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Ashoka Cement Ltd. Vs. Union of India - Court Judgment

LegalCrystal Citation
SubjectSales Tax;Arbitration
CourtDelhi High Court
Decided On
Case NumberInterim Application No. 3378 of 1979
Judge
Reported in22(1982)DLT363; 1982(3)DRJ393; 1982RLR629
ActsArbitration Act, 1940 - Sections 34
AppellantAshoka Cement Ltd.
RespondentUnion of India
Advocates: K.K. Jain and; M.C. Sekharan, Advs
Cases ReferredHindustan Sugar Mills v. State of Rajasthan
Excerpt:
.....the court would ordinarily lean towards maintaining the sanctity of contracts and bind the parties to their words. held further that where a pure question of law is involved, the matter/disputes cannot be referred to arbitration, and court should refuse to grant stay of proceedings. - - now, it appears clearly from this judgment that the opinion given by the law department of the government of india was not correct and the statement made on behalf of the government of india that no sales tax will be payable by the assessed on the amount of freight was unjustified. but having regard to the fact that of the union is advised to contest the suits in spite of the strong observations made by highest court, the questions sought to be raised by it, namely, the bar of limitation, as indeed,..........state that the assessed had entered into a large number of transactions of sale of cement with the central government through the director general of supplies and disposals and when the assessed claimed to recover the amount of sales tax in respect of these transactions from the central government on the basis that freight was part of sale price, the director general of supplies and disposals pointed out to the asessee that the law department of the government of india had advised them that freight was not part of 'sale price' within the meaning of the definition of that term and hence no sales tax would be payable by the assessed on the amount of freight and the assessed was, thereforee, not justified in claiming to recover the amount of sales tax from the central government. the.....
Judgment:

H.L. Anand, J.

(1) The Union of india seekstay u/s. 34 of the Arbitration Act of three suits filed under Order 37 of the Code of Civil Procedure against them for recovery of sales-tax livable on the freight component Of sale price for cement supplied under the terms of the Cement Control- Order, 1967 and in accordance with the D.G.S & D.Rate Contract. Plaintiffs -resist the application? for stay on the ground that the claim against the Union is fully reinforced by adecision of the Supreme Court of India in course whereof the highest Court has unequivocally upheld the tight of sellers in identical circumstances to the amount and expressed their sense of deep concern that the Union should have made 'an attempt to resist the claim on the basis of pure technicalities. It is, however, riot disputed that the contract for the supply of material contained an arbitration clause, which is wide enongh in its scope, to take in the dispute between the parties.

(2) It appears that the contracts entered into between' the plaintiffs and the Union provided that sales-tax, if legally leviable,' will be paid in additition to the price. Disputes arose between the parties, if sales-tax was payable,on the elernment of freight and it was agreed between the parties that sales-tax on the freight element of the price would not bepaid but the Union of India would reimburse the plaintiffs the amount of sales-tax on the element of freight in case it was ultimately decided by the Supreme Court that the sales-tax was livable on the freight element of price. An additional clause was accordingly added to the contract being clause 8(vi) to the above effect. In the case of Hindustan Sugar Mills v. State of Rajasthan, : [1979]1SCR276 , it was held by the Supreme Court that by reason of the provisions of the Cement Control Order, the amount of freight formed part of the sale price and was included in the turnover of the assessed. The matter had gone to the Supreme Court on a dispute between some of the cement companies and the State Revenue Authorities. Before parting with the judgment in that case, the Supreme Court was pleased to make the following observations:-

'BEFOREwe part with these appeals we think it necessary to advert to one rather unusual circumstance which has caused some anxiety to us. We were told by the learned counsel appearing on behalf of the assessed and that was not disputed on behalf of the State that the assessed had entered into a large number of transactions of sale of cement with the Central Government through the Director General of Supplies and Disposals and when the assessed claimed to recover the amount of sales tax in respect of these transactions from the Central Government on the basis that freight was part of sale price, the Director General of Supplies and Disposals pointed out to the asessee that the Law Department of the Government of India had advised them that freight was not part of 'sale price' within the meaning of the definition of that term and hence no sales tax would be payable by the assessed on the amount of freight and the assessed was, thereforee, not justified in claiming to recover the amount of sales tax from the Central Government. The assessed, in view of this statement made on behalf of the Central Government, did not press its claim to recover the amount of sales tax on the freight component of the price from the Central Government. Now, it appears clearly from this judgment that the opinion given by the Law Department of the Government of India was not correct and the statement made on behalf of the Government of India that no sales tax will be payable by the assessed on the amount of freight was unjustified. There can be no doubt that this statement misled the assessed into not claiming the amount of sals tax on the freight component of the price from the Central Government. We think that, in the circumstances, fairness and justice demand that the Central Government should pay to the assessed the amount of sales tax on the freight component of the price in respect of transactions of sale of cement entered into by the asseasee with them under the provisions of the Control Order. It is true and we are aware that there i no legal liability on the Central Government to do so, but it must be remembered that we are living in a democratic society governed by the rule of law and every Government which claims to be inspired by ethical and moral values must do what is fair and just to the citizen, regardless of legal technicalities. We hope and trust that the Central Government will not seek to defeat the legitimate claim of the assessed for reimbursement of sales tax on the amount of freight by adopting a legalistic attitude but will do what fairness and justice demand. After all, the motto of every civilised State must be, 'Let right be done'.

