Research › Search › Judgment

Calcutta High Court · body

2017 DIGILAW 943 (CAL)

Phonex Traders v. Union of India

2017-12-01

DEBANGSU BASAK

body2017
JUDGMENT : DEBANGSU BASAK, J. 1. The petitioners have assailed a reasoned Order dated June 21, 2012 passed by the Regional Manager of the Central Warehousing Corporation (CWC). Learned Senior Advocate appearing for the petitioners has submitted that, the petitioners were awarded contracts by the CWC for handling and transportation of ISO containers and allied services at the Container Freight Station (CFS) at Kolkata. The CWC and the petitioners had entered into a number of contracts for such purpose. The CWC has sought to recover service tax from the first petitioner in respect of a contract dated July 21, 2006. According to him, CWC is not entitled to realize any service tax from the petitioners as sought to be done. He has referred to the various terms and conditions of the contract dated July 21, 2006 and has submitted that, such an adjustment as sought to be done by CWC is not permissible. Moreover, first contract had expired by efflux of time. The parties to the first contract have no claim against each other. CWC did not raise any claim during the validity period of the first contract. The claim of adjustment of service tax is based on the first contract. The parties have entered into a subsequent contract. The terms and conditions of the subsequent contract do not permit CWC to adjust any claim arising out of the first contract, assuming though not admitting that, the petitioners are obliged to pay any amount under the first contract. In fact, CWC is not entitled to adjust any amount towards entitlement of the petitioners under the second contract on the specious plea that, amount is outstanding and payable by the petitioners to CWC under the first contract. Assuming that CWC has a valid claim under the first contract, it has to deploy the methods known to law for the purpose of recovery. Adjustment towards the second contract is not available to CWC. In support of the contention that, the first contract has expired by efflux of time and the parties to the first contract have no claim against each other, he has referred to the fact that, CWC had released the security deposits and the bank guarantee under the first contract in favour of the petitioners. In support of the contention that, the first contract has expired by efflux of time and the parties to the first contract have no claim against each other, he has referred to the fact that, CWC had released the security deposits and the bank guarantee under the first contract in favour of the petitioners. Faced with the arbitrary action of CWC in trying to recover service tax from the petitioners from out of entitlement under the second contract, a writ petition was filed before this Hon'ble Court being W.P. No. 10468(W) of 2012. Such writ petition was disposed of by an order dated May 17, 2012 by directing the Regional Manager of CWC to take a decision on the representation made by the petitioners. The impugned order claims to be acting in terms of such Order dated May 17, 2012. The petitioners have assailed such impugned order in the present writ petition. He has referred to the interim order dated July 6, 2012 passed in the present writ petition and has submitted that, the Court while passing the interim order dated July 6, 2012 had decided that, the earlier contract entered into between the parties did not authorize the Corporation to recover any amount paid in excess of future contracts that might be entered into between the parties. He has submitted that, such decision has not been appealed against by the parties. Such decision is binding on the parties. The parties cannot be heard to the contend to the contrary. The decision rendered on July 6, 2012 by the Court is res judicata between the parties. The principles of res judicata are attracted even at the interim stage of the proceedings between the same parties, when an issue raised is finally decided. An issue raised in the proceedings can be finally decided even at the interim stage of the proceedings. Such a decision attracts the principles of res judicata. In support such contentions, he has relied upon 2005 Volume 1 Supreme Court Cases page 787 (Bhanu Kumar Jain vs. Archana Kumar & Anr.). The impugned order is tantamount to CWC deciding its own cause and acting as a judge in respect thereto. The same is not permissible as it is in violation of the principles of natural justice. In support such contentions, he has relied upon 2005 Volume 1 Supreme Court Cases page 787 (Bhanu Kumar Jain vs. Archana Kumar & Anr.). The impugned order is tantamount to CWC deciding its own cause and acting as a judge in respect thereto. The same is not permissible as it is in violation of the principles of natural justice. In support of such contentions, he has relied upon 1985 Volume 1 Calcutta Law Journal page 332 (Shri Surendra Kumar Ray Chowdhury vs. The Collector of Calcutta & Ors.) and an unreported decision of the Division Bench dated December 24, 2014 passed in MAT 1970 of 2014 with CAN 10686 of 2014 (Reshmi Metaliks Limited & Anr. vs. Union of India & Ors.). 2. Referring to 2007 Volume 8 Supreme Court Cases page 1 (Reliance Energy Ltd. & Anr. v. Maharashtra State Road Development Corporation Ltd. & Ors.) learned Senior Advocate for the petitioners has contended that, the steps taken by CWC is without jurisdiction and, therefore, the impugned order should be set aside. 3. Learned Senior Advocate appearing for the respondents has submitted that, the parties had acted on the basis of the contract existing between them. Service tax is payable by the petitioners. The same is realizable from the petitioners as CWC did not realize the same from the petitioners by mistake for a given period of time. Upon realizing such mistakes, a demand was raised on the petitioners. The petitioners did not deny its liability contemporaneously. He has referred to the correspondence exchanged between the parties in this regard. He has submitted that, the petitioners on the contrary had admitted their liability to pay the service tax. The petitioners are seeking to resile from such admissions and their obligation to pay the service tax, if possible. He has referred to the affidavit-in-opposition filed by the respondents. He has also drawn the attention of the Court to the supplementary affidavit, averments med therein and the various provisions of the contracts in support of his contentions. 