 | Arms length price for subsidiary company of a foreign based company established for supporting marketing for holding company |
| Posted on 25 September 2012 by Apurba Ghosh | ||||||||||||||||||||||||||||||||||||||||
CourtINCOME TAX APPELLATE TRIBUNAL BriefThe facts in brief: The assessee M/sVerizon (India) P.Ltd. is a wholly owned Subsidiary of MCI WorldCom Asia P.Ltd. (hereinafter referred to as MCI), a Hongkong based Private Limited Company. The Holding Company MCI WorldCom Asia P.Ltd. is a preeminent global communication company for the digital generation, operating in more than 65 countries with 2000 revenues of approximately 540 billion. WorldCom provides the innovative technologies and services which primarily include high quality, long distance, internet data and international communication services across a seamless global telecom network. The company has established itself as a local network facilities based competitor in more than 21 countries throughout Europe, North and South America and the Asia-Pacific region. CitationDy.CIT, Circle 17(1) Room 221, C.R.bldg. New Delhi (Appellant) Vs. M/s MCI Com India P.Ltd. (Now known as Verizon India P.Ltd.) C-56, Neetibagh New Delhi 110 049(Respondent) Judgement IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES: "H" New Delhi BEFORE SHRI A.D.JAIN, JUDICIAL MEMBER AND SHRI J.SUDHAKAR REDDY, ACCOUNTANT MEMBER ITA No: 4187/Del/2010 A.Y.: - 2004-05 Dy.CIT, Circle 17(1) Room 221, C.R.bldg. New Delhi (Appellant) Vs. M/s MCI Com India P.Ltd. (Now known as Verizon India P.Ltd.) C-56, Neetibagh New Delhi 110 049 (Respondent) C.O. 341/Del/2010 (In ITA No: 4187/Del/2010) A.Y.: - 2004-05 M/s MCI Com India P.Ltd. New Delhi (Appellant) Vs. DCIT, Circle 17(1) New Delhi (Respondent) ITA No: 2766/Del/2010 A.Y. : - 2005-06 JCIT, Circle 17(1) New Delhi (Appellant) Vs. M/s Verizon India P.Ltd. New Delhi (Respondent) C.O. 218/Del/2011 (In ITA No: 2766/Del/2010) A.Y.: - 2005-06 M/s Verizon India P.Ltd. New Delhi (Appellant) vs. JCIT, Circle 17(1) New Delhi (Respondent) Assessee by: N.Venkatram, Sr.Adv.Ms.Sikha Gupta & Sh.Rohit Tiwari, C.As Department by: Shri J.S.Ahalwat, Sr.D.R.Shri O R D E R PER J.SUDHAKAR REDDY, ACCOUNTANT MEMBER Both these appeals are filed by the Revenue and are directed against separate orders of the CITA)-XX, New Delhi dt. 30.6.2010 for the Assessment Year 2004-05 and dt. 24.3.2011 for the Assessment Year 2005-06. The Cross Objections are filed by the assessee. As the issues arising in these appeals as well as the Cross Objections are identical, for the sake of convenience they are heard together and disposed of by way of this common order. 2. The facts in brief: The assessee M/sVerizon (India) P.Ltd. is a wholly owned Subsidiary of MCI WorldCom Asia P.Ltd. (hereinafter referred to as MCI), a Hongkong based Private Limited Company. The Holding Company MCI WorldCom Asia P.Ltd. is a preeminent global communication company for the digital generation, operating in more than 65 countries with 2000 revenues of approximately 540 billion. WorldCom provides the innovative technologies and services which primarily include high quality, long distance, internet data and international communication services across a seamless global telecom network. The company has established itself as a local network facilities based competitor in more than 21 countries throughout Europe, North and South America and the Asia-Pacific region. 3. The assessee company was established with an objective of rendering marketing support services to the parent company. The services provided are as follows: (a) market development; (b) providing information on potential customers; (c) liaisoning with potential customers for disseminating information regarding the products of the associated enterprises (AE's) and for obtaining feedback from potential customers; and (d) exploring new service lines/ventures for AEs in India. The assessee was compensated for all its costs, plus a pre-agreed markup thereon. During the year the assessee entered into the following international transactions with the AE's.
. 4. The assessee carried out the Transfer Pricing (TP) analysis and chose Transactional Net Margin Method (TNMM) as the most appropriate method. Operating profit margins (OP/total cost) was used as the profit level indicator (PLI). In the T.P. study the assessee relied upon 11 comparables for the purpose of Bench Marking. It arrived at an Arithmetical Mean of 7.73%. As operating profit margin/total cost of the assessee was 6.59% and as it falls within + 5% range of the Arithmetical Mean of the operating profit margin/total cost of the 11 comparables which was 7.73%, the international transactions of the assessee with its group companies were shown as at arm's length. 5. The assessee filed its return of income on 11.5.2005 along with the Tax Audit Report and Report u/s 92E in Form No.3CB. The Assessing Officer made a reference to the T.P.O. for determining the "arm's length" price u/s 92CA(3) in respect of the international transactions entered into by the assessee. 6. The Transfer Pricing Officer (TPO) accepted the submission of the assessee that TNMM method is the most appropriate method. The PLI made by the assessee was also accepted. The assessee has utilized the data of 3 years and computed the PLI by taking Weighted Average of the 3 years. 7. The T.P.O. was of the view that for analyzing comparability of uncontrolled transaction with international transaction data for the year other than the year in which international transactions have been entered into has to be taken into account and the existence of exceptional circumstances as enjoined upon by the Proviso, the comparability does not conform to the provisions and hence a show cause notice was served on the assessee. The assessee filed his reply supporting use of multiple year data. It opposed the using of data of only the F.Y. 2003-04. Without prejudice it submitted that if the data pertaining to 2003-04 only is used, a fresh opportunity must be provided to carry out a fresh search and identify additional comparables. The T.P.O. rejected the contentions of the assessee by holding as follows. "6.3. The submissions of the assessee have been duly considered. I do not find any merit in the submissions of the assessee for the following reasons: i) Sub-rule 4 of Rule 10B in unequivocal terms provides for use of data pertaining to the year in which the international transaction has been entered into; ii) Use of multiple year data is permissible by virtue of Proviso to the said rule; iii) Proviso is applicable only when the pre-conditions laid down in the Proviso are met; iv) The facts contained in the prior year's data which could have an influence on the determination of transfer price in relation to the international transactions have neither been identified nor considered; v) The facts making it inevitable to take recourse to the Proviso rather than to the main provisions are not discernible in the instant case even after a diligent study of all the aspects and circumstances of the case as are available on record." He concluded that in the absence of existence of any exceptional circumstances necessitating recourse to the Proviso to Sub Rule 4(4) having been demonstrated, use of multiple year data has no sanction of law. Thus he considered data for the year 2004 only. The assessee had provided financial data for the Assessment Year 2003-04 in Annexure-I in his alternative submissions, wherever such data was not earlier given. 8. The assessee had filed a list of 18 comparables with stand alone margin computed for the Assessment Year 2003-04. As in the case of 4 comparables i.e. Esquire Engineers and Consultants Ltd; Gilcon Project Services Ltd., Powerplant Performance Improvement Ltd., NIS Sparta Ltd., the T.P.O. found that financial data was not available and hence these comparables were excluded. Similarly in the case of Water & Power Consultancy Services Ltd., as data was not available, the comparable was not considered. Thus 5 comparables were excluded. 9. The T.P.O. also observed that the last included 7 new comparables, as compared to the list of comparables in the original T.P. study. Out of this 7, the TPO found that in the original T.P.study, the assessee had considered 6 of these 7 comparables and rejected the same. The list is extracted for ready reference. Para 7.4 on page 10 TPO order "7.4. A perusal of the except reject matrix filed as Annexure 2 of the TP documents reveals that 6 of these comparables were also considered at that time too and were rejected for the following reasons: CRISI Limited - Non Comparable services Educational Consultants - Insufficient descriptive information ICRA Limited - Non comparable services KITCO Limited - Experiences persistent operating losses Mahindra Acres Consulting Engineers Ltd. - Experiences persistent operating losses Tata Share Registry - Non comparable services. At para 7.5 the TPO observed as follows:- "7.5. A very strange behaviour has been exhibited by the assessee. Does it want to say that the FAR study undertaken by it at the time of preparing the TP documents was non compes mentis or it tantamount to superssio veri. The alter selection of the comparables is not objective. No FAR study has been undertaken. When these comparables were duly not considered by the assessee how they have become comparable all of a sudden. The discernable fact is that the net operating margins of these new comparables are in the negative ranging from -34.60% in the case of Tata Share Registry to 0.01%.in the case of Mahindra Acres. Only one of the comparable namely Educational Consultant has an operating margin of 4.64%. Since the only motive of the assessee in the comparables filed later is to somehow adjust the average PLI to its own level, the same cannot be accepted. In its desperation to adjust the Arm's Length PLI to its own level the assessee has forgotten the fact that these alleged comparables have already been considered and rejected by it for specific reasons. Thereafter at para 7.6 the TPO concluded as follows. "7.6. In the circumstances the final set of comparables and consequent arm's length PLI is computed by taking the comparables which were selected by the assessee in original TP study after undertaking FAR study. The arm's length PLI is computed in the following.