(3) It appears that the aforesaid observations were made on the assumption that there was no legal liability on the Central Government to reimburse the assesseds in the cases before it in respect of the amount of sales-tax on the freight component of the price. It was later pointed to the Supreme Court that, in fact, a provision in the Rate Contract provided that the sales-tax, if leviable, will be paid in addition to the price and the Supreme Court was accordingly requested to review the aforesaid observations so as to clarify that in view of the aforesaid clause and even otherwise, the Central Government was bound to pay the amount of sales-tax on the freight component of the price. The Supreme Court accordingly reviewed the aforesaid observations in the review petition : AIR1981SC1681 and while reiterating the observations made earlier, observed thus :-

'WHEREthere is such a clause, the Central Government is bound to pay the amount of sales tax on the freight competent of the price and we hope and trust that the Central Government will honour its legal obligations and not drive the appellant to file a suit for recovery of the amount of such sales tax. We hopefully expect that the Central Government will not try to shirk its legal obligations by resorting to any legal technicalities, for we maintain that in a democratic society governed by the rule of law, it is the duty of the State to do what is fair and just to the citizen and the State should not seek to defeat the legitimate claim of the citizen by adopting a legalistic attitude but should do what fairness and justice demand.'

(4) The claim in the suits thus prima facie appears to be fully reinforced not only by the decision of the Supreme Court with regard to the liability of the freight component of sales-tax but also the strongly worded observations of the Supreme Court as to the propriety of the payment of 'the amount by the Central Government. The suit is, however, neverthfless, sought to be resisted apparently on the grounds that the decision of the Supreme Court was not in the case of the plaintiffs but that of another manufacturer of cement; that the decision had effect on the future liability but not the past liability of the Union; and that the claim was nevertheless, barred by time. It was further urged on behalf of the Union that the observations of the Supreme Court with regard to the course to be adopted by the Union were made in proceedings to which Union was neither a party nor was represented and that it would, thereforee, be open to the Union to contend in the present proceedings, as indeed, before the Arbitiator, that the Union were, nevertheless, not bound to pay and that, in any event, there was no liability to pay unless the plaintiffs had paid the sales-tax or an assessment of sales-tax had been made but not otherwise.

(5) True, the contract contains an arbitration clause and the disputes between the parties are certainly referable to arbitral ion in terms of the clause. The arbitration is a forum of choice and the parties who had made the choice with their eyes open, must be held bound by it and the Court would ordinarily lean towards maintaining the sanctity of contracts and bind the parties to their words. The present cases, however, present features which would justify stay being refused. The disputes between the parlies raise pure questions of Law and the primary question to the liability to pay sales-tax on the freight component of the price has been decided by the Supreme Court. Prima facie the judgment of the Supreme Court, whether between the parties or otherwise, is law under the Constitution. The strongly worded observations of the Supreme Court as to the future course of conduct of the Union appear prima facie to reinforce the claim. The Arbitrator would ordinarily make a reference to this Court of this, as indeed, of other questions of law sought to be raised in defense, and if that he so, there is no point in invoking the arbitration clause. While it is true that the observations of the Supreme Court were made in a case in which the Union was neither a party nor was otherwise represented at the hearing, but even so, they are entitled to the greatest respect. If in spite of these observations, the Union are advised to resist the claims, they may perhaps be within their right to do so, but I am quite sure, in refusing to stay the proceedings in the suits, I would be saving the Arbitrator, who is a law officer of the Union, considerable embarassement, if called upon to rule on the validity of the claim in the circumstances. A reference would not be withheld merely because the Arbitrator happens to be in the employment of one of the parties but in the context in which stay is being refused in the present cases the status of the Arbitrator and his connection with one of the parties ceases to be irrelevant. Moreover, the payments claimed relate to the period prior to 1970 and the suits have also been pending since 1979. Stay of the suits is likely to delay settlement of the claim still further. These arc, thereforee, not fit cases in which the proceedings should be stayed and the parties should be compelled to go before the arbitral forum in the peculiar circumstances of the case.

(6) There is, however, no doubt that any refusal to stay the proceed of a suit under Order 37 is likely to cause prejudice to a defendant because in the corresponding arbitration proceedings such a defendant would have had an unrestricted right to contest the claim while the right to contest the suit would be subject to leave of the court and, thereforee, at judicial sufferings rence. Ordinarily, this would have weighed against refusal of stay of a suit. But having regard to the fact that of the Union is advised to contest the suits in spite of the strong observations made by highest Court, the questions sought to be raised by it, namely, the bar of limitation, as indeed, the question that the right of the plaintiffs even in terms of the Supreme Court Judgment, he construed as a right of reimbursement only if the sales-tax had been paid by the plaintiffs, would perhaps entitle the Union to leave, subject to such conditions as may be reasonable, to defend the suits. The rigour of the law would thereby be largely relived.

(7) For all these reasons, stay is refused and I.A. 3882/79 in Suit No. 1226/79, I.A 3378/79 in Suit No. 1153/79 and I A. 3708/81 in Suit No. 1221/ 79 are dismissed, leaving the parties to bear their respective costs.


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