State
of U.P. & Ors Vs. Bridge & Roof Co.
(India) Ltd. [1996] INSC 982 (20 August 1996)
B.P.
Jeevan Reddy, K.S. Paripoornan B.P. Jeevan Reddy.J,
ACT:
HEAD NOTE:
THE
20TH DAY OF AUGUST, 1996 Present:
Hon'ble
Mr. Justice B.P. Jeeven Reddy Hon'ble Mr.Justice K.S.Paripoornan Rakesh Dwivedi,
Additional Advocate General for the State of U.P., R.B.Misra, Sudhanshu and Kamlendra
Mishra, Advs. for the appellants. A.K.Ganguli, Sr.Adv., Sudhir Chandra, Arvind Varma
and Ms.Suruchi Aggarwal, Advs. with him for the Respondent
The
following Judgment of the Court was delivered:
State
of U.P. & Ors. Vs. Bridge & Roof Company (India) Limited
Leave
granted.
This
Appeal is directed against the judgment of a Division Bench of the Allahabad
High Court disposing of he writ petition filed by the respondent with certain
directions. The arguments before us ranged far and wide and several questions
have been raised though none of them are reflected in the judgment under
appeal. It is averred that all these contentions were indeed urged before the
High Court. Be that as it may, having regard to the importance of the questions
raised herein, which is said to be arising in that Court frequently, it has
become necessary to refer to the contentions urged.
The
respondent - Bridge & Roof Company (India) Limited - is a public sector corporation. It entered into a works
contract with the Government of Uttar Pradesh for rehabilitation and
improvement of a certain stretch of road in Uttar Pradesh. The tender notice
was issued on September
1, 1990. The date of
opening the tenders was specified as December 17, 1990. The tenders were opened and the
respondent's tender was accepted on May 1, 1991. The work has since been completed.
The dispute is only about certain payments which the respondent claims are due
to it whereas the appellant Government of Uttar Pradesh - says that it is
entitled t? retain.
According
to the terms of the contract, the rates quoted by the contractor were deemed to
be inclusive of the sales tax, if any, on the constructional plant, material
and supplies required for the purposes of the contract. The relevant clause
Sub-clause (4-a) of Clause ?8 of the Contract, quoted at Pages 25 and 26 of the
Paper-book] stated in the; alia that "4(a): Nothing in the contract shall
relieve the contractor from the responsibility to pay any Trade Tax that may be
levied under the U.P. Trade Tax Act, 1948 as amended from time to time in
performance of this contract; During pursuance of the contract the engineer in
charge or any other person responsible for making payment to the contractor
shall, at the time of making the payment to the contractor either in cash or in
say other manner, deduct an amount equal to the amount specified in section 8-
D of the aforesaid Act as in force, for the. time being to wards part, or as
the case may be, full satisfaction of the tax payable under the said Act on
account of the contract;
the
amount presently specified in the said section is 4% (four per cent) of the
amount payable to the contractor." Another clause [sub-clause (2) of
Clause 78 quoted at page 24 of the Paperbook] stated that "(2) The
tendered amount by the contractor shall include, all excise duties, custom
duties, import duties, sales tax, and other taxes that may be levied according
to the laws said regulations for the time being in force as on the date 30 days
prior to the closing date for submission of bids in the Employer's country on
the constructional plants, materials and supplies(both permanent, temporary and
consumable) acquired for the purpose of the contract.Nothing in the contract
shall relieve the contractor his responsibilities to pay any tax that may be
levied in the Employer's country on profits made by him in respect of the contract."Clause
70 of the contract provided for process adjustment.It would be sufficient if we
notice sub-clause (4)of said clause (quoted at Page 47 of the Paperbook)- It
reads:(4) If ,after the date thirty day priors to the date of Opening Of
tenders for the work, there in India,changes to any National or state state
ordinance Decree or their Law or any regulation or bye law of any local or
other duly constituted authority or the introduction of any such state other
than under subclause (1a),(2) and (3)of this clause, in the executing of the
works such additional or reduced cost shall be certified by the Engineer after
examining the records provided by the claimant and shall be paid by or credited
to the employer and the contract process adjusted accordingly.
