schedule, hence the contract was rightly terminated on 11-7-1988. On these grounds the matter was contested before the Arbitrator. 7. The Arbitrator after recording the evidence passed an award as stated hereinabove. Against the aforesaid award, various objections were filed before the Additional District Judge, which were considered by the Additional District Judge in the impugned order and after recording finding found that there is no substance in the contentions, but found that the objection in respect of interest raised by the appellant was justified and reduced the amount of interest and directed that respondent shall be entitled for interest @ 6% per annum from the date of award, till realisation. This order is under challenge in this appeal. 8. The appellant during the course of hearing has confined his arguments as under: (a) that as per the purchase order, the excise duty was payable by the respondent. (b) that the goods were to be supplied as sales tax paid. (c) that in terms of contract the excise duty was payable by the respondent and the Arbitrator has committed misconduct in ignoring the terms of contract. Reliance is placed to the Apex Court judgment in the case of M/s Sudarsan Trading Company v. The Government of Kerala and another, AIR 1989 SC 890 . 9. The respondent reiterated the aforesaid contention as stated hereinabove and supported the order. 10. Whether excise duty and enhanced sales tax was payable by the respondent. The respondent raised objection that this objection was not raised before the Arbitrator and Additional District Judge, in these circumstances, the appellant is estopped from challenging this question before this Court for the first time. In support of this contention, respondent has placed his reliance to various Supreme Court judgments, but from the perusal of impugned order and the award passed by arbitrator it is apparent that this question was agitated and the Arbitrator and the Court have dealt with this objection in the impugned order. In support of this contention, respondent has placed his reliance to various Supreme Court judgments, but from the perusal of impugned order and the award passed by arbitrator it is apparent that this question was agitated and the Arbitrator and the Court have dealt with this objection in the impugned order. As the question was raised and has been decided, in these circumstances the contention of respondent that this objection was not raised and cannot be decided, in this appeal has no substance. Now the question may be seen whether the excise duty was payable on the goods supplied by the petitioner. In this regard the NIT para 7 which relates to the price may be seen :- PRICE : Unless otherwise agreed to in the Purchase order, the price shall be - a) firm inclusive of freight charges upto Malanjkhand Copper Project site on F.O.T. destination basis and also inclusive of Transit Insurance, if any, to be arranged by the Seller at his own cost and in his own interest. b) Inclusive of Central/State Sales Tax, Excise duty and/or such imposts which are leviable by law on sale of finished goods to Purchaser and/or Octroi duty, if any leviable at destination/Project site. The nature and extent of such levies are also required to be shown separately. We can furnish 'O' form, declaration form for concessional MPST and declaration form for additional MPST. In the meeting dated 29-1-1987 it was settled that the price shall be inclusive of 2% M. P. Sales Tax, but at that time no excise was leviable, so it appears that this fact was specifically mentioned in the purchase order. The purchase order in respect of above terms reads as under :- Excise Duty : Not applicable as per your offer. Sales Tax : Included in the price @ 2% against declaration form. Declaration form shall be provided by us against each bill/supplies. It is apparent that the Superintendent, Central Excise wrote a letter dated 10-7-1987 Annexure P-29 to the respondent in respect of classification of the item and intimated that the forged steel grinding media balls are classifiable under Chapter heading 7308-90 of the Central Excise Tariff and attracts 15% excise duty. Declaration form shall be provided by us against each bill/supplies. It is apparent that the Superintendent, Central Excise wrote a letter dated 10-7-1987 Annexure P-29 to the respondent in respect of classification of the item and intimated that the forged steel grinding media balls are classifiable under Chapter heading 7308-90 of the Central Excise Tariff and attracts 15% excise duty. On receiving aforesaid letter the respondent vide letter dated 26-7-1987 Annexure P-28 intimated to the appellant that the Superintendent of Central Excise has claimed 15% excise duty and respondent has been directed that after reclassification of Forged Steel Grinding Media Balls under the Chapter Heading No. 7308-90 the goods are to be cleared on payment of duty at