10. Aggrieved the assessee carried the matter in appeal. 11. Before the First appellate authority the assessee did not dispute the exclusion of comparables furnished by it by the TPO. It contended that 4 of the comparables selected by it and accepted by the TPO have to be excluded for the reason that they are not functionally comparable. These 4 entities are : Engineers India Ltd., RITES Ltd., TCE Consulting Engineers Ltd. And Water & Power Consultancy Services Ltd. 12. The First Appellate Authority framed the following questions from the grounds of appeal filed before her. (i) Whether the reference made by the Assessing Officer to the T.P.O. mechanically is bad in law making the TPO;s order voidab- initio (ground 4 and 5); (ii) Whether the mechanical acceptance of TPO;s recommendation by the AO makes the assessment order bad in law (Ground 5 and 6); (iii) Whether the TPO was justified in considering the current year data(ground 7.1); (iv) Whether the comparables selected in the order of the TPO are functionally non-comparable to the appellant." 13. The First Appellate Authority answered the first 3 questions in favour of the Revenue. The 4th question was held in favour of the assessee. The Revenue filed an appeal on the 4th issue on the following grounds. "The Ld.CIT(A) has erred in facts and in law by granting relief of Rs.54,44,164/- out of addition of Rs.88,83,674/- on account of arm's length price by: i. Wrongly holding that out of the seven companies chosen by the TPO as functionally comparable to the assessee company, only three companies were functionally comparable and the remaining four companies were functionally non-comparable. ii. Ignoring the observation in the order u/s 92(A)(3) that the final set of seven comparables chosen by the TPO were the same comparables selected by the assessee itself in the original FAR/TP report. iii. By wrongly taking the arm's length average OP/TC at 11.73% on the basis of only three comparables instead of 19.92% as computed by the TPO on the basis of seven comparables. iv. Wrongly accepting that the assessee's operating means margin of 6.59% tell within +/- 5% of the arithmetic means of the comparable price and thereby holding the assessee's international transactions with the Associated Enterprises to be at arm's length. 14. The assessee filed Cross Objections on the following grounds. "1. That the ld.CIT(A)-XV, New Delhi erred in not holding the order passed by the ld.ACIT, Circle 17(1) as being contrary to the facts, law and the principles of natural justice. 2. That the Commissioner of Income Tax (Appeals) erred in law in not holding that the Assessing Officer did not meet the preconditions for making reference to the TPO u/s 92CA(1) of the Income Tax Act, 1961 and in not providing the respondent an opportunity of 'being heard' before referring the transfer pricing issues to the TPO. 3. That the Commissioner of Income Tax (Appeals) erred in law and on facts in not accounting for differences in risks assumed by the respondent vis-Ã -vis comparable companies, while determining the arm's length price for its international transaction. 4. That the Commissioner of Income Tax (Appeals) erred on facts and in law in upholding the TPO's approach of using data beyond the due data despite the fact that such data was not available to the respondent at the time of preparing its T.P.documentation and maintaining such documentation by the required due date. 6. That the Commissioner of Income Tax (Appeals) did not adjudicate on whether the TPO has erred in not providing the benefit of the arm's length range as provided under proviso to s.92C of the Income Tax Act, 1961 for purposes of computing the arm's length price u/s 92F of the Income Tax Act, 1961. 7. That the Commissioner of Income Tax (Appeals) erred on facts and circumstances of the case in dismissing the ground taken by the respondent that initiating penalty proceedings under explanation 1 and explanation 7 to s.271(1)(c ) of the Income Tax Act, 1961 against the respondent, is not in accordance with applicable law. 8. That the above cross objections are mutually exclusive and without prejudice to each other. 9. That the respondent craves leave to add, alter, amend and/or modify any of the cross objections either before or during the course of the appellate proceedings." 15. The Ld.Departmental Representative Mr.J.S.Halwat submitted that the parent company MCI WorldCom Asia Pacific Ltd. (MCI) is a high technical company with global eminence. He referred to the profile of the company and submitted that MCI deals with innovative technology and services which primarily include high quality internet data and communication net works and services and submitted that provision of services by the Subsidiary Indian Company includes rendering of high technical engineering consultancy services. Thus he submits that the Commissioner of Income Tax (Appeals) was at error in holding that the 4 comparables selected by the assessee and accepted by the TPO, are not functionally comparable. He emphasized the fact that, it was the company in its T.P.Report, made a functional analysis of the comparables and has come to a conclusion that these 4 companies are comparable. He submitted that the assessee had raised objections before the Commissioner of Income Tax (Appeals) on its own findings and the Commissioner of Income Tax (Appeals) was in error in attempting such grounds and thereafter adjudicating the issue in its favour. He relied on the assessee's analysis in the T.P. study as well as the order of the TPO and submitted the assessee cannot aprobate and reprobate. 16. Ld.Counsel for the assessee Mr.N.Venkatraman, Sr.Advocate on the other hand submitted that the assessee cannot be estopped from pleading before the First Appellate authority that the comparables chosen were wrong. He relied on the following case laws. i. Sony India P.Ltd. 114 ITD 448' ii. Metagraphs Noida P.Ltd. vs DCIT ITA 1969/Del/2006(2007)-TII- 02-ITAT-Del-TP 17. On merits he relied on the submissions made by the assessee before the Commissioner of Income Tax (Appeals) and the conclusions drawn by the Commissioner of Income Tax (Appeals) and argued that the Revenue nowhere pointed out any infirmity in the findings of the Commissioner of Income Tax (Appeals) that these 4 comparables are functionally different from that of the assesse. 18. Both the parties submitted that for the Assessment Year 2005-06 the T.P.O. as well as the Commissioner of Income Tax (Appeals) relied on their findings for the Assessment Year 2004-05 and hence the arguments are the same. 19. Rival contentions heard. On a careful consideration of the arguments of both parties and on a perusal of the papers on record and the orders of the authorities below as well as the case laws cited, we hold as follows. 20. The sole issue that arises for our adjudication is whether the Commissioner of Income Tax (Appeals) was right in excluding 4 comparables chosen by the assessee in its T.P.study and accepted by the T.P.O in his order, or the ground that there is no functionally comparability between the functions of these comparables and the functions of the assessee company. The first ;aspect is whether the assessee is estopped from pleading before the First Appellate Authority that the comparables taken by it are wrong. 21. In the T.P.study the assessee's description of business of the comparable companies was as follows. Engineers India Ltd. Engineers India Ltd. was established in 1965 and is engaged in provision of engineering and related technical services for petroleum refineries and other industrial projects. The company has diversified into other fields such as pipelines, petrochemicals, oil and gas processing, offshore structures and platforms, fertilizers, metallurgy and power. ElL now provides a complete range of project services in these fields and has emerged as Asia's leading design and engineering company. Services provided by the company include feasibility studies, project management, planning and scheduling, cost engineering, process & equipment design, detailed engineering, procurement & construction management, materials & maintenance services. RITES Limited RITES is an internationally recognized leading consultant with operational experience of over 50 countries in Africa, South East Asia, Middle East and Latin America. Most of the company's foreign assignments are for national governments and other apex organizations. In India, their clients range from state governments, public sector undertakings and corporations to industrial establishments and private enterprises. The company provides services such as pre-project planning involving project identification, feasibility studies and project appraisal, project support activities comprising surveys, environmental impact assessment, geo-technical and other investigations, project preparation activities of detailed engineering, design, tender documentation, bid evaluations and economic and financial evaluations. TCE Consulting Engineers Ltd. TCE Consulting Engineers Ltd., a Tata Group company is engaged in the provision of engineering services such as operation and design engineering, upgradation and renovation services, survey and filed investigation services etc. Water and Power Consultancy Services (India) Ltd. (WAPCOS) WAPCOS provides consulting in the domestic and international water and power sectors. Services offered include market intelligence, feasibility studies, planning/project formulation, field investigations and testing, engineering design, contract management, quality assurance & management and human resource development. Apart from the Indian sub-continent, WAPCOS renders consultancy services in over 30 developing countries. 22. In its contentions before the Commissioner of Income Tax (Appeals) the assessee argued that these 4 comparable companies are not functionally comparable for the following reasons. Functionally not comparable Engineers India Ltd. Engineers India Ltd. was established in 1965 and is engaged in provision of engineering and related technical services for petroleum refineries and other industrial projects. The company has diversified into other fields such as pipelines, petrochemicals, oil and gas processing, offshore structures and platforms, fertilizers, metallurgy and power. ElL now provides a complete range of project services in these fields and has emerged as Asia's leading design and engineering company. Services provided by the company include feasibility studies, project management, planning and scheduling, cost engineering, process & equipment design, detailed engineering, procurement & construction management, materials & maintenance services. During F.Y. 2003-04, the company has earned approximately 26.68 per cent of its revenue from consultancy and engineering projects and remaining from lumpsum turnkey projects. As per the information available in the Annual Report for FY 2003-04, the refinery sector continued to play a significant role in EIL's business. During the year the company undertook a major refinery project in Hydrotreating at Digboi. Further, the work on the Rs.3,500 crores Panipat Refinery Expans;ion Project and Green Fuels Project of HPCL, Mumbai progressed well. In overseas, EIL achieved a major 'break-through' by bagging fEED for prestigious Inter Refineries Pipelines (IRP) Project of RAKREER (ADNOC Group Company), Abu Dhabi. Currently company is providing consultancy services for number of assignments including engineering services for Asab and Sahil Oil Facilities Modification Project of ADCO, Abu Dhabi, Engineering Review and Supervision Services Contractor. RITES is an internationally recognized leading consultant with operational experience of over 50 countries in