notwithstanding
the foreign input, such additional or reduced cost shall not be separately paid
or credited of the same shall already have been taken into an accounted in the
indexing of any input to the price adjustment Formula in accordance with
sub-clause (1),(2) and (3) of this clause." Section 3 of the U.P.Sales Tax
Act,1948 [the Act]creates the liability to tax at the specified rates on the
turn-over of sales of Purchases, of both,of every dealer.Section 3-F introduced
by U.P.Act 25 of 1985 pursuant to the constitution 46th Amendement Act provides
for rate of tax on the goods used or involved in the execution of a works contract.It
reads:
"[3-F
Rate of tax on the right to use any goods or goods involved in the execution of
a works contract--Notwithstanding anything contained in Section 3-A, or Section
3-AAA, or Section 3-D, 15a.[Words "or Section 3-G", omitted by U.P.Act
28 of 1991, S.6(w.e.f. 19.2.1991) and deemed to have been omitted
(w.e.f.13.9.1985).] the turnover relating to the business of transfer of the
right to use any goods for any purpose or of transfer the property in the goods
[whether as goods or in some other form]15b involved in the execution of a
works contract shall be determined in the manner prescribed and shall be liable
to tax at such rate, not exceeding fifteen per cent, as the State Government
may, by notification, declare, and different rates may be declared for
different goods or different classes of dealers ]" Section 7-D provides
for composition of tax liability.
Subject
to the directions issued by the State Government, the Commissioner of Sales Tax
is empowered to agree to accept a lumpsum in lieu of the amount of tax payable
by the dealer under the Act. It reads:
"[7-D
Composition of tax liability. Notwithstanding anything contained in other
provisions of this Act, but subject to such directions as the State Government
may from time to time issue in that behalf, the Commissioner of SalesTax may
agree to accept a lump sum in lieu of the amount of tax that may be payable by
a dealer in respect of each goods or class of goods and for such period as may
be agreed upon:
Provided
that any change in the rate of tax which may come into force after the date of
such agreement shall have the effect of making a proportionate change in the
lump sum agreed upon in relation to that part of the period of agreement during
which the changed rate remains in force.]" Section 8-D provides for
deduction of tax from the amount payable to works contractors. Sub-section (1)
provides that every person responsible for making payment to any
dealer/contractor shall deduct, at the time of making payment to the
contractor, a sum equal to 4% of the sum mentioned therein. The Proviso to
sub-section (1) inserted by U.P. Amendment Act 28 of 1991, with effect from February 19 1991, empowers the Commissioner to
direct that the deduction provided by sub-section (1) shall be made at Such
lesser rate as may be specified in the order made by him or that no such
deduction shall be made. Section 8-D further provides that the amount so
deducted shall be remitted to the Government and shall be treated as tax paid
by the contractor/dealer. Any failure to deduct the amount as provided by
sub-section (1) makes the person [responsible for deducting] liable to pay the
said amount. He is also liable to pay such penalties as may be imposed for his
failure to deduct and/or remit. It would be appropriate to read sub-section (1)
of Section 8-D alongwith its proviso.
"[8-D,
Tax deduction from the amount payable to works contractor -(1) Notwithstanding
anything contained in sub-section (2) of Section 8-A, every person responsible
for making payment to any dealer (hereinafter in this Section referred to as
the contractor) for discharge of any liability on account of valuable
consideration payable for the transfer of property in goods (whether as goods
or in any other form) in pursuance of a works contract, not being a building
contract of such class or value as may be notified by the State Government in
public interest in this behalf, shall, at the time of making such payment to
the contractor, either in cash or in any other manner, deduct an amount equal
to four per centum of such sum towards part or as the case may be, full
satisfaction of the tax payable under this Act on account of such works
contract:
Provided
that the Commissioner of Sales Tax may, if satisfied that it is expedient in
the public interest so to do and for reasons to be recorded in writings order
that in any case or class of cases no such deduction shall be made or, as the
case may be, such deduction shall be made at a lesser rate." It is stated
before us that pursuant to Section 7-D of the Act the Government devised a
composition scheme on April
5, 1991. It was
amended late on November
20, 1991 .