4. The petitioners were appointed as handing and transport contractor for CFS, Kolkata with effect from June 25, 2006 for a period of five years. The petitioners were appointed such contractor for a subsequent period during the validity period of the first contract. 4. The petitioners were appointed as handing and transport contractor for CFS, Kolkata with effect from June 25, 2006 for a period of five years. The petitioners were appointed such contractor for a subsequent period during the validity period of the first contract. The issue of service tax, in the writ petition is regarding the period from November 1, 2008 to May 31, 2011 covered under the first contract. According to CWS, it had released service tax in favour of the petitioners erroneously for the period from November 1, 2008 to May 31, 2011. CWC is seeking to recover the amount released erroneously in favour of the petitioners during such period. It had issued a demand notice dated April 23, 2002 requiring payment of a sum of Rs. 3,49,56,927/- within 15 days failing which it had threatened to adjust from the bills receivable by the petitioners under the second contract. This letter was impugned by the petitioners in a writ petition being W.P. No. 10468 (W) of 2012. Such writ petition was disposed of by an Order dated May 17, 2012 requiring the Regional Manager of CWC to give a hearing to the petitioners and decide the issues raised. The impugned order is the result of such an exercise. 5. Admittedly, CWC was collecting Service Tax from the user and was depositing the same with the Service Tax Authority from time to time for the period prior to November 1, 2008. According to CWC, at the insistence of the petitioners, CWC started releasing service tax in favour of the petitioners who in turn had deposited the same with the Service Tax Authority, for the period from November 1, 2008 to May 31, 2011. It is an admitted position that, the petitioners had deposited the service tax with effect from November 1, 2008 to May 31, 2011 received from CWC with the Service Tax Authority. It is also an admitted position that, CWC had taken the CENVAT benefit for such deposit in respect of such period. The petitioners have contended that, the claim in respect of one contract, assuming that the claim is valid, cannot be adjusted in respect of the next contract. 6. Few clauses of the first contract are important in the context of the disputes between the parties. They are as follows:- "XII. LIABILITY OF CONTRACTOR FOR LOSSES ETC, SUFFERED BY THE CORPORATION (a)...................................................................................... 6. Few clauses of the first contract are important in the context of the disputes between the parties. They are as follows:- "XII. LIABILITY OF CONTRACTOR FOR LOSSES ETC, SUFFERED BY THE CORPORATION (a)...................................................................................... The decision of the Regional Manage, Central Warehousing Corporation, Kolkata on the question whether the contractor has committed such a fault or has failed to perform any of the services efficiency and also liability for payment of compensation and its quantum shall be final & binding on the contractor shall be without prejudice to other rights & remedies of the Corporation under the contract. (b)................................................................................. (c)................................................................................. (d)................................................................................. (e)................................................................................. (f)................................................................................. (g)................................................................................. (h) All taxes/levies/fees/charges payable to any govt. body/local body shall be paid by the contractor and no claim whatsoever shall be against the Corporation on this account, (i) .................................................................................. (J) ................................................................................. (k) .................................................................................. (l) .................................................................................. (m) ................................................................................. (n) .............................................................................." "XIII. SET OFF Any sum of money due and payable to the contractor (including Security Deposit returnable to him) under this contract may be appropriated by the Corporation and set off against any claim of the corporation for the payment of any sum of money arising out of this or under any other contract entered into by the contractor with the Corporation." 