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1/14 IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 22ND DAY OF OCTOBER, 2018 BEFORE THE HON’BLE Dr.JUSTICE VINEET KOTHARI W.P. No.24097/2015 & W.P.NO.30354/2015 (T-RES)
BETWEEN
M/S. JYOTHY FABRICARE SERVICE LTD., NO.903, 9TH FLOOR, NORTH BLOCK (REAR WING) MANIPAL CENTRE, DICKENSON ROAD, BANGALORE-560 042 (REP BY MS.CHAITRA KARANATH H.N., LEGAL OFFICER, AGED ABOUT 27 YEARS, D/O MR.NAGESH KARANTH H.K.) ... PETITIONER
(By Sri. V RAGHURAMAN, ADV., )
AND
THE SENIOR DIVISIONAL COMMERCIAL MANAGER BANGALORE DIVISION, SOUTH WESTERN RAILWAY, DIVISIONAL OFFICE, BANGALORE-560 023 ... RESPONDENT
(By Sri. ABHINAY Y.T., ADV. FOR SRI. N S SANJAY GOWDA, ADV. )
THESE WRIT PETITIONS ARE FILED UNDER ARTICLES 226 AND 227 OF THE CONSTITUTION OF INDIA PRAYING TO DIRECT THE RESPONDENT TO REIMBURSE THE SERVICE TAX
Date of order:22-10-2018 W.P.No.24097/2015 & W.P.No.30354/2015
M/s. Jyothy Fabricare Service Ltd., Vs. The Senior Divisional Commercial Manager
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AMOUNT OF RS.31,37,692/- TO THE PETITIONER AND ETC.
THESE PETITIONS COMING ON FOR PRLY. HEARING IN ‘B’ GROUP, THIS DAY, THE COURT MADE THE FOLLOWING:
ORDER
Mr. V.Raghuraman, Adv. for Petitioner Mr.Abhinay Y.T. Adv. for Mr.N.S.Sanjay Gowda, Adv. for Respondent
The petitioner-M/s.Jyothy Fabricare Service Ltd., has filed these writ petitions in this Court on 08.06.2015 seeking a mandamus direction to the Respondent-South Western Railway (Railway) with whom it had entered into a Contract for “supply and washing of bedrolls to the passengers traveling in the trains” to additionally bear the liability of the ‘Service Tax’ imposed on the assessee-petitioner by amendment of Law w.e.f. 01.07.2012 to the extent of Rs.31,37, 692/-.
Date of order:22-10-2018 W.P.No.24097/2015 & W.P.No.30354/2015
M/s. Jyothy Fabricare Service Ltd., Vs. The Senior Divisional Commercial Manager
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The learned counsel for the petitioner- contractor Mr.V.Raghuraman has urged before the Court that since the law relating to imposition of service tax underwent a drastic change w.e.f. 01.07.2012, wherein except the services covered in the ‘Negative List’, all other services became taxable and exigible to the service tax w.e.f. 01.07.2012 and the services of ‘wet washing’ of bed rolls provided to the passengers in the trains, became taxable in the hands of the petitioner- contractor only w.e.f. 01.07.2012, which it paid to Union of India but since the contract with the Respondent-Railway was entered into prior to that date, the Respondent-Railway ought to have agreed to bear the said service tax liability in addition to the Rates quoted by the petitioner-Contractor for the said services.
He submitted before the Court that the correspondence with the Respondent-Railway in this
Date of order:22-10-2018 W.P.No.24097/2015 & W.P.No.30354/2015
M/s. Jyothy Fabricare Service Ltd., Vs. The Senior Divisional Commercial Manager
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regard ended in negative against the petitioner- contractor. He drew the attention of the Court towards the response of the Respondent-Railway vide letter Annexure-E dated 12.11.2014, wherein it has clearly stipulated that the rates quoted by the petitioner- contractor were inclusive of all applicable taxes and therefore the Respondent-Railway did not incur any further liability whatsoever to reimburse service tax to the petitioner-Contractor even though the law relating to service tax was amended later on w.e.f. 01.07.2012. However, the matter was referred to the Legal Cell of the Respondent-Railway for examination.