The
respondent appears to have applied to the Commissioner of Sales Tax, U.P. for
composition of his tax liability under the said contract and for reducing the
rate of deduction of tax at source. This application was made in terms of
section 7-D and the Proviso to Section 8-D (1).
Upon
this application, it is averred, an order of composition was passed. What is
relevant is that the Deputy Commissioner (in exercise of the powers delegated
to him by the Commissioner) ordered [vide his order dated May 27, 1992] that "at the time of payment
of balance amount from the above contract price, the sales tax should be
deducted at the rate of one per cent". A copy of this order was also
communicated to the concerned Superintending Engineer of the P.W.D. It is
admitted case of both the parties that the composition scheme devised by the
Government on 5.4.91 [as amended on 20.11.91] is valid and effective only till
and inclusive of 31st
March, 1995 but not
thereafter.
In
September 1995, the respondent filed C.M.W.P.C 9 No.24837 of 1995 in the
Allahabad High Court with the following prayer:
"(a)
to issue a writ in the nature of Mandamus commanding the respondent No.2
(Superintending Engineer) restraining them from deducting a sum of
Rs.82,24,969/- from the Bill No.44-RA Bill dated 20.5.95/31.7.95 (Annexure-4)
of the petitioner company." After setting out the relevant facts, the
respondent contended in the said writ petition that the proposed deduction of
the sum of Rs.82,24,969/- from the petitioner's bills, purporting to act under
Clause 70(4) of the contract is misconceived and untenable because the rate of
sales tax has not been reduced in the present case as contemplated by Clause
70(4) but that only the rate of deduction at source has been reduced. The
respondent's case was that the change in the rate of deduction at source or the
composition of the respondent's liability to pay tax under Section 7-D is of no
concern to the Government. The Government must deduct only one per cent upto
31.3.1995 as directed in the order dated May 27,-1992 and leave the rest to the
respondent and the Sales Tax authorities. The respondents in the writ petition
(appellants herein) filed a counter disputing the several - contentions raised
in the writ petition and justifying the retention of the sum of Rs.82,24,969/-.
According to appellants,the said amount need not be paid to the sales Tax
Department also. By virtue of the composition agreement between the respondent
and the sales Tax department under section7-D,read with the order of the Deputy
Commissioner under the proviso to section 8-D (1),the tax liability of the
respondent has been reduced with respect to the works contract between them,within
the meaning of clause 70(4) of the contract and, therefore,they submitted, the
benefit of said reduction should go to the Government as provided by the
contract.
The
High court did not deal with the several contentions aforesaid. It disposed of
the writ petition observing that inasmuch as "the commissioner in his
order has accepted the paper for composition as requested by the petitioner and
has directed the deduction of one in lieu of four per cent, (and) only that
amount is to be deducted from the amount required to be paid to the petitioner
under the bill in question and the same will cover the period upto 31st March,1995
and not thereafter and the payment under the bill shall be made
accordingly." The High court then observed that inasmuch as the order of
the commissioner under the Proviso to section 8-D (1) has not been challenged
by the Government, the writ petition is liable to be disposed of with the
direction aforesaid,viz.,that the Government shall deduct only one per cent of
the bill in question upto 31st March, 1995.
Mr. Rakesh
Dwivedi ,learned Additional Advocate General for the State of U.P.,urged the following contentions:- (1) Under the
terms of the contract the tendered amount quoted by the respondent included
sales Tax at 4%. The Government was under a statutory obligation to deduct this
4 per cent and remit the same to the sales Tax Department.The contractor was
entitled only to the remaining 96 per cent of the contact amount since the rate
of tax payable by the respondent-contractor has been reduced to one per cent
from 4 per cent under an order of composition passed under section 7-D, it is a
situation attracting sub-clause (4) of clause 70 of the contract.According to
it the benefit of any reduction in the rate of sales tax shall operate to the
benefit of the Government just as any enhancement in the rate of sales tax
would be a liability upon the Government.
