New Delhi, July 9, 2021: The Delhi High Court has upheld the arbitral award in favour of a catering service provider of the Indian Railway Catering and Tourism Corporation (IRCTC) with respect to provision for payment for the welcome drinks supplied and reimbursement of GST on production charges.
A Bench of Justice Sanjeev Narula held that the arbitrator has decided the dispute within the four corners of the contractual provisions, in light of the change in tax regime brought about by the introduction of GST laws.
The case pertains to the sole arbitrator passing an award allowing two claims of the respondent Deepak & Co. (DC), who was the claimant in the arbitration proceedings, viz. (i) payment with respect to welcome drink and (ii) reimbursement of GST on production charges w.e.f Jul 01, 2017.
The Arbitrator held that since welcome drink did not form part of the tender document, IRCTC could not have made any deductions with respect to provisioning of the said service. The Arbitrator further held that IRCTC was to reimburse the GST deposited by Deepak & Co. with the authorities as the same was not included in the rates determined in the tender document.
Challenging the same, the IRCTC had filed an objection against the arbitral award before the District Judge at the Patiala House Court Complex, Delhi. However, as the claim calculated by IRCTC exceeded its pecuniary jurisdiction as per provision of Sec 12(2) of the Commercial Courts Act, 2015, the petition was filed under section 34 of the Arbitration and Conciliation Act, 1996.
The High Court noted that the tender document, which lists out sector-wise services that were required to be provided by a service provider under the tender for a given train, nowhere mentions either that a welcome drink is required to be served by the service provider, or that it is complimentary.
The Bench also found that the policy decision issued by a letter dated February 7, 2017, was a fresh decision taken by the IRCTC after the commencement of the licence period, and not a clarification. It determined, for the first time, the items that were required to be served to the passengers in the form of welcome drink. No document was placed on record by IRCTC to show the earlier position so that it could be inferred what was being done during the departmental operation, prior to unbundling.
The High Court opined that the approval for brands of welcome drink was on a temporary basis, which showed that there was a presumption that the supply of welcome drink was the responsibility of IRCTC, before the policy decision was implemented.
Justice Narula thus stated that it was highly unreasonable conduct on the part of IRCTC to enforce the provision of welcome drink without offering any compensation to the catering service provider. Deepak & Co, when agreeing to supply the welcome drink in letter dated 13th February, 2017, specifically informed and insisted that it will claim the charges for provision of welcome drink in its bills. Therefore, IRCTC cannot claim that Deepak & Co had given its consent to the policy decision dated 07th February, 2017 unconditionally.
It was further noted by the Bench that the contention of the IRCTC that the production charges being ‘inclusive of taxes’ would also encompass GST and/or restrict inclusion of any other tax is thus not in consonance with the terms of the contract. Although service tax has been subsumed in it, GST is nevertheless a new tax, the HC held.
Reiterating that applicability of service tax on production charges is a different plea intertwined with determination of factual position of whether there is an incidence of service in the activity of production or if the nature of service could be held as a composite supply, the High Court upheld the arbitral award.