the aforesaid rate, failing which the Superintendent of Central Excise has also directed for an action for violation of Central Excise Rules. The petitioner also enclosed copy of letter of Superintendent of Central Excise dated 10-7-1987 and requested for amendment of Annexure P-29 that the excise duty would be paid extra against production of documentary evidence. This letter opened the dispute between the parties. On 19-10-1989 Annexure P-30 was sent by the respondent to the appellant intimating that unilateral termination/cancellation of contract is not justified. The goods as ordered as per specification are still lying in its stock. The State Government has increased sales tax from 2% to 3% with effect from 1-4-1987. As per the settlement between the parties the rate was inclusive of sales tax @ 2%, but the difference of sales tax has not been paid by the appellant. Hence the dispute arose between the parties, was only in respect of payment of excise duty and increase of 1% M. P. Sales Tax. The appellant's protest was that excise duty and Sales Tax was payable by the respondent while the respondent was claiming the aforesaid excise duty and additional Sales Tax on furnishing document of proof in respect of payment of excise duty and tax and in this regard was seeking clarification in the purchase order. 11. So far as the judgment of Apex Court relied upon by the appellant in the case of M/s Sudarsan Trading Company (supra), there is no dispute in respect of law laid down by the Apex Court, but the fact remains whether the Arbitrator has ignored any terms of contract or not. 11. So far as the judgment of Apex Court relied upon by the appellant in the case of M/s Sudarsan Trading Company (supra), there is no dispute in respect of law laid down by the Apex Court, but the fact remains whether the Arbitrator has ignored any terms of contract or not. The Court below has recorded finding that the aforesaid action of respondent is in accordance with the statutory provisions and there is no breach of any express terms of contract. The purchase order is very specific in this regard, which provides that no excise duty was payable at the time of offer and sales tax was payable @ 2% on the sale. The liability of excise duty occurred after issuance of purchase order as per the letter of Superintendent of Central Excise dated 10-7-1987. Similarly the increase of 1% of sales tax was after issuance of purchase order. The judgment of M/s Sudarsan Trading Company (supra) is not applicable in the peculiar facts of this case. 12. It is not disputed that at the time of agreement between the parties the material was classified under particular heading and was not attracting the excise duty, but vide letter of Superintendent of Central Excise w.e.f. 10-7-1987 after issuance of purchase order on 25-3-1987 the dispute arose. The appellant's contention was that the aforesaid excise duty is not payable and as per the terms of NIT the price was inclusive of excise, while the case of respondent before the arbitrator was that at the time of submitting tender no excise duty was payable so it was not included in the price quoted to the appellant and subsequently when it was made liable by change of entry in the schedule. The respondent demanded aforesaid excise duty from the appellant. 13. The Arbitrator found justification in the contention of respondent. Before the Additional District Judge similar contention was made and it has been dealt with by the Additional District Judge in para 19 of the impugned order and found that there was dispute in respect of excise duty and the goods could not be supplied because of aforesaid reasons. The Court has also found that the appellant has not tried to resolve the aforesaid controversy. In this circumstances, goods could not be supplied within the scheduled time. The Court has also found that the appellant has not tried to resolve the aforesaid controversy. In this circumstances, goods could not be supplied within the scheduled time. As the dispute in respect of excise duty was beyond the control of respondent so the respondent cannot be found liable in respect of non-supply of goods within the time. The Court has also found that the sales tax was also increased after issuance of purchase order on which there was no control of respondent and the respondent was entitled for the increased rate of sales tax from the appellant. 