Learned counsel for the petitioner-contractor relied upon some decisions before this Court and prominently amongst them the one decided by the learned Single Judge of the Delhi High Court in (2012) SCC Online Delhi 1465 paras-3.3 and 3.4 of which are quoted below for ready reference:
Date of order:22-10-2018 W.P.No.24097/2015 & W.P.No.30354/2015
M/s. Jyothy Fabricare Service Ltd., Vs. The Senior Divisional Commercial Manager
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“3.3 We have heard the learned counsels for the parties. Accordingly to us, the question posed in the matter would really turn on: as to whether, the appellant had intended to bear under the contract, service tax, which admittedly, was notified after a contract had materialized between the parties. In order to come to a firm conclusion either way, one would have to first look to clause 13.3 of the GCC. For the sake of convenience the said clause is extracted hereinafter:
“All duties, taxes, royalties and other levies payable by the bidder under the contract, and under applicable laws or for any other cause, shall be included in the rates, prices and total bid price submitted by the bidder.” (emphasis supplied)
3.4 A reading of the aforesaid clause clearly indicates that the respondent is required to factor in all duties, taxes, royalties and other levies which were in force “under applicable laws” or “for any other cause” at a point in time, when parties had entered into a contract. The last part of the said clause makes that abundantly
Date of order:22-10-2018 W.P.No.24097/2015 & W.P.No.30354/2015
M/s. Jyothy Fabricare Service Ltd., Vs. The Senior Divisional Commercial Manager
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clear, by stating that the rates, prices and total bid price shall include all duties, taxes, royalties etc. payable by the bidder under the contract either “under applicable laws” or “for any other cause.” It cannot be said that service tax, which, admittedly was notified on 27-07-2005, could have been in contemplation of the parties when, the bid of the respondent was accepted. Admittedly, the bid of the respondent was accepted on 06-07-2005; which according to, is the date when, the contract between parties materialized. The execution of the contract on 24-08-2005 was, according to us, a mere formality. Therefore, the service tax which was notified on 27-07-2005, would not have been in contemplation of the parties. We are also of the view that there is no provision in the contract which by implication could be said to, take into account, such an eventuality.”
Learned counsel for the Respondent-Railway Mr.Abhinay Y.T., however, supported the stand taken by the Respondent-Railway and urged before the Court that the Rates were inclusive of all applicable taxes and therefore, the Respondent-Railway was not liable to pay
Date of order:22-10-2018 W.P.No.24097/2015 & W.P.No.30354/2015
M/s. Jyothy Fabricare Service Ltd., Vs. The Senior Divisional Commercial Manager
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any additional charges to the petitioner-Contractor even on account of amendment of law relating to service tax. He drew the attention of this Court towards Clause 51 of the Agreement vide Annexure-A, which provides for a Clause for Arbitration for any dispute, difference or question between the petitioner-Contractor and the Respondent-Railway Administration to be referred to the Chief Commercial Manager of South Western Railway, whose decision shall be final.
The existence of Arbitration Clause in the General Conditions of the Contract is not even disputed by the petitioner-Contractor’s side but admittedly no effort has been made in the present case to take the matter to the Arbitration at all.
On the last occasion on 17.09.2018 after hearing the learned counsels, this Court passed the following order:
Date of order:22-10-2018 W.P.No.24097/2015 & W.P.No.30354/2015
M/s. Jyothy Fabricare Service Ltd., Vs. The Senior Divisional Commercial Manager
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“1. The question raised by the petitioner-company in this petition is, as to whether the liability to pay and reimburse the Service Tax becoming chargeable after 2012 Amendment of law, can be passed on by the petitioner - contractor to the Awarder of the contract i.e., South Western Railways and the said imposition of Service Tax can be recovered from the Railways or not by the present petitioner-contractor, who undertook the contract during the relevant period for washing of linen in the coaches of Trains and undertook the job of ‘wet cleaning’ of such linen, on which, according to the learned counsel for the petitioner no Service Tax was applicable on the said service prior to 2012, and by amendment of law, the levy of Service Tax became chargeable and only the services falling under the ‘Negative List’ were exempted from the payment of Service Tax and otherwise all services rendered by the contractor became exigible to the Service Tax.
The relevant terms in the contract and tender conditions however provided (see page 70 of the paper book) in Part-II : Price Bid that the Tenderer(s) should quote the ‘Rates’ inclusive of all applicable taxes and levies etc., and Clause-44 of the Contract vide Annexure-A (see
Date of order:22-10-2018 W.P.No.24097/2015 & W.P.No.30354/2015
M/s. Jyothy Fabricare Service Ltd., Vs. The Senior Divisional Commercial Manager
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page 56 of the paper book) provides that the Income Tax or any other similar statutory liabilities arising out of various taxes, which are applicable, will be deducted from the monthly bills.
While, the learned counsel for the petitioner-contractor contends that since the levy of Service Tax become applicable only after 2012, whereas the Contract was in force from the point of time prior to that, the new levy of Service Tax on the petitioner-assessee, the contractor was made liable to pay the Service Tax, which it did pay to the Central Government and now claims reimbursement from the Awarder of the contract i.e., Railways.
