Arbitral Award – Reimbursement of entry tax and increase in toll tax – Contract clauses bar fluctuations in taxes
Judgment dated 17.8.2023 of the Supreme Court of India
On 24.11.2004, the contract between the appellant Kokan Railway and the respondent for construction of a highest railway bridge on Udhampur-Srinagar-Baramulla rail link was executed.
By the agreement dated 28.2.2012, the disputes between the parties were referred to the Standing Arbitral Tribunal.
By the Award dated 15.11.2014, all 35 claims of the respondent against Kokan Railway were rejected. This was confirmed by the learned Single Judge of the High Court of Bombay.
However, the Division Bench allowed the appeal partly, dismissed the claim of Dispute I (Claim No.9) and allowed claims of Disputes III and IV (Claim Nos.12,22 and 28 and Claim Nos.13, 23 and 29, respectively).
By the judgment dated 23.9.2022, the Division Bench re-interpreted the contractual clauses and arrived at a distinct conclusion by applying ejusdem generis principle in clause 5.1.
Dispute III pertains to payment of Rs.1,32,29,771/- for entry tax paid to the JK Government on withdrawal of earlier exemption dated 9.12.2003 of such tax on earth-moving instruments on 25.1.2008 during execution of the contract.
Dispute IV pertains to the reimbursement of Toll Tax of Rs.5,23,279/- on account of its subsequent increase.
Findings of Arbitral Tribunal – Clause 7.1.2 specifically barred cognizance of any fluctuations in taxes for any individual item for making adjustment payments and therefore, reimbursement was not permissible.
HELD – interpreting Price Variation clauses, the Arbitral Tribunal found that clause 7.1.2 specifically barred cognizance of any sort of fluctuations in taxes and other market conditions for any individual item for the purpose of making adjustments in payments. Therefore, claim for recouping increased tax liability for individual or specific items could not be reimbursed under Clauses 7.1.1 and 7.1.2. The contractor was aware of these conditions at the time when the prices were quoted and therefore, the claim could not succeed under Price Variation clauses.
Civil Appeal No.2903 of 2023 – Kokan Railway Corporation Ltd Vs. Chenab Bridge Project Undertaking