The
Government was,therefore, justified in retaining the said amount of
Rs.82,24,969/-.
(2)
The direction of the high court to deduct only one per cent is a case of
stating the obvious.But that order is being construed by the respondent an
order allowing the writ petition as prayed for. If so understood, the order of
the High court results in unjust enrichment of the respondent at the cost of
public exchequer besides being contrary to the provisions of the statute and
terms of the contract between the parties.
Shri A.K.Ganguli
and Mr.Sudhir Chandra,learned advocates of the respondent, on the other hand,submitted
that the Government is nit concerned with the sales tax liability of the respondent.That
is a matter between the respondent and the sales tax Department.The obligation
of the Government under the contract was only to deduct 4 per cent from the
amount payable to the respondent under the contract.But since the said
obligation to deduct has been reduced from 4 per cent to one per cent by an
order made under the proviso to section 8-D (1) the Government should deduct
only at the rate of one per cent and pay over the balance of the contract
amount rest to the respondent.The Government is not concerned with the order of
composition made under section 7-D (1).What all has happened under the
composition order is that instead of ascertaining the value of the goods
transferred in the execution of the work contract.Counsel say that this has
been done in the interest of simplication of assessment procedure and as a
measure of government policy. This does not result in reduction in the rate of
tax; it is only a convenient and simplified formula for quantifying the tax.Hence,they
submit,thereis no question of the Government getting the benefit of any
reduction in the rate of tax.
In our
opinion, the very remedy adopted by the respondent is misconceived. It is not
entitled to any relief in these proceedings, i.e, in the writ petition filed by
it.The High court appears to be right in not pronouncing upon any of the
several contentions raised in the writ petition by both the parties and in
merely reiteration the effect of the order of the Deputy commissioner made
under the proviso to section 8-D (1).
Firstly,
the contract between the parties is a contract in the realm of private law. It
is governed by the provisions of the contract Act or may be,also by certain
provisions of the sale of Goods Act.Any dispute relating to interpretation of
the terms and conditions of such a contract cannot be agitated, and could not
have been agitated,in a writ petition. That is a matter either for arbitration
as provided by the contract of for Civil court as the case may be. whether any
amount is due to the respondent from the appellant-Government under the
contract and,if so,how much and the further question whether retention or
refusal to pay any amount by the Government is justified, or not are all
matters which cannot be agitated in or adjudicated upon in a writ petition. The
prayer in the writ petition,viz.,to restrain the Government from deducting
particular amount from the writ petitioner's bill(s) was not a prayer which
could be granted by the High court under Article 226.Indeed, the High Court has
not granted the said prayer.
Secondly,
whether there has been a reduction in the statutory liability on account of a
change in law within the meaning of sub-clause (4) of clause 70 of the contract
is again not a matter to be agitated in the writ petition. That is again a
matter relating to interpretition of a term of the contract and should be
agitated before the arbitrator in the civil court,as the case maybe. If any
amount is wrongly withheld by the Government, the remedy of the respondent is
to raise a dispute as provided by the contract or to approach the civil court,
as the case may be according to law. Similarly if the Government says that any
over- payment has been made to the respondent, its remedy also is the same.
Accordingly,
it must be held that the writ petition filed by the respondent for the issuance
of a writ on Mandamus restraining the Government from deducting or withholding
a particular sum, which according to the respondent is payable to it under the
contract, was wholly misconceived and was not maintainable in law [See the
decision of this Court in Assistant Excise Commissioner v.Isaac Peter (1994 (4)
S.C.C.104), where the law on the subject has been discussed fully.] The writ
petition ought to have been dismissed on this ground alone.