Africa, South East Asia, Middle East and Latin America. Most of the company's foreign assignments are for national governments and other apex organizations. In India, their clients range from state governments, public sector undertakings and corporations to industrial establishments and private enterprises. The company provides services such as pre-project planning involving project identification, feasibility studies and project appraisal, project support activities comprising surveys, environmental impact assessment, geo-technical and other investigations, project preparation activities of detailed engineering, design, tender documentation, bid evaluations and economic and financial evaluations. The Company is primarily a consultancy organisation rendering consultancy services in all facets of transportation. Major areas of operations are:- Consultancy services Export of rolling stock, equipment and spares Leasing of railway rolling stock and equipment Further, the company renders its services in the fields of engineering design, construction and project management for railway tracks and electrifications together with traffic and software consultancy assignments. As per the Annual Report for FY 2003-04, RITES has rendered services to Ethiopia, Uganda, Tanzania, Botswana, Sudan and Mozambique. The company also continued rendering advisory and management services to Fenoco the concessionaire for Atlantic part of railways in Colombia. Water and Power Consultancy Services (India) Ltd. (WAPCOS) WAPCOS provides consulting in the domestic and internationwal water and power sectors. Services offered include market intelligence, feasibility studies, planning/project formulation, field investigations and testing, engineering design, contract management, quality assurance & management and human resource development. The company has identified its business activity into two business segment i. e. Consultancy & Engineering projects and Lump Sum Turnkey projects (As per the Annual Report for financial year 2003-04). WAPCOS has been providing consultancy services in all facets of Water Resources, Power and Infrastructure Sectors in India and Abroad. "Main fields of the company cover Irrigation, Water Management, Drainage, Ground Water Exploration, Development, Flood Control, Reclamation and River Management, Dam and Reservoir, Power Engineering; Hydro Power Generation; Agricultural Development; Waterways; Systems Studies and Information Technology, Human Resources Development. WAPCOS has also been venturing into newer fields such as Software Development, City Development Plans, Financial Management System, Technical Education, Quality Control and Construction Supervision, Roads & Bridges. " TCE TCE is engaged in the provision of engineering services such as operation and design engineering, up gradation & renovation services, survey & field investigation services, etc. The Annual Report of TCE for the FY 2003-04 highlights the key projects won by the company during the year which includes, The 2 x 20 MW captive co-generation power plant of Chennai Petroleum Corporation Limited, for which TCE provided detailed engineering was commissioned TCE is also providing project management consultancy to Chennai Petroleum Corporation Limited for the expansion of their plant by addition of a new 20 MW gas turbine with associated heat recovery steam generator. ITC is developing a 16 MW coal based co-generation plant for process steam and power, for which TCE is providing detailed engineering services. While the boiler has been commissioned, the erection of the turbine is in progress. Phase I of the 24.5 MW captive power plant of Hindalco Industries Limited was successfully commissioned. Detailed engineering services are being provided for the 1x60 MW unit Phase III expansion. All these projects are core engineering projects of domestic as well international repute which stress on the fact that TCE is an ;engineering consultancy provider engaged in high end engineering projects. TCE operates under a single reportable business segment, namely:Engineering Consultancy Services. Your Honour would appreciate that the above mentioned companies are primarily engaged in providing engineering consultancy and undertake turnkey contracts on a regular basis. The inherent factors of this industry i.e. marketing strategies, competitive edge, level of technological development, operational efficiency, competence and effectiveness of management, cash flow trends and potential, liquidity, financial flexibility, government policies, sensitivity to possible changes in business/economic circumstances affect the functioning of these companies. As is evident from the description of the engineering consultancy activity, given the complexity of the function coupled with the technical expertise required in providing engineering consultancy, the same activity cannot be considered comparable to function of providing marketing support services due to functional differences, differences in industry and difference in market dynamics. The services provided by the Appellant are functionally different vis-Ã -vis the business operations of TIL, RITES, WAPCOS and TCE. High Risk bearers As supported by OECD guidelines also, functional comparability of the companies will have to be considered in conjunction with the risk and return profile of the companies being selected for determining arm's length price. Risk and return profile of the companies engaged in similar industry is likely to be same and this provides a good approximation to judge whether or not a company can be considered as comparable. ElL, RITES, WAPCOS and TCE operate in engineering consultancy industry, the risks and returns vary significantly from those of the marketing support services company operating on a cost plus model. Moreover, engineering consultancy being a high risk activity, the returns from such business shall be comparatively higher to the routine marketing activities of the Appel/ant. The business dynamics of the industry are such that companies engaged in engineering consultancy are prone to high liability in case of any failure to implement, design and complete projects in time. Hence, such companies are by its nature of business exposed to higher risks. The high risk profiles of ElL, RITES, WAPCOS and TCE, render the company's financial results non-comparable to the margins earned by the Appellant from its marketing support activities. Therefore, ElL, RITES, WAPCOS and TCE cannot be considered as comparable to the Appellant. A copy of the relevant extracts of the Annual Reports of ElL, RITES, WAPCOS and TCE is enclosed with this." 23. A perusal of the above demonstrates that the assessee has not conducted a proper T.P.study and has wrongly chosen these 4 comparables. When on facts, we are of the opinion that the T.P.study wherein these 4 comparables taken were wrong as apparently there is no functional comparability, we cannot approve such T.P.study, even if the T.P.O. has accepted it. Wrong facts have to be corrected. There can be no estoppel in such factual situation. The Ld.CIT(A) has the power to accept fresh claim of the assessee. Marketing support services cannot be compared with turn key Engineering services. We agree with the view of the First Appellate Authority that EIL, Rites, Wapsos and TCE are engineering companies and provide end-to-end solutions and whereas the assessee company provides marketing support services to the parent company, which is in the nature of support service and hence not functionally comparable. She rightly concluded that the risk profile is vastly different and hence on this count also they are not comparable. This factual conclusions are not disputed by the Ld.D.R. 24. On these facts we find no infirmity in the Commissioner of Income Tax (Appeals) admitting a ground by the assessee, wherein it argued that the comparables selected by it in theT.P. return are erroneous. 25. Coming to the case laws on the matter, in the case of Quark Systems Rolling (supra) the Chandigarh Special Bench of the Triobunal held that the assessee is not estopped from pointing out a mistake in the assessment, for such mistake is the result of evidence adduced by the tax payer. In this case also the assessee has demonstrated that prima facie there is a mistake in its taking all these comparables. Thus on both counts we uphold the findings of the Commissioner of Income Tax (Appeals). 26. Both the parties have not argued ground no.4 in the Revenue's appeal. Nevertheless in view of the retrospective amendment to S.92 C, we set aside the issue to the file of the Ld.CIT(A) for fresh adjudication. 27. In the result both the appeals of the Revenue are dismissed. 28. Coming to the C.O. the ld.Sr.Advocate submitted that these are in support of the order of the Commissioner of Income Tax (Appeals) and the assessee does not wish to press the Cross Objections. In view of the above submission, we dismiss both the Cross Objections filed by the assessee as 'not pressed'. 29. In the result both the Revenue's appeals and the Cross Objections filed by the assessee are dismissed. Order pronounced in the Open Court on 30th August, 2012. Sd/- Sd/- (A.D.JAIN) (J.SUDHAKAR REDDY) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: the 30th August, 2012 *manga Copy of the Order forwarded to: 1. Appellant; 2. Respondent; 3. CIT; 4. CIT(A); 5. DR; 6. Guard File By Order Dy. Registrar // C O P Y // 1. Date of Dictation: 2. Draft placed before the Author on: 3. Draft proposed and placed before Second Member on: 4. Draft discussed/approved by the Second Member on: 5. Approved draft came to Sr.P.S. on: 6. Date of Pronouncement: 7. File sent to Bench Clerk on: 8. Date on which file given to Head Clerk on: 9. Date of dispatching the Order on: | ||||||||||||||||||||||||||||||||||||||||
| | Power of state govt. to grant exemption from CST subject to fulfill the condition under section 8(4) should not contrary to section 8(5) |
| Posted on 25 September 2012 by Apurba Ghosh | |