7. The terms and conditions of the second contract dated June 6, 2011 relevant in the context of the present disputes are as follows:- "XII. LIABILITY OF CONTRACTOR FOR LOSSES ETC, SUFFERED BY THE CORPORATION (a)............................................................................... (b)............................................................................... (c)............................................................................... (d)........................................................:...................... (e)............................................................................... (f)............................................................................... (g)............................................................................... (h)............................................................................... (i) All taxes/levies/fees/charges payable to any govt. body/local body shall be paid by the contractor and no claim whatsoever shall be against the Corporation on this account, (J).................................................................................. (k)................:................................................................. (l).................................................................................. (m)................................................................................. (n).............................................................................." "XIII. SET OFF Any sum of money due and payable to the contractor (including Security Deposit returnable to him) under this contract may be appropriated by the Corporation and set off against any claim of the corporation for the payment of any sum of money arising out of this or under any other contract entered into by the contractor with the Corporation." "XVII. PAYMENT The schedule of rates (SOR) to be quoted and agreed shall be exclusive of Service Tax. Payment will be made by the Regional Manager, CWC, Kolkata on submission of bills in duplicate duly supported by work certificate issued by the Manager, CFS, Kolkata or an officer authorised by him. PAYMENT The schedule of rates (SOR) to be quoted and agreed shall be exclusive of Service Tax. Payment will be made by the Regional Manager, CWC, Kolkata on submission of bills in duplicate duly supported by work certificate issued by the Manager, CFS, Kolkata or an officer authorised by him. The contractor shall have to submit proof of payment of service tax to Service Tax Department along with the next month's bill. The contractor will get themselves registered with the service tax department for Cargo Handling Services and the Registration Number with the category of service should be printed on the bills of the contractor while claiming the charges for the services. Further, the bill should clearly show the element of service tax, Edu. Cess and H. Edu. Cess separately." 8. The second contract also contains an arbitration clause. It is not set out for the sake of brevity. The first contract had expired by efflux of time when CWC had sought to realize its claim against the petitioners on account of Service Tax. In fact, CWC had released the security deposits and bank guarantee in respect of the first contract. CWC does not have a statutorily recognized right of lien over the receivables under the second contract. Section 171 of the Contract Act, 1872 deals with the right of lien. It has two parts. In one part it recognizes the right of lien for five named category of persons unless there is a contract to the contrary. They are bankers, factors, wharfingers, attorneys of a High Court and policy holders. These five categories of persons can exercise general lien over goods coming into their possession in their normal course of business. Persons who are not named in section 171 of the Contract Act, 1872 can exercise general lien over goods coming to their possession, in their usual course of business, for amounts outstanding to them, if there is a contract to such effect between the person who is exercising the right of lien and the person over whose goods the right of lien is sought to be exercised. The first respondent comes within the purview of the second category under section 171 of the Contract Act, 1872. It can, therefore, adjust, if it is entitled to, by way of a contract between the parties. 9. The first respondent comes within the purview of the second category under section 171 of the Contract Act, 1872. It can, therefore, adjust, if it is entitled to, by way of a contract between the parties. 9. The terms and conditions of the two contracts particularly the second contract, therefore, are crucial. Both the two contracts have clauses for set off. The clause of set off in the two contracts is vital to the adjudication of the disputes between the parties. It permits CWC to set off all or any claim it has against the petitioners in respect of the subject contract with monies payable under the subject contract or any other contract. The claim of CWC must arise of the subject contract. However, such claim can percolate to and be adjusted against claims with other contracts also, apart from the subject contract. The first contract had expired by efflux of time. CWC did not claim set off within the validity period of the first contract. The claim presently canvassed arises out of the first contract. The set off clause in the second contract is limited to claims arising out of the second contract. Such a clause cannot be pressed into service to adjust a claim arising out of the first contract from the sums payable under the second contract. The set off clause in the first contract was never pressed into service during its validity period. Interpretation of a document is a question of law. Erroneous application of law gives rise to an error in exercise of jurisdiction. The impugned order does not interpret the set off clause of the contracts between the parties at all. It upholds the decision of CWC to recover the sum claimed from the current bills under the second contract as noted in the letter dated April 23, 2012 issued by CWC. The impugned order ought to have taken into consideration whether CWC is entitled to adjust from the bills under the second contract in respect of claims under the first contract in view of the set off clause in the two contracts. 10. The impugned order purports to uphold the decision of CWC in seeking to realize the Service Tax from the petitioners. Essentially, CWC is acting as a judge of its own cause. CWC has interpreted clause XII(h) of the contract. 