We
must mention in this behalf that the order of composition of tax liability, if
any, under Section 7-D of the Act has not been placed before us. [We presume
that it is an order separate from the order dated May 27 1992. But, even if it is not, it makes no difference to what we
were saying hereafter.] Whether such composition agreement results in reduction
of tax liability within the meaning of Clause 70(4) of the Contract is again a
matter concerning the interpretation of a term of the Contract. Accordingly,
the question to whom the benefit of reduction in tax should go' is not a matter
for a writ petition, for the very same reasons as are mentioned hereinbefore.
Now coming to the order made by the Deputy Commissioner under the proviso to
Section 8-D (1) cf the Act, all that it says is that the Government shall
deduct tax at source only at the rate of one per cent instead of at the rate of
4 per cent. The said order-, having been made under the statute, relieves the
government of its obligation to deduct at source at the rate of 4 per cent. In
other words, by virtue of the said order, no action can be taken against the
government [Appellants] for not deducting at the rate of 4 per cent under
Section 8- D. Learned counsel for the respondent contend that the order under
the proviso to Section 8-D(1) does not determine the tax liability of the
respondent, which liability, they say, will be determined only in the
assessment proceedings. May be they are right or may be, not. We need not
express any opinion on these submissions because, as already pointed out
hereinabove, the said question depends upon the interpretation of the terms of
the contract between the parties. Just because the interpretation of orders
made under Section 7-D or Section 8-D(1) may also fall for consideration while
construing the terms of the contract does not convert the controversy into a
public law issue. It is yet a matter within the realm of private law and,
therefore, outside the purview of the writ petition. The Arbitrator under the
contract or the civil court, as the case may be - can go into and decide both
questions of fact as well as questions of law.
There
is yet another substantial reason for not entertaining the writ petition. The
contract in question contains a clause providing inter a1ia for settlement of
disputes by reference to arbitration [Clause 67 of the Contract]. The
Arbitrators can decide both questions of fact as well as questions of law. When
the contract itself provides for a mode of settlement of disputes arising from
the contract, there is no reason why the parties should not follow and adopt
that remedy and invoke the extra-ordinary jurisdiction of the High Court under
Article 226. Tree existence of an effective alternative remedy - in this case,
provided in the contract itself - is a good ground for the court to decline to
exercise its extra-ordinary jurisdiction under Article 226. The said Article
wag not meant to supplant the existing remedies at law but only to supplement
them in certain well-recognised situations. As pointed out above, the prayer
for issuance of a writ of mandamus wastes wholly misconceived in this case
since the respondent was not seeking to enforce any statutory right of theirs
nor was it seeking to enforce any statutory obligation cast upon the
appellants. Indeed, the very resort to Article 226 - whether for issuance of
mandamus or any other writ, order or direction - was misconceived for the reasons
mentioned supra.
So far
as the High Court's direction to deduct at the rate of one percent is
concerned, it may be case of stating the obvious, as contended by the
appellants. But it must also be realised that more than that could not have
been legitimately granted in a writ petition. It must also be noticed that the
declaration granted is effective only for a limited period, i.e., March 31, 1995. It does not apply to payments made
on or after April 1,
1995, What does it
mean in the facts and circumstances of the case, we do not know.
Whatever
it means, it cannot certainly be construed as a direction to the appellants to
pay over the said sum of Rs.82,24,969/- to the respondent as claimed by it or
as upholding the basis of the respondent's claim put forward in the writ
petition.
Before
parting with this appeal, we must mention that counsel for both the parties
have urged several other contentions of fact and law and relied upon several
other clauses of the Contract apart from those mentioned supra. We have not set
them out herein because, in our opinion, they are outside the ken of a writ
petition. It shall be open to the parties to urge and rely upon them at the
proper stage and before the appropriate forum.
For
the reasons mentioned hereinabove, the appeal is dismissed subject to the
observations and clarifications aforementioned. It shall be open to he
respondent, if it so chooses, to either raise a dispute and ask for reference
of the dispute to arbitration as provide by the contract or to approach the
civil court according to law, as the case may be, in the circumstances of the
case there shall be no order as to costs.
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