CourtHIGH COURT OF BOMBAY BriefBy the aforesaid three trade circulars, the Commissioner has informed the trade that under Section 8(5) of the Central Sales Tax Act, 1956( 'CST Act' for short) as amended by Finance Act 2002 with effect from 11th May 2002, the State Governments are empowered to grant exemption only in respect of interstate sales to the registered dealers or to the Government covered under Section 8(1) of the CST Act unless such sales are supported by declarations in form 'C' or 'D' respectively as provided under Section 8(4) of the CST Act. By the said circulars, the traders are further informed that as a result of the amendment, any Notification issued under Section 8(5) of the CST Act prior to 11th May 2002, which is contrary to the amended Section 8(5) shall stands amended accordingly. In other words, according to the Commissioner, Section 8(5) of the CST Act as amended by the Finance Act 2002 restricts the power of the State Government to grant exemption from payment of tax in respect of sales of goods covered under Section 8(1) subject to fulfilling the conditions of Section 8(4) of the CST Act and, therefore, any Notifications issued to the contrary under Section 8(5) as it stood prior to its amendment by Finance Act 2002 shall stand modified to that extent so that, on amendment of Section 8(5), tax becomes payable in respect of sales which are not covered under Section 8(1) of the CST Act. CitationPrism Cement Limited, (formerly known as H & R Johnson (India) Limited) A Public Limited Company incorporated under the Companies Act, 1956 and having its registered office at 305, Laxmi Niwas Apartments, Ameerpet, Hyderabad – 560 016, Andhra Pradesh, and having eligible unit at Village Gadab, Taluka Pen, District: Raigad. 2. Akshay Raheja, Age about 27 yrs., Shareholder / director of the petitioner No.1 r/at Rahejas, 7th Floor, Corner of Main Avenue & V.P. Road, Santacruz (W), Mumbai – 400 054 …..Petitioners Versus 1. State of Maharashtra, Finance Department, 3rd Floor, Mantralay, Mumbai – 400 032. 2. Commissioner of Sales Tax, Maharashtra State, 8th Floor, Vikrikar Bhavan, Mazgaon, Mumbai – 400 010. 3. Joint Commissioner of Sales Tax (Prof. Tax) Thane Zone, Thane Sales Tax Office, 3rd Floor, Collector Office Compound, Court Naka, Thane (W) 400 601 4. Assistant Commissioner of Sales Tax, (Ass) B195 Raigad, Navi Mumbai. Judgement IN THE HIGH COURT OF JUDICATURE AT BOMBAY CIVIL APPELLATE JURISDICTION WRIT PETITION NO.6475 OF 2009 1. Prism Cement Limited, (formerly known as H & R Johnson (India) Limited) A Public Limited Company incorporated under the Companies Act, 1956 and having its registered office at 305, Laxmi Niwas Apartments, Ameerpet, Hyderabad – 560 016, Andhra Pradesh, and having eligible unit at Village Gadab, Taluka Pen, District: Raigad. 2. Akshay Raheja, Age about 27 yrs., Shareholder / director of the petitioner No.1 r/at Rahejas, 7th Floor, Corner of Main Avenue & V.P. Road, Santacruz (W), Mumbai – 400 054 …..Petitioners Versus 1. State of Maharashtra, Finance Department, 3rd Floor, Mantralay, Mumbai – 400 032. 2. Commissioner of Sales Tax, Maharashtra State, 8th Floor, Vikrikar Bhavan, Mazgaon, Mumbai – 400 010. 3. Joint Commissioner of Sales Tax (Prof. Tax) Thane Zone, Thane Sales Tax Office, 3rd Floor, Collector Office Compound, Court Naka, Thane (W) 400 601 4. Assistant Commissioner of Sales Tax, (Ass) B195 Raigad, Navi Mumbai. 5. Director of Industries, Maharashtra State, New Administrative Building, Opp. Mantralaya, Mumbai – 400 032 6. The Union of India, through Ministry of Finance, Department of Revenue, North Block, New Delhi – 110 001 …..Respondents. Mr.V Shridharan, Senior Advocate with Mr.Prakash Shah & Mr.Jas Sanghvi i/by PDS Legal for the petitioners. Mr.E P Bharucha, Senior Advocate with Mr.V A Sonpal, AGP for respondent Nos.1 to 4. Mr.A J Rana, Senior Advocate with Mr.Girish S Kulkarni with Mr.Rajendra Kumar for respondent No.6. Mr.G S Jetly and Mr.D B Shroff, senior Advocates with Mr.Karl Shroff, Mr.P C Joshi and Mr.Pradeep S Jetly with Mr.H N Vakil for intervenors. CORAM: J.P. Devadhar & R.Y. Ganoo, JJ. Reserved on: 20th July 2012 Pronounced on: 30th August 2012. JUDGMENT: (Per J.P. Devadhar, J.) 1. This writ petition is filed to challenge the three trade circulars issued by the Commissioner of Sales Tax, Mumbai ('Commissioner' for short) on 27th May 2002, 20th July 2002 and 8th February 2007 respectively and various notices issued by the Deputy Commissioner of Sales Tax in the month of February 2009 under Section 38 of the Bombay Sales Tax Act, 1959 (BST Act for short) for revising the assessments made for Assessment Years 20022003 to 20042005. While admitting the above writ petition on 25th September 2009, further proceedings under the impugned notices have been stayed by this Court. 2. By the aforesaid three trade circulars, the Commissioner has informed the trade that under Section 8(5) of the Central Sales Tax Act, 1956( 'CST Act' for short) as amended by Finance Act 2002 with effect from 11th May 2002, the State Governments are empowered to grant exemption only in respect of interstate sales to the registered dealers or to the Government covered under Section 8(1) of the CST Act unless such sales are supported by declarations in form 'C' or 'D' respectively as provided under Section 8(4) of the CST Act. By the said circulars, the traders are further informed that as a result of the amendment, any Notification issued under Section 8(5) of the CST Act prior to 11th May 2002, which is contrary to the amended Section 8(5) shall stands amended accordingly. In other words, according to the Commissioner, Section 8(5) of the CST Act as amended by the Finance Act 2002 restricts the power of the State Government to grant exemption from payment of tax in respect of sales of goods covered under Section 8(1) subject to fulfilling the conditions of Section 8(4) of the CST Act and, therefore, any Notifications issued to the contrary under Section 8(5) as it stood prior to its amendment by Finance Act 2002 shall stand modified to that extent so that, on amendment of Section 8(5), tax becomes payable in respect of sales which are not covered under Section 8(1) of the CST Act. 3. Based on the above interpretation of the amended Section 8(5) of the CST Act and based on the impugned trade circulars, proceedings have been initiated to recover tax on sales of goods effected in the course of interstate trade or commerce by the unit of the petitioner No.1 to the dealers or persons other than the registered dealers / Government covered under Section 8(1) of the CST Act during the period 20022003 to 20042005. In other words, the impugned proceedings are initiated to recover tax in respect of sales of goods covered under Section 8(2) at the rates specified therein as according to the Revenue, after the 2002 amendment, the State Governments do not have powers to exempt tax payable under Section 8(2). 4. The question, therefore, to be considered in this Writ Petition is, whether Section 8(5) of the CST Act as amended by Finance Act, 2002 restricts the powers of the State Government to grant exemption either wholly or partially only in respect of sales of goods in the course of interstate trade or commerce to registered dealers / the Government subject to furnishing declaration in form 'C' or form 'D' as the case may be ? If the answer is yes, then, whether Section 8(5) of the CST Act as amended by Finance Act 2002 affects the vested right of the eligible unit of the petitioner No.1 set up under the 1993 Scheme to claim exemption under Notification dated 5th July 1980 issued under the unamended Section 8(5) upto the quantum specified / date specified, insofar as it relates to interstate sales of goods to dealers other than registered dealers / Government ? 5. The relevant facts are that in the year 1998 the petitioner No.1 company had established an industrial unit in the backward area at Village Gadab, Taluka Pen, District Raigad at a cost of Rs.341.92 crores with a view to avail total exemption from payment of tax under the BST Act and the CST Act as per the Package Scheme of Incentives 1993 ('1993 Scheme' for short) upto the quantum specified and upto the period specified in the Eligibility / Entitlement Certificate issued by the respective authorities under the 1993 Scheme. 6. As per the Entitlement Certificate originally issued to the unit of the petitioner No.1 on 24th march 1998, the aggregate quantum of exemption from payment of tax under the BST Act and the CST Act in respect of sales of goods manufactured in the unit of the petitioner No.1 was upto Rs.273.54 crores and was required to be availed during the period from 1st April 1998 to 31st March 2003. Subsequently, the quantum of exemption has been enhanced and the period for availing the exemption has also been extended upto 31st March 2012. Thus, under the 1993 Scheme, the unit of the petitioner No.1 was exempted from payment of tax on all sales of goods made under the BST Act and CST Act upto the monetary ceiling specified in the Entitlement Certificate or till 31st March 2012 whichever was earlier. 7. It is not in dispute that the unit of the petitioner No.1 being covered under the 1993 Scheme, the goods manufactured in the unit of petitioner No.1 falling under Entry E3 of the Notification issued under Section 41 of the BST Act, when sold within the State were exempt from payment of whole of the tax under the BST Act upto the quantum specified or the period specified in the Entitlement Certificate, whichever is earlier. Similarly, interstate sales of goods manufactured in the unit of petitioner No.1 to dealers covered under Section 8(1) and 8(2), were, by virtue of Notification dated 5th July 1980 issued under Section 8(5) of the CST Act were exempt from tax payable under the CST Act upto the quantum specified or period specified in the Entitlement Certificate, whichever was earlier. 8. Cumulative Quantum of Benefits ('CQB' for short) availed by the unit of the petitioner No.1 under the 1993 Scheme by way of exemption under the BST Act (under the Maharashtra Value Added Tax 2002 after the repeal of the BST Act) and under the CST Act were liable to be determined on the basis of the rates of tax applicable to the sales effected under the BST Act and the CST Act respectively. In other words, although under the 1993 Scheme, the unit was exempt from payment of tax under the BST Act and the CST Act on all sales within the State and interstate sales, the CQB had to be determined by applying the rate of tax applicable under the BST Act and the CST Act on such sales as if the exemption was not available so that the total exemption availed by the unit under the BST Act and the CST Act does not exceed the monetary ceiling specified in the Entitlement Certificate. 9. Even though the unit of petitioner No.1 covered under the 1993 Scheme was totally exempt from the tax payable under Section 8(1) and 8(2) of the CST Act by virtue of the Notification dated 5th July 1980 issued under the unamended Section 8(5) of the CST Act upto the quantum specified and upto the date specified in the Entitlement Certificate. However, according to the Revenue, in view of the amendment of Section 8(5) by Finance Act 2002, the State Governments do not have the power to grant exemption in respect of sales of goods covered under Section 8(2) and, hence, the Notification dated 5th July 1980 would stand modified to that extent and consequently, after the amendment of Section 8(5) by Finance Act 2002, the exemption under Notification dated 5th July 1980 cannot be availed in respect of the sales of goods in the course of interstate trade or commerce to dealers covered under Section 8(2) of the CST Act. It is the contention of the petitioners that even under the amended Section 8(5), the State Governments are empowered to exempt the tax payable by any dealer under Section 8(2) and, therefore, the petitioners are entitled to avail the benefit of exemption under Notification dated 5th July 1980 upto the quantum specified and upto the period specified in the Entitlement Certificate. 10. To appreciate the rival contentions, we quote herein below entire Section 8 of the CST Act as amended by Finance Act 2002: " Rates of tax on sales in the course of interstate trade or commerce. 8. (1) Every dealer, who in the course of interstate trade or commerce (a) sells to the Government any goods; or (b) sells to a registered dealer other than the Government goods of the description referred to in subsection (3) shall be liable to pay tax under this Act, with effect from such date as may be notified by the Central Government in the Official Gazette for this purpose, which shall be two per cent of his turnover or at the rate applicable to the sale or purchase of such goods inside the appropriate State under the sales tax law of that State, or, as the case may be, under any enactment of that State imposing value added tax, whichever is lower: Provided that the rate of tax payable under this subsection by a dealer shall continue to be four per cent of his turnover, until the rate of two per cent takes effect under this subsection. (2) The tax payable by any dealer on his turnover insofar as the turnover or any part thereof relates to the sale of goods in the course of interstate trade or commerce not falling within subsection (1) (a) in the case of declared goods, shall be calculated at twice the rate applicable to the sale or purchase of such goods inside the appropriate State; (b) in the case of goods other than declared goods, shall be calculated at the rate of ten per cent or at the rate applicable to the sale or purchase of such goods inside the appropriate State, whichever is higher; and (c) in the case of goods, the sale or, as the case may be, the purchase of which is, under the sales tax law of the appropriate State, exempt from tax generally shall be nil, and for the purpose of making such calculation under clause (a) or clause (b), any such dealer shall be deemed to be a dealer liable to pay tax under the sales tax law of the appropriate State, notwithstanding that he, in fact, may not be so liable under that law. Explanation. For the purposes of this subsection, a sale or purchase of any goods shall not be deemed to be exempt from tax generally under the sales tax law of the appropriate State if under that law the sale or purchase of such goods is exempt only in specified circumstances or under specified conditions or the tax is levied on the sale or purchase of such goods at specified stages or otherwise than with reference to the turnover of the goods. (2A) ........ (3) The goods referred to in clause (b) of subsection(1) (a) ...... (b) are goods of the class or classes specified in the certificate of registration of the registered dealer purchasing the goods as being intended for resale by him or subject to any rules made by the Central Government in this behalf, for use by him in the manufacture or processing of goods for sale or in the telecommunications network or in mining or in the generation or distribution of electricity or any other form of power; (c) are containers or other materials specified in the certificate of registration of the registered dealer purchasing the goods, being containers or materials intended for being used for the packing of goods for sale; (d) are containers or other materials used for the packing of any goods or classes of goods specified in the certificate of registration referred to in clause (b) or for the packing of any containers or other materials specified in the certificate of registration referred to in clause (c). (4) The provisions of subsection (1) shall not apply to any sale in the course of interstate trade or commerce unless the dealer selling the goods furnishes to the prescribed authority in the prescribed manner (a) a declaration duly filled and signed by the registered dealer to whom the goods are sold containing the prescribed particulars in a prescribed form obtained from the prescribed authority; or (b) if the goods are sold to the Government, not being a registered dealer, a certificate in the prescribed form duly filled and signed by a duly authorized officer of the Government: Provided that the declaration referred to in clause (a) is furnished within the prescribed time or within such further time as that authority may, for sufficient cause, permit. (5) Notwithstanding anything contained in this section, the State Government may on the fulfillment of the requirements laid down in subsection (4) by the dealer, if it is satisfied that it is necessary so to do in the public interest, by Notification in the Official Gazette and subject to such conditions as may be specified therein, direct, (a) that no tax under this Act shall be payable by any dealer having his place of business in the State in respect of the sales by him, in the course of interstate trade or commerce, to a registered dealer or the Government from any such place of business of any such goods or classes of goods as may be specified in the Notification, or that the tax on such sales shall be calculated at such lower rates than those specified in subsection (1) or subsection (2) as may be mentioned in the Notification; (b) that in respect of all sales of goods or sales of such classes of goods as may be specified in the Notification, which are made, in the course of interstate trade or commerce, to a registered dealer or the Government by any dealer having his place of business in the State or by any class of such dealers as may be specified in the Notification to any person or to such class of persons as may be specified in the Notification, no tax under this Act shall be payable or the tax on such sales shall be calculated at such lower rates than those specified in subsection (1) or subsection (2) as may be mentioned in the Notification." 11. For better appreciation of the dispute, we quote herein below Section 8(5) of the CST Act, as it stood before the amendment by Finance Act 2002: "(5) Notwithstanding anything contained in this section, the State Government may, if it is satisfied that it is necessary so to do in the public interest, by Notification in the Official Gazette, and subject to such conditions as maybe specified therein, direct, (a) that no tax under this Act shall be payable by any dealer having his place of business in the State in respect of the sales by him, in the course of interstate trade or commerce, from any such place of business of any such goods or classes of goods as may be specified in the Notification, or that the tax on such sales shall be calculated at such lower rates than those specified in subsection (1) or subsection (2) as may be mentioned in the Notification; (b) that in respect of all sales of goods or sales of such classes of goods as may be specified in the Notification, which are made, in the course of interstate trade or commerce, by any dealer having his place of business in the State or by any class of such dealers as may be specified in the Notification to any person or to such class of persons as may be specified in the Notification, no tax under this Act shall be payable or the tax on such sales shall be calculated at such lower rates than those specified in subsection (1) or subsection (2) as may be mentioned in the Notification." 12. On perusal of Section 8(1) of the CST Act, as amended by Finance Act 2002, it it seen that every dealer, who in the course of interstate trade or commerce sells any goods to the Government or sells goods of the description referred to in Section 8(3) to a registered dealer other than the Government is liable to pay tax at two per cent of his turnover or at the rate applicable to the sale or purchase of such goods inside the appropriate State under the sales tax law / value added tax, whichever is lower. 13. Similarly, Section 8(2) of the CST Act as amended by Finance Act 2002 provides that the rate of tax payable by any dealer on sales not covered under Section 8(1) of the CST Act, shall be (a) in the case of declared goods at twice the rate applicable to the sale or purchase of such goods within the appropriate State, (b) in the case of goods other than declared goods, at the rate of ten per cent or at the rate applicable to sale of such goods in the appropriate State, whichever is higher; and (c) if the sale or purchase of any goods under the Sales Tax law of the appropriate State is exempt generally then the tax payable on interstate sale of such goods under the CST Act shall be Nil. 14. Section 8(3) of the CST Act enumerates the categories of goods covered under Section 8(1)(b) of the CST Act. Section 8(4) of the CST Act provides that the rate of tax prescribed under Section 8(1) of the CST Act shall not apply unless the dealer selling the goods in the course of interstate trade or commerce furnishes a declaration in form 'C' when goods are sold to registered dealers and declaration in form 'D' when goods are sold to the Government. 15. Thus, reading Section 8(1) and 8(4) of the CST Act together it becomes clear that the lower rate of tax prescribed under Section 8(1) of the CST Act on sale of goods in the course of interstate trade or commerce to the Government or to a registered dealer is applicable only if the requirements of Section 8(4) viz. furnishing declaration in form 'C' or form 'D' are complied with. The obligation to furnish declaration in form 'C' or form 'D' is only in respect of sales covered under Section 8(1) and not in respect of sales covered under Section 8(2). 16. The Apex Court in the case of Shree Digvijay Cement Company Limited V/s. State of Rajasthan and others reported in (2000) 117 STC 395 (S.C.) overruling its decision in the case of the very same assessee reported in (1997) 106 STC 11 (S.C.) has held that though Section 8(4) requires furnishing of form 'C' or form 'D' in respect of the sales covered under Section 8(1), in view of the nonobstante clause contained in Section 8(5), it is open to the State Government to dispense with the requirements of Section 8(4) in respect of the sales covered under Section 8(1) of the CST Act. In other words, the Apex Court in the aforesaid case has held that the State Governments under Section 8(5) of the CST Act can waive the requirement of Section 8(4), viz. furnishing particulars in form 'C' or 'D' in respect of sales covered under Section 8(1) of the CST Act. 17. To overcome the decision of the Apex Court in the case of Shree Digvijay Cement Company Limited (supra), the legislature amended Section 8(5) by Finance Act 2002. Clause 145 of the notes on clauses issued to explain the clauses in the Finance Bill 2002 makes it clear that the object of amending Section 8(5) of the CST Act by Finance Act 2002 is inter alia to make furnishing of form 'C' compulsory by the dealer except in respect of exempted goods and to withdraw powers of the State Governments to waive the requirement of 'C' form specified under Section 8(4) of the CST Act. In other words, as per the notes on clauses, Section 8(5) is amended by Finance Act 2002 with a view to withdraw the powers of the State Governments to waive the requirement of form 'C' specified under Section 8(4), so that compliance of Section 8(4) becomes mandatory in respect of sales of goods to the registered dealer or the Government covered under Section 8(1) except when exempted. 18. As per impugned circulars issued by the Commissioner under Section 8(5) as amended by Finance Act 2002, the powers of the State Government to grant exemption are restricted only in respect of sales in the course of interstate trade or commerce to the dealers who fulfill the requirement of Section 8(4), namely the registered dealers or the Government covered under Section 8(1). Accordingly, proceedings have been initiated to recover tax from the petitioners in respect of sales in the course of interstate trade or commerce to dealers other than the registered dealers / Government after the amendment of Section 8(5) by Finance Act 2002. Challenging the trade circulars issued by the Commissioner and also the proceedings initiated pursuant thereto, the present Writ Petition is filed. 19. We have heard Mr.Shridharan, learned Senior Advocate appearing on behalf of the petitioners and Mr.G.S. Jetly & Mr.D.B. Shroff, Senior Advocates, Mr.P.C. Joshi, Mr.C.B. Thakkar, Advocates as intervenors since they are also appearing in some cases where similar issue is raised. Similarly, we have heard Mr.E.P. Bharucha, learned Senior Advocate on behalf of respondent Nos.1 to 5 and Mr.A.J. Rana, learned Senior Advocate on behalf of respondent No.6. 