14. Section 64A of Sale of Goods Act, 1930 provides that in contract of sale amount of increase or decrease of tax is to be added or deducted. For ready reference section 64-A is quoted as under :- 64-A. In contracts of sale, amount of increased or decreased taxes to be added or deducted. (1) Unless a different intention appears from the terms of the contract, in the event of any tax of the nature described in sub-section (2) being imposed, increased, decreased or remitted in respect of any goods after the making of any contract for the sale or purchase of such goods without stipulation as to the payment of tax where tax was not chargeable at the time of the making of the contract, or for the sale or purchase of such goods tax-paid where tax was chargeable at that time - (a) if such imposition or increase so takes effect that the tax or increased tax, as the case may be, or any part of such tax is paid or is payable, the seller may add so much to the contract price as will be equivalent to the amount paid or payable in respect of such tax or increase of tax, and he shall be entitled to be paid and to sue for and recover such addition; and (b) if such decrease or remission so takes effect that the decreased tax only, or no tax, as the case may be, is paid or is payable, the buyer may deduct so much from the contract price as will be equivalent to the decrease of tax or remitted tax, and he shall not be liable to pay, or be sued for, or in respect of, such deduction. (2) The provisions of sub-section (1) apply to the following taxes, namely :- (a) any duty of customs or excise on goods; (b) any tax on the sale or purchase of goods. The aforesaid provision specifically provides that the imposition or increase of excise duty takes effect the seller may add so much to the contract price as will be equivalent to the amount paid or payable in respect of such tax or increase of tax. In this case it is not in dispute that at the time of entering into the contract no excise duty was payable on the goods and the rate of M. P. General Sales Tax was 2%. The respondent was not entitled to collect the excise duty or sales tax from the appellant as the excise duty was not payable and there was no question of inclusion of excise duty in the offer made by the respondent for supply of goods. Similar is the position of sales tax when the rate of sales tax was 2% at the time of offer then the respondent was entitled to recover the aforesaid tax. Even in case where the rate of tax is reduced he was entitled to pass on the same rebate to the appellant. Similar is the situation in the case of excise, the respondent ought to have passed on the same benefit to the appellant. In this case when the Superintendent of Central Excise intimated to the appellant in respect of change of classification in the schedule and liability of payment of excise duty on the goods the respondent has rightly intimated to the appellant that the aforesaid excise duty be paid to him in addition to the price. The aforesaid action was taken by the respondent because of intimation of Superintendent of Central Excise dated 10-7-1987. Before this there was no dispute in respect of excise duty and the respondent has not asked the appellant to pay the excise duty. The request by the respondent was only in respect of modification of terms of purchase order that the aforesaid excise duty be paid to the respondent on furnishing documentary evidence in respect of payment of excise duty. Similar was the dispute in respect of increase of sales tax. The request by the respondent was only in respect of modification of terms of purchase order that the aforesaid excise duty be paid to the respondent on furnishing documentary evidence in respect of payment of excise duty. Similar was the dispute in respect of increase of sales tax. In these circumstances, the contention of appellant that the aforesaid excise duty was not payable and the sales tax ought to have been borne by the respondent was not correct. In the purchase order itself when these condition was specifically enumerated that the excise duty was not applicable as per the offer of respondent and the sales tax was specifically mentioned as 2%, then the respondent was entitled to recover the aforesaid excise duty and additional sales tax on proof of payment to the Government. In these circumstances the Arbitrator and Additional District Judge has rightly upheld the contention of respondent that there was justified reason to the respondent for intimating appellant in respect of modification of terms of purchase order. When the respondent was justified in intimating to the appellant in respect of liability of excise duty and increase of sales tax, the appellant wrongly withheld the amount from the bills in respect of delayed supply of material. The Court below has also recorded finding that the material was available with the respondent for the supply, but because of inaction on the part of appellant in replying the aforesaid letters and to settle the dispute of the excise duty and sale tax, the appellant was at fault and the respondent was entitled to be duly compensated. 15. In view of the aforesaid the award passed by the Arbitrator and modified by the Additional District Judge is in accordance with law and needs no interference by this Court. This appeal is without merit and it is dismissed with costs which is quantified Rs. 1,000/- (Rupees one thousand only).