On the other hand, learned counsel for the Respondent – South Western Railways, Mr.N.S.Sanjay Gowda argues that the ‘Rates’ quoted for such contract of washing of linen was inclusive of applicable taxes and therefore, such Service Tax are not separately payable by the Railways in the present case under the existing contract.
The learned counsel for the Respondent Mr.N.S.Sanjay Gowda also contends that the fares charged from the passengers in the Trains
Date of order:22-10-2018 W.P.No.24097/2015 & W.P.No.30354/2015
M/s. Jyothy Fabricare Service Ltd., Vs. The Senior Divisional Commercial Manager
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includes the costs of washing of linen also and therefore, the Service Tax component thereof already stood paid by the Railways as collected from Passengers as a part of the fare. However, no separate details of that bifurcation of fare and Service Tax from the passengers is placed on record and merely, an averment is said to have been made in the Statement of Objections filed by the Railways before this Court.
Prima-facie, this Court is of the opinion that the matter before this Court only raises an abstract question about the interpretation of the terms of the ‘Contract’ between the parties and neither the authorities of the Tax Department nor the Railway Authorities have made any adjudication so far of the said issue raised by the petitioner, who has filed this writ petition before this Court.
Let the matter be listed for Final Disposal on 24.09.2018.”
In the aforesaid contract, the price bid of the contractor is admittedly the ‘Rates’ inclusive of all applicable taxes and levies and so also Clause-44 of the
Date of order:22-10-2018 W.P.No.24097/2015 & W.P.No.30354/2015
M/s. Jyothy Fabricare Service Ltd., Vs. The Senior Divisional Commercial Manager
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Contract vide Annexure-A indicates that the Income Tax or any other similar statutory liabilities on account of various taxes were to be borne by the petitioner- contractor and were to be deducted from the monthly bills.
After hearing the learned counsels today also, this Court is of the considered opinion that the issue raised in these present writ petitions is a matter of Contract between the two parties and the same cannot be pronounced by this Court at this stage prematurely. Neither the said issue for bearing additional tax liability has been adjudicated by any Competent Authority of the Respondent-Railway or the Service Tax Department nor the parties have raised this dispute before the agreed alternative Forum of Arbitration. There has been no novation of contract between the parties after 01.07.2012 with regard to variation of rates for the services rendered by the petitioner-Contractor nor
Date of order:22-10-2018 W.P.No.24097/2015 & W.P.No.30354/2015
M/s. Jyothy Fabricare Service Ltd., Vs. The Senior Divisional Commercial Manager
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apparently the Respondent-Railway has agreed to bear the additional tax liability in the form of service tax after its imposition by the amendment of law w.e.f. 01.07.2012. Within the given framework of existing contract terms between the parties, no such mandamus direction, as prayed for in the present writ petitions, can be given by this Court as there is no question of any arbitrariness or illegality committed by the Respondent- Railway while denying their liability to bear the additional service tax liability raised by the petitioner- Contractor.
The decision of the Delhi High Court relied upon by the learned counsel for the petitioner- Contractor is not applicable to the facts of the present case. The date of Contract in the case before the Delhi High Court was 06.07.2005 and after few days thereof on 27.07.2005 a Notification with regard to levy of service tax was promulgated and taking the recourse of
Date of order:22-10-2018 W.P.No.24097/2015 & W.P.No.30354/2015
M/s. Jyothy Fabricare Service Ltd., Vs. The Senior Divisional Commercial Manager
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Section 12B of the Central Excise Act, 1944, which raises a presumption that incidence of duty has been passed on to the buyer, the Court held against the appellant-Govt. of NCT of Delhi that the appellant awarding contract would be liable to reimburse the service tax which has been imposed on the Respondent- assessee-MBL Infrastructure Ltd. The said decision on the terms of contract available before the Delhi High Court is not applicable to the facts of the present case.
This Court respectfully cannot adopt the said view of Delhi High Court in the present case as the terms of the Contract are different and Rates quoted are inclusive of all taxes and moreover the parties to the Contract should have allowed the said issue to be either mutually agreed between the parties either by way of novation of the contract terms or by getting the matter adjudicated in the forum of Arbitration. Unless the said additional service tax liability is ex-facie admitted
Date of order:22-10-2018 W.P.No.24097/2015 & W.P.No.30354/2015
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in the contract, this Court cannot either vary the terms of the contract nor direct the Respondent-Railway to reimburse the service tax liability to the petitioner- Contractor.
Therefore, this Court does not find any merit in these writ petitions and the same are liable to be dismissed and are accordingly dismissed. No costs.
Sd/- JUDGE