20. It is contended on behalf of the petitioners that the object of amending Section 8(5) by Finance Act 2002, as is evident from the notes on clauses, is to overcome the decision of the Apex court in the case of Shree Digvijay Cement Company Limited (supra) wherein it was held that the State Governments in exercise of powers under Section 8(5) can waive the requirements of Section 8(4), viz. furnishing form 'C' or 'D' in respect of sales of goods covered under Section 8(1) of the CST Act. The object of the 2002 amendment was to withdraw the power of the State Government to waive the requirement of Section 8(4) in respect of sales covered under Section 8(1) and not to take away the powers of the State Government to grant exemption in respect of sales covered under Section 8(2) of the CST Act. 21. It is further contended on behalf of the petitioners that insertion of the words "on the fulfilment of the requirements laid down in subsection 4 by the dealer" in the opening part of the amended Section 8(5) would necessarily apply where the State Governments intend to grant exemption in respect of sales covered under Section 8(1) and not in respect of the sales covered under Section 8(2) because the requirements of Section 8(4) has to be fulfilled only in respect of sales covered under Section 8(1) and not in respect of sales covered under Section 8(2). If the intention of the legislature was to restrict the powers of the State Governments to grant exemption only in respect of sales covered under Section 8(1) by fulfilling the requirements of Section 8(4), then, the legislature would not have made any references to the exemption to be granted in respect of the sales covered under Section 8(2) in Section 8(5)(a) and in Section 8(5)(b). The very fact that Section 8(5) as amended by Finance Act 2002 refers to the powers of the State Governments to issue Notification prescribing rates of tax lesser than those specified in Section 8(2), clearly shows that even under the amended Section 8(5), the State Governments are empowered to grant exemption in respect of sales covered under Section 8(1) and also under Section 8(2) of the CST Act. 22. It is further contended on behalf of the petitioners that Section 8(5)(b) not only refers to sales of goods to registered dealers or the Government by any dealer or class of dealers in the State, but also refers to sales to 'any person or to such class of person as may be specified in the Notification'. The words "all sales …...... by any dealer …. to any person …. shall be calculated at such lower rates than those specified in ….. subsection (2) as may be mentioned in the Notification" in Section 8(5)(b) make it abundantly clear that the State Governments are empowered to grant exemption either wholly or partially in respect of sales not only to registered dealers or the Government but also empowered to grant exemption in respect of sales of goods to any person or class of persons. Therefore, when the legislature expressly confers powers upon the State Government to grant exemption in respect of sales of goods covered under Section 8(1) as also on sales covered under Section 8(2), the expression "on the fulfillment of the requirements laid down in subsection (4) by the dealer" in the opening part of amended Section 8(5) would necessarily apply wherever applicable, that is, only in respect of sales covered under Section 8(1) and not in respect of the sales covered under Section 8(2) of the CST Act. 23. Relying upon a decision of the Apex Court in the case of K.V. Kamath V/s. K. Rangappa Baliga & Company reported in 1969 (1) SCC 255, it is contended on behalf of the petitioners that when a sentence in a statute contains several antecedents and several consequences, then they are to be read distributively by applying the principle of 'REDDENDO SINGULA SINGULIS'. The submission is that where there are general words of description followed by enumeration of particular things and the general words apply to some things and not to others, then, by applying the principle of REDDENDO SINGULA SINGULIS it must be held that the general words would apply only to those thing to which they apply and not to other things. In the present case, the general words 'on the fulfillment of the requirements laid down in subsection (4) by the dealer' are followed by the words "all sales of goods by any dealer or any class of persons to a registered dealer or the Government" and the words "to any person or class of persons". Since the requirements of fulfilling the conditions of Section 8(4) apply only in the case of sales of goods to 'registered dealer or the Government' it must be held that the said conditions would apply only in respect of sales of goods to the registered dealer / Government under Section 8(1) and not in respect of sales of goods to any person or persons covered under Section 8(2) of the CST Act. 24. Relying on the decisions of the Apex Court in the case of State of Madras V/s. N.K. Nataraja Mudaliar reported in (1968) 22 STC 376 (S.C.) and Video Electronics Private Limited V/s. State of Punjab reported in (1990) 77 STC 82 (S.C.), it is contended on behalf of the petitioners that the power to grant exemption conferred upon the State Governments under Section 8(5) is to meet the unforeseen circumstances. For example, if there is famine in the State of Bihar and the dealers in the State of Maharashtra want to sell goods to a charitable institution in the State of Bihar at a reasonable price for distribution to those who are starving at Bihar, it would be in public interest for the State of Maharashtra to grant exemption to the dealers in Maharashtra in respect of the sales of goods to the particular charitable institution in the State of Bihar. It is contended that the Central Sales Tax, though levied and collected in the name of Central Government, it is a part of the sales tax levy imposed for the benefit of the States and, therefore, while it is within the domain of the State Governments whether to grant or not to grant exemption, it cannot be said that the State Governments do not have power to grant exemption in respect of sales of goods to dealers other than the registered dealers or the Government. With a view to achieving the industrial development or with a view to provide tax incentives to attain economic equality in growth and development, the State Governments may float schemes by granting total or partial exemption to the dealers or class of dealers or to any person or class of persons, as the case may be. If the contention of the Revenue is accepted, it would mean that the State Governments cannot grant exemption in respect of sales of goods to unregistered dealers even if it is necessary in public interest to do so. Such a construction put forth by the Revenue which is contrary to the language used in the Section and which is contrary to the public purpose cannot be accepted. 25. It is further contended on behalf of the petitioners that even after the amendment of Section 8(5) by Finance Act 2002 various State Governments including the Government of Maharashtra have issued Notifications granting exemption on sales of goods in the course of interstate trade or commerce to dealers other than registered dealers or the Government. Therefore, having exercised the powers of granting exemption to sales of goods to dealers other than the registered dealers or the Government on the footing that even after the 2002 amendment, the State Governments do have power to grant exemption in respect of sales of goods to dealers other than the registered dealers or the Government, it is not open to the Revenue to turn around and contend that by the 2002 amendment the State Governments are denuded of the powers to grant exemption on sales of goods to dealers other than the registered dealers / Government. 26. Alternatively, it is contended on behalf of the petitioners that assuming for the sake of argument it is held that the legislature by the 2002 amendment has restricted the power of State Governments to grant exemption only in respect of sales of goods to registered dealers or the Government, even then, the said amendment would not affect the vested rights of the petitioners to avail exemption upto the quantum specified / the date specified under the 1993 Scheme, as per Notification dated 5th July 1980 issued under Section 8(5) as it stood prior to the 2002 amendment. The submission is that though the amendment to Section 8(5) by Finance Act 2002 became effective from 11th May 2002, the right of the petitioners to avail exemption on all sales under the BST Act and the CST Act upto the quantum specified and date specified got crystallised prior to 11th May 2002 and, therefore, unless the legislature has specifically taken away that right by retrospective amendment, it is not open to the Revenue to contend that in view of the amendment to Section 8(5) by Finance Act 2002, the rights vested in the petitioners to avail total exemption upto quantum specified or till 31st March 2012 whichever is earlier has been taken away. In support of the above contention, reliance is placed on the decisions of the Apex Court in the case of Govinddas V/s. Income Tax Officer reported in (1976) 1 SCC 906, MRF V/s. Assistant Commissioner reported in (2006) 8 SCC 702, S.L. Srinivasa Jute Twine Mills (P) Limited V/s. Union of India reported in (2006) 2 SCC 740 and Southern Petrochemicals Industries Limited V/s. Electricity Inspector reported in (2007) 5 SCC 447. Reliance is also placed on a Division Bench decision of the Madras High Court in the case of Diebold Systems (P) Limited V/s. Additional Commercial Tax reported in (2011) 39 VST 335 (Mad.), wherein it is held that even after the 2002 amendment, the State Governments have power to grant exemption in respect of sales of goods to persons other than the registered dealers / Government. 27. Accordingly, it is contended on behalf of the petitioners that the words used in Section 8(5) as amended by Finance Act 2002 clearly show that even after the amendment, the State Governments are empowered to grant exemption not only in respect of sales in the course of interstate trade or commerce to registered dealers or the Government but also in respect of sales to unregistered dealers or any person or class of persons. Alternatively, it is contended that even if it is held that Section 8(5) as amended by Finance Act 2002 restricts the powers of the State Governments, such restriction does not affect the rights vested in the petitioners by the State Government in exercise of powers under Section 8(5) as it stood prior to its amendment to avail the exemption upto the quantum specified / date specified. 