Arbitration award set aside as arbitrator ignored proviso. of contracts. HC

Facts in Brief:

1. On 18 March 2005, a public tender was floated on behalf of vbc 2 arbp40.08-14.1 the Petitioner by Engineers India Limited (EIL), by which bids were invited for the construction and laying of a pipeline for carrying petroleum products from Mundra to Delhi. The construction period was twelve months. On 25 April 2005, a pre-bid meeting was held with bidders. Written clarifications were issued to all the bidders, including the claimant, on as many as seventy five questions that were raised.

2. The challenge in these proceedings is to the award of the Arbitrator in so far as it holds that the liability to service tax constituted a statutory variation which would have to be borne by the Petitioner. Though during the course of the arbitral proceedings, a preliminary issue was sought to be urged before the Arbitrator by the Petitioner, Counsel appearing on behalf of the Petitioner has in these proceedings confined his submissions only to the finding of the Arbitrator on the issue of service tax.

HC held as under,

3. The position in law has been succinctly summarized in Justice G.P. Singh's Principles of Statutory Interpretation:7 "If a question arises as to when was a particular order or rule made or notification issued, the material date is the date of Gazette publication as required by the statute and not the date of publication in a newspaper or the media (ITC Bhadrachalam Paper4boards v. Mandal Revenue Officer, 1996(6) Scale 551, p.559 : (1996) 6 SCC 634).

4. But when can an order or notification be said to be published in the Gazette? Is it the date of printing or the date of the Gazette or the date when the Gazette is made available to the public? This question came to be first considered in Collector of Central excise v. New Tobacco Co. (AIR 1998 SC 668 : (1998) 8 SCC 250) and it was held that unless the Gazette containing the notification is made available to the public, the notification cannot be said to have been duly published.

5. In this case, a Central Excise notification dated 30-11-1982enhancing the rate of duty was printed in the Gazette bearing the same date. But the Gazette was made available for sale to the public on 8-12-1982. Section 38 of the Central Excises and Salt Act, 1944 provides that all 7 12th Edition 2010 page 1034-1035) vbc 15 arbp40.08-14.1 rules and notifications issued under the Act shall be published in the Official Gazette.

6. On the above facts, the Supreme Court held that the notification could be said to have been duly published only on 8-12-1982 and was ineffective before that date for proper publication requires publication "in such a manner that persons can, if they are so interested, acquaint themselves with its contents" (Ibid p. 672). This case was followed in Garware Nylons Ltd. v. the Collector of Customs and Central Excise (AIR 1999 SC 844 : ((1998) 8 SCC 282). The view taken in these cases as to when publication of delegated legislation required to be published in the Gazette is complete and the delegated legislation takes effect was likely to create practical difficulties for proving its publication and coming into force.

7. It was not enough according to these cases to produce the relevant Gazette, but it was also necessary to prove the date when the Gazette was offered for sale or circulation. And, if this view of the meaning of publication in the Gazette was correct, the same difficulty would have arisen in proving the commencement of an Act which is required to be published in the Gazette for its coming into force. These cases were later overruled by a three judge bench in Union of India v. M/s.Ganesh Das Bhojraj (AIR 2000 SC 1102 : (2000) 3 SCC 495) which related to publication of a notification amending an earlier notification under section 25(1) of the Customs Act, 1962 which requires publication of a notification in the Official Gazette.

8. The relevant notification dated 4-2-1987 appeared in the Gazette of the same date. It was nobody's case that the Gazette was antedated. The question was whether the notification was operative on 5-2-1987 when the goods were imported. On these facts, it was held by the Supreme Court that the notification was operative from 4-2-1987 when it was printed in the Gazette of the same date and that it was not necessary to prove as to when the Gazette was offered for sale or circulation.

9. This decision thus implies that the date vbc 16 arbp40.08-14.1 of the Gazette, provided it is not antedated, would be the date of publication in the Gazette of all notifications appearing in it. LAHOTI J., however, made a reservation that he was not expressing his opinion on the question as to when such a notification would create criminal liability and that the decision needed to be confined in its application to civil liability and could not be made a rule of universal application.

10. The date on which the notification of the Union Government bringing into force the provisions of clauses (a) and (b) of Section 88 of the Finance Act of 2005 would take effect is the date on which the notification was published in the official gazette. That date is 7 June 2005. On the date on which the First Respondent submitted a bid to the Petitioner, the provisions of the Finance Act of 2005 under which service tax was liable to be paid on the construction of pipelines and conduits had been enforced. Clause 7.d. of the General Conditions of Contract entailed that the contractor accepted full and exclusive liability for the payment of any and all taxes "now or hereafter imposed".

11. Similarly, Clause 8.1 of the Special Conditions of Contract provided that contract prices shall be deemed vbc 17 arbp40.08-14.1 to be inclusive of all taxes, including service tax till the completion of the contract. Clause 8.3 of the Special Conditions of Contract upon which reliance was sought to be placed by the Arbitrator has absolutely no application. Clause 8.3 speaks of statutory variations in taxes and duties.

12. This was evidently not a case of a statutory variation. The Finance Act of 2005 under which service tax was sought to be imposed on the construction of pipeline and conduit had already been enacted by the Parliament and the notification was published in the official gazette on 7 June 2005 bringing into force those provisions with effect from 16 June 2005. Evidently, the First Respondent had itself to blame for not raising the issue of service tax in the pre-bid meeting or even thereafter until 23 November 2005.

13. Clause 8.3 which dealt with a statutory variation during the contractual delivery period was evidently not attracted. This was not a case of a statutory variations. The case of the First Respondent that this was a statutory variation and which was accepted by the Arbitrator rested on the foundation that the notification of the Union Government was made known to the public only on 13 June 2005.

vbc 18 arbp40.08-14.1 Having regard to the well settled position of law laid down by the Supreme Court, the date on which the gazette publication actually became available for circulation to the public is of no relevance whatsoever. In that view of the matter, what is relevant is the date on which the notification bringing into force clauses (a) and (b) of Section 88 of the Finance Act of 2005 was published.

14. For the aforesaid reasons, I am of the view that the Arbitrator had committed a manifest error of law and acted with illegality and perversity in ignoring the position of law which is well settled by the Supreme Court and by misinterpreting the terms of the contract. The Arbitrator has completely ignored the provisions of clause 7.d.1 of the contract under which the contractor accepted full and exclusive liability towards payment of any and all taxes "now or hereafter imposed". The award is hence liable to be set aside under Section 34.

15. For these reasons, the Arbitration Petition would have to be vbc 19 arbp40.08-14.1 allowed and is accordingly allowed. The arbitral award dated 17 September 2007 is set aside. There shall, in the circumstances, be no order as to costs.

Case Reference - Hindustan Petroleum Corporation ... vs Punj Lloyd Ltd. & Anr .