10. The impugned order purports to uphold the decision of CWC in seeking to realize the Service Tax from the petitioners. Essentially, CWC is acting as a judge of its own cause. CWC has interpreted clause XII(h) of the contract. CWC is adjudicating on its own claim and is saying that the same is payable by the petitioners. In fact, it is enforcing its adjudication by seeking to adjust against bills receivable by the petitioners. No person can be a judge of its own cause is one of the principles of natural justice. Violation of such principles vitiates the action taken. Surendra Kumar Ray Chowdhury (supra) has held that, the Government cannot act to enforce a contract of indemnity without a judicial determination of the factum of breach of contract and the extent of loss. Reshmi Metaliks (supra) has noted Surendra Kumar Ray Chowdhury (supra) and has held that, the Government cannot unilaterally enforce the contract by self determination regarding violation of the terms of the contract as it cannot be the judge of its own cause. Relying upon a Supreme Court decision, it has held that, no pecuniary liability arises till a Court has determined the same. In the present case, the various clauses of the two contracts are required to adjudicated upon in order to find out whether or not CWC is entitled to adjust as claimed by it. CWC is, therefore, not an authority to decide such a cause. Both the contracts contain arbitration clauses. The person who has passed the impugned order has not been treated to be an arbitrator within the meaning of the arbitration clause of either of the two contracts by the parties to the contracts. It is not an award by an arbitral Tribunal. The Order dated May 17, 2012 passed in W.P. No. 10468 (W) of 2012 is not under section 11 of the Arbitration and Conciliation Act, 1996. It cannot be construed to vest an authority with jurisdiction to adjudicate which the law otherwise does not recognize it to be an adjudicating authority of a claim between CWC and the petitioners. In the facts of the present case, therefore, it cannot be said that, the impugned order is an authoritative pronouncement by an adjudicating authority recognised by law to be enforceable between the parties. 11. In the facts of the present case, therefore, it cannot be said that, the impugned order is an authoritative pronouncement by an adjudicating authority recognised by law to be enforceable between the parties. 11. It has been contended on behalf of the petitioners that, the Order dated July 6, 2012 passed in the writ petition has decided the issue as to whether clause XIII of the contract allows a set off or a recovery in the manner as sought to be done in the impugned order by CWC. Such issue being decided, it is not open to the respondents to contend otherwise. Bhanu Kumar Jain (supra) has noticed the distinction between "issue estoppel" and "res judicata". It has held that, res judicata debars a Court to determine the lis if it has attained finality between the parties whereas the doctrine of issue estoppel is invoked against a party. If an issue is decided against a party, the party would be estopped from raising the same in the latter proceeding. The doctrine of res-judicata creates a different kind of estoppel, namely, estoppel by accord. However, the doctrine of "issue estoppel" as also "cause of action estoppel" may both be attracted. A cause of action estoppel arises wherein two different proceedings, identical issues are raised, in which event, the latter proceedings between the same parties shall be dealt with similarly as was done in the previous proceedings. In such an event, the bar is absolute in relation to all points decided save and except allegations of fraud and collusion. Noticing two previous Supreme Court judgments, it has held that, principles of res judicata apply in different stages of the same proceedings. In the facts of the present case, the Order dated July 6, 2012 has returned a prima facie view that, the Regional Manager of CWC has acted without jurisdiction. The decision rendered on the applicability of clause XIII of the contract should be understood in the context of such prima facie finding. In my view, the prima facie finding returned by a Court on an issue will not attract the provisions of res judicata as such issue has not been decided finally. The decision rendered on the applicability of clause XIII of the contract should be understood in the context of such prima facie finding. In my view, the prima facie finding returned by a Court on an issue will not attract the provisions of res judicata as such issue has not been decided finally. In the facts of the present case, it cannot be said that, the Order dated July 6, 2012 has decided the issue finally particularly having regard to the fact that the Court has used the word prima facie in such order. The contention of the petitioners that, the Order dated July 6, 2012 is a final decision on the applicability of clause XIII and, therefore, the contentions to the contrary are hit by the principles of res judicata, cannot be accepted. 12. Reliance Energy Ltd. & Anr. (supra) has held that, in matters of judicial review, the basic test is to see whether there is any infirmity in the decision-making process and not in the decision itself. The decision maker must understand correctly the law that regulates his decision-making power and he must give effect to it otherwise it may result in illegality. The principle of "judicial review" is applicable to contractual matters also. Judicial review is intended to prevent arbitrariness. It must be exercised in larger public interest. Errors of law are jurisdictional errors. 13. In such circumstances, the decision rendered in the impugned order cannot be enforced. The same is set aside. The parties are at liberty to avail of their remedies in accordance with law. The other contentions of the respective parties need not be decided upon as the same may prejudice the parties in the subsequent proceedings that may be had. In any ever, given the view taken on the subject dispute between the parties, no decision is required to be rendered on the other points raised. 14. W.P. No. 14252 (W) of 2012 is disposed of. No order as to costs. Urgent certified website copies of this order, if applied for, be made available to the parties upon compliance of the requisite formalities.