28. Mr.Bharucha, learned senior Advocate appearing on behalf of respondent Nos.1 to 5 and Mr.Rana, learned senior Advocate appearing on behalf of respondent No.6, on the other hand submitted that after the amendment of Section 8(5) by Finance Act 2002, the State Governments have the power to grant exemption from tax only in respect of transactions which fulfil the requirements of Section 8(4). Since the requirements of Section 8(4) are to be fulfilled only in respect of sales covered under Section 8(1), it must be held that the power to grant exemption under Section 8(5) is restricted to sales covered under Section 8(1) i.e. sales to the registered dealers and the Governments. It is contended that prior to the 2002 amendment, the State Governments under Section 8(5)(a) and Section 8(5) (b) were empowered to grant total or partial exemption not only in respect of sales of any goods or class of goods to a registered dealer / Government but also were empowered to grant total or partial exemption in respect of interstate sales to unregistered dealers or any person or class of persons specified in the Notification. After the 2002 amendment, the Parliament by inserting the words 'on the fulfillment of the requirements laid down in subsection (4) by the dealer' in the operative part of Section 8(5) made it expressly clear that the State Governments can grant exemption only in respect of those sales which comply with the requirements of Section 8(4). The submission is that since the requirements of Section 8(4) are required to be fulfilled only in respect of sales covered under Section 8(1), the powers of the State Governments under the amended Section 8(5) must be held to be restricted to sales to registered dealer / Government covered under Section 8(1) and not in respect of the sales covered under Section 8(2) of the CST Act. 29. It is further contended on behalf of the Revenue that reference to the words "subsection 2" and the words "to any person or such class of persons as may be specified in the Notification" in the amended Section 8(5) (a) and (b) no doubt create difficulty in accepting the contention of the Revenue. However, it is contended that in view of the words "on the fulfillment of the requirements laid down in subsection (4) by the dealer" in the opening part of Section 8(5), it is clear that the legislature intended to confer power on the State Governments to grant exemption only in respect of those sales which comply with the requirements of Section 8(4) i.e. sales to registered dealer / Government and, therefore, the words 'to any person or class of persons' in Section 8(5)(b) must be held referable to registered dealer / Government specified in the Notification. The submission is that, since the registered dealer under Section 8(4) is required to execute declaration with prescribed particulars and under Section 8(5) the name of the registered dealer is required to be specified in the Notification, the words 'any person or persons in Section 8(5)(b) must be held referable to the registered dealers / Government and not to any other person. Thus, according to the Revenue under the amended Section 8(5)(b) triple criteria has to be satisfied for availing the benefit of exemption, i.e. firstly, the sales should be made to a registered dealer or the Government; secondly, the necessary form 'C' or form 'D' ought to be issued by the purchasing dealer and thirdly the purchasing dealer (who had to be a registered dealer or a Government) had to be notified in the exemption Notification. Accordingly, it is contended on behalf of the Revenue that the words 'to any person or to such class of persons as may be specified in the Notification' in Section 8(5) (b) is referable to the registered dealers or the Government specified in the Notification. 30. If the aforesaid argument is not acceptable for any reason, then, alternatively, counsel for the Revenue contend that the words 'subsection (2) as also to any person or to such class of persons' in Section 8(5)(a) and (b) must be treated as redundant and ignored to give a purposive interpretation to the Section and its amendment. The submission is that if the words in a statute are inappropriately and incautiously used by the draftsman, then the proper course is to ignore the surplus or redundant words so as to give a purposive interpretation to the amended statute and achieve the object with which the amendment was brought about. In support of the above contention, reliance is placed on the decision of the Apex Court in the case of Labour Contract Cooperative Society V/s. Director of Mines & Geology reported in 1993 Supp (2) SCC 315, McMonagle V/s. Westminster City Council reported in 1990 2 AC 720 at page 726 and Salman V/s. Duncombe reported in (1886) 11 AC 627 (PC). 31. Referring to the 'report of the Taxation Enquiry Commission' submitted in the year 195354, it is contended on behalf of the Revenue that unlike in the case of registered dealers who have to execute declaration in 'C' form duly signed by the appropriate authority of the State Government in the case of unregistered dealers, there being no control, there is every possibility of avoidance of tax when sales are made to unregistered dealers. To prevent such revenue loss by way of tax avoidance, the legislature by the 2002 amendment to Section 8(5) has restricted the powers of the State Governments to grant exemption only in respect of sales in the course of interstate trade or commerce who fulfill the requirement of Section 8(4) i.e. sales to registered dealers or the Government. 32. It is contended on behalf of the Revenue that the legislative policy is to discourage interState trade to unregistered dealers. The Parliament by amending Section 8(5) merely made it consistent with the legislative policy of discouraging interstate trade with unregistered dealers. It is contended that the Apex Court in the case of Shree Digvijay Cement Company Limited (supra) failed to appreciate the above legislative policy and, therefore, the amendment of Section 8 of the CST Act became necessary. However, the draftsman of the 2002 amendment, by retaining the words 'or subsection 2' and the words "to any person or class of persons" in Section 8(5)(a) and Section 8(5)(b) has totally defeated the avowed object of the amendment viz. to discourage the sales to unregistered dealers. This error of the draftsman has been corrected by deleting the words 'or subsection 2' by Finance Act 2007 which is purely clarificatory in nature. Accordingly, it is contended that since the object of 2002 amendment is to discourage sales to unregistered dealers, the said object cannot be defeated on account of the draftsman inappropriately and incautiously using the words 'or subsection 2' in the amended Section 8(5)(a) and 8(5)(b) of the CST Act. 33. As regards the applicability of the principles of the maxim 'REDDENDO SINGULA SINGULIS' is concerned, it is argued on behalf of the Revenue that the said maxim applies only in cases where a sentence in a statute contains several antecedents and several consequences, whereas ,in the present case there is only one antecedent i.e. fulfillment of the requirement as mentioned in subsection (4) by the dealers' and, therefore, the said maxim has no application in the present case. 34. It is further contended on behalf of the Revenue that the fact that various State Governments including the Government of Maharashtra even after the 2002 amendment have wrongly granted exemption to the dealers not covered by Section 8(1), it cannot be inferred that Section 8(5) as amended by Finance Act 2002 empowers the State Governments to grant exemption on sales of goods to dealers other than registered dealers or the Government. In support of the above contention, reliance is placed on the decisions of the Apex Court in the case of Kastha Niwarak Grihnirman Sahakari Sanstha V/s. President, Indore Development Authority reported in (2006) 2 SCC 604 and Sneha Prabha V/s. Union of India reported in (1996) 7 SCC 426. 35. It is further contended on behalf of the Revenue that where the statute is amended, the benefits conferred upon the assessee under the unamended statute would come to an end to the extent the statute is amended. In such a case, it is not open to the assessee to contend by invoking the principles of promissory estoppel, that the accrued benefits cannot be taken away by statutory amendment, because, the principles of promissory estoppel do not apply to statutory amendments. In support of the above contention, reliance is placed on the decision of the Apex Court in the case of Excise Commissioner V/s. Ram Kumar reported in (1976) 3 SCC 540 and Jit Ram Vs. State of Haryana reported in (1981) 1 SCC 11. 36. It is further contended on behalf of the Revenue that the amendment to Section 8(5) by Finance Act 2002 is not retrospective in nature as it does not take away the benefit granted or made available under the 1993 Scheme. The amendment neither provides for new levy of taxes nor does it reduces the gross amount of exemption nor does the period during which the exemption could be availed have been curtailed. In other words, even after the amendment of Section 8(5), the quantum of benefits conferred under the 1993 Scheme remain unaltered but the availment of the benefits in future is restricted to the sales in the course of interstate trade or commerce to registered dealers / Government against the production of 'C' or 'D' forms. Therefore, it cannot be said that the amendment to Section 8(5) is retrospective in operation. In support of the above contention, reliance is placed on the decision of the Apex Court in the case of Darshan Singh V/s. Ram Pal Singh reported in AIR 1991 SC 1654. 37. Accordingly, it is contended that the impugned circulars issued by the Commissioner and the impugned actions initiated against the petitioners being in consonance with the amended provisions of Section 8(5) and also in accordance with the conditions attached to the Eligibility Certificate, the petition deserves to be dismissed with costs. 38. We have carefully considered the rival submissions. 39. The first question to be considered in this Writ Petition is, whether Section 8(5) of the CST Act as amended by Finance Act 2002 restricts the power of the State Governments to grant total or partial exemption from tax payable under the CST Act on interstate sales of goods which fulfill the requirements of Section 8(4) viz. sales of goods to the registered dealers / Government covered under Section 8(1) of the CST Act ? In other words, the question is, whether by Finance Act 2002, the legislature has taken away the power of the State Government to exempt totally or partially the tax payable in respect of interstate sales of goods covered under Section 8(2) of the CST Act? 40. According to the Revenue, the legislative policy is to discourage sales in the course of interstate trade to unregistered dealers covered under Section 8(2) and in implementation of that policy, the Parliament by amending Section 8(5) has taken away the power of the State Government to grant exemption from payment of tax in respect of interstate sales to dealers covered under Section 8(2). The above argument of the Revenue is based on certain observations made in the report of the 'Taxation Enquiry Commission' submitted in the year 195354 on the basis of which the CST Act 1956 has been enacted. 41. The Taxation Enquiry Commission was appointed by the Central Government to consider the problem of tax on interstate sales arising on account of the restrictions imposed by Article 286 of the Constitution. In paragraphs 8, 17 and 18 of Chapter IV of the report, the Commission opined that complete exemption from tax on sales outside the State under Article 286 of the Constitution, places the exporting State in a disadvantageous position. It opined that a State with a backward economy and relying on revenue from the sales tax leviable on its main sources of agricultural or industrial raw materials suffers financially from the above restriction. The Commission opined that in the proposed Central legislation, there should be a provision for levy of sales tax on interstate trade specifying the rate at which the tax on sales in the course of interstate trade should be levied. The main object of proposing levy of sales tax on interstate trade, according to the Commission, was to ensure that some revenue accrues to the exporting States without any undue burden on the consumers in the importing State. The Commission in its report observed that the rate of tax to be specified in the proposed Central legislation in respect of sales between the registered dealers of one State with the registered dealers of another State should be comparatively low preferably one per cent on all articles except on 'goods of special importance in interstate trade'. 42. While recommending lower rate of tax at one per cent in respect of interstate sales between the registered dealers of one State with the registered dealers of another State in the proposed legislation, the Commission recommended higher rate of tax in respect of interstate sales between unregistered dealers of one State with the unregistered dealers of another State, because, unlike the registered dealers, the unregistered dealers are not under the control or supervision of the State Government and, hence, lower rate of tax in case of interstate sales to unregistered dealers was likely to encourage avoidance of tax. The Commission recommended that in respect of interstate sales to unregistered dealers of another State, the rate of tax should be at the same rate which the exporting States would impose if such sales were to take place within the State. By that method, according to the Commission, the unregistered dealers and consumers will find themselves unable to secure any advantage by way of tax avoidance. 43. The aforesaid report of the Taxation Enquiry Commission led to the insertion of Entry 92A in List I (Union list) to the Seventh Schedule of the Constitution of India by the Constitution (Sixth Amendment) Act 1956 which reads thus :" 92A. Taxes on the sale or purchase of goods other than newspapers, where such sale or purchase takes place in the course of interstate trade and commerce." 44. In exercise of the powers conferred under Entry 92A in List I of the Seventh Schedule to the Constitution of India, the Parliament enacted the Central Sales Tax Act, 1956 wherein the principles and the levy of Central Sales Tax on interstate sales were formulated. 45. Section 8(1), as originally enacted, provided that every dealer who, in the course of interState trade or commerce sells to a registered dealer goods of the description referred to in Section 8(3), shall be liable to pay tax under the CST Act at one per cent of the turnover. The proviso to Section 8(1), however, provided that if under the sales tax law of the appropriate State the tax on the sale or purchase of any goods by a dealer was exempt from tax generally or was at a rate lower than the rate prescribed under Section 8(1), then the rate of tax in relation to the sale of such goods in the course of interstate trade or commerce covered under Section 8(1) shall be nil or at the lower rate, as the case may be. 46. Section 8(2) of the CST Act as originally enacted, provided that the rate of tax in respect of sales of goods in the course of interstate trade or commerce not falling under Section 8(1) of the CST Act, for example, sales to unregistered dealers shall be the rate of tax payable if such sales had in fact taken place inside the appropriate State. Thus, by prescribing the rate of tax applicable to local sales to the sales in the course of interstate trade to unregistered dealers, the legislature sought to check the tax avoidance by the dealers in the exporting state and the unregistered dealers / customers in the importing State. 47. The rate of tax applicable to the sales of goods in the course of interstate trade or commerce to dealers covered under Section 8(1) and 8(2) have been amended from time to time. Prior to the 2002 amendment, the rate of tax payable in respect of sales covered under Section 8(1) was four per cent of the turn over and in respect of the sales covered under Section 8(2) the rate of tax in the case of declared goods was at twice the rate applicable to the sale of such goods inside the appropriate State and in the case of goods other than the declared goods, the rate of tax was ten per cent or at the rate applicable to sale of such goods inside the appropriate State, whichever was higher. 48. Thus, the legislative policy of the Government under the CST Act has always been to discourage tax avoidance resorted to by the dealers in respect of sales of goods in the course of interstate trade or commerce to unregistered dealers and not to discourage sales of goods in the course of interstate trade to unregistered dealers as wrongly contended by the Revenue. The said object of discouraging tax avoidance was sought to be achieved by imposing high rate of tax in respect of sales covered under Section 8(2). The said object is achieved even after the 2002 amendment by retaining the high rate of tax in respect of sales covered under Section 8(2). 49. In the absence of high rate of tax, the local sales of goods made to unregistered dealers in the State used to be shown in the books to have been made to fictitious dealers outside the State and then the very same goods were claimed to have been resold by those fictitious dealers to the unregistered dealers within the State. Thus, tax payable on sales of goods to a local customer within the State used to be evaded by the dealers by taking undue advantage of there being no tax on interstate sale. To prevent such Revenue loss to the exporting State, the legislature by accepting the recommendations of the Taxation Enquiry Commission imposed high rate of tax on sales of goods to unregistered dealers covered under Section 8(2) of the CST Act. 50. Validity of Section 8 of the CST Act which imposed high rate of tax in respect of sales covered under Section 8(2) were challenged on the ground that the said provisions violated Articles 301 and 304 of the Constitution. The Apex Court in the case of N.K. Nataraja Mudaliar (supra) and in the case of State of Tamil Nadu V/s. Sitolaxmi Mills reported in (1974) 4 SCC 408 upheld the constitutional validity of Section 8 of the CST Act and further held that the high rate of tax imposed under Section 8(2) does not directly or indirectly impede or hamper the free flow of trade, commerce and intercourse and that in appropriate cases, the State Governments under Section 8(5) are empowered to grant total or partial exemption from the higher rate of tax payable under Section 8(2). While upholding the reasonableness of high rate of tax on sales covered under Section 8(2), the Apex Court in the case of Sitolakshmi Mills (see para10 supra) held that such high rate of tax was to discourage interstate sales to unregistered dealers. Thus, it is clear that the observations of the Apex Court were in the context of sustaining high rate of tax in respect of interstate sales covered under Section 8(2). Therefore, the argument of the Revenue that the legislative policy of the Government is to discourage interstate sales to unregistered dealers cannot be sustained as the said argument is contrary to the report of the Taxation Enquiry Commission and also the decisions of the Apex court referred to herein above. 51. The question then to be considered is, whether there is any merit in the argument of the Revenue that after the 2002 amendment, the power of the State Governments to grant exemption under Section 8(5) is restricted only in respect of the transactions covered under Section 8(1) and not in respect of the transactions covered under Section 8(2) of the CST Act ? 52. It is not in dispute that prior to the 2002 amendment, notwithstanding the rates of tax prescribed in respect of interstate sales covered under Section 8(1) and 8(2), the State Governments under Section 8(5) could in public interest grant total / partial exemption from the tax payable under Section 8(1) or 8(2). It is also not in dispute that prior to the 2002 amendment, fulfilment of the requirements of Section 8(4) was mandatory in respect of the transactions covered under Section 8(1). However, the Apex Court in the case of Shree Digvijay Cement Company Limited (supra) held that the State Governments while exercising powers under Section 8(5) could dispense with the requirements of Section 8(4). To overcome the aforesaid decision, the legislature by Finance Act 2002 sought to amend Section 8(5) thereby making it mandatory to comply with the requirements of Section 8(4) even while exercising power under Section 8(5). In other words, by inserting the words 'on the fulfilment of the requirements laid down in subsection (4) by the dealer' in Section 8(5) by Finance Act 2002, the legislature has made it clear that the requirements of Section 8(4) cannot be dispensed with by the State Government while exercising its power under Section 8(5) of the CST Act. Since Section 8(4) applies only in respect of transactions covered under Section 8(1), it is evident that compliance of Section 8(4) would apply only in respect of interstate sales covered under Section 8(1) and not in respect of interstate sales covered under Section 8(2). 53. The argument of the Revenue that since it is mandatory to fulfill the requirements of Section 8(4) while exercising power under Section 8(5), it must be held that the power of the State Governments to grant total / partial exemption in public interest is restricted only to the transactions which fulfil the requirements of Section 8(4) namely the transactions covered under Section 8(1) cannot be accepted because, Section 8(5) as amended by Finance Act, 2002 not only refers to the transactions covered under Section 8(1) but also refers to the transactions covered under Section 8(2). Therefore, when Section 8(5) as amended by Finance Act 2002 specifically refers to the power of the State Governments to grant total / partial exemption from the tax payable under Section 8(1) or 8(2), it is not possible to accept the contention of the Revenue that after the 2002 amendment, the power of the State Government under Section 8(5) to grant total / partial exemption is restricted only in respect of the transactions covered under Section 8(1). 54. If the legislature by inserting the words 'on the fulfilment of the requirements laid down in subsection 4 by the dealer' had intended to restrict the power of the State Governments to grant total / partial exemption only in respect of the tax payable under Section 8(1), then the legislature would not have made any reference to the power of the State Government to grant total / partial exemption from tax payable under Section 8(2). The very fact that the legislature even after the 2002 amendment has retained in Section 8(5), the words that relate to the power of the State Governments to grant total / partial exemption from tax payable under Section 8(2), clearly show that the said amendment was not intended to affect the power of the State Governments to grant total / partial exemption from the tax payable in respect of the transactions covered under Section 8(2). 55. Apart from the above, by retaining the words 'any person or class of persons' in the amended Section 8(5)(b) it is made clear that even after the 2002 amendment, the State Governments under Section 8(5) are also empowered to grant total / partial exemption in public interest in respect of interstate sales to any person or class of persons covered under Section 8(2) of the CST Act. Thus, when Section 8(5) as amended by Finance Act 2002 specifically provides that the State Governments, subject to fulfiling the requirements of Section 8(4) by a dealer, may in public interest grant total / partial exemption in respect of all sales of goods or class of goods as may be specified in the notification, which are made in the course of interstate trade or commerce by any dealer or class of dealers as may be specified in the notification to a registered dealer or the Government covered under Section 8(1) or to any person or class of persons specified in the notification obviously covered under Section 8(2), it is reasonable to hold that the requirement of fulfilling the conditions of Section 8(4) would apply only to sales covered under Section 8(1) and not to sales covered under Section 8(2), because, fulfilling the requirements of Section 8(4) apply only in respect of sales covered under Section 8(1). We draw support for the above reasoning from the decision of the Apex court in the case of K.V. Kamath (supra) wherein it is held that where there are general words of description followed by enumeration of particular things and the general words apply to some things and not to others, then, by applying the principle of REDDEONDO SINGULA SINGULIS, it must be held that the general words would apply only to those thing to which they apply and not to other things. 56. The argument of the Revenue that the words 'any person or to such class of persons as may be specified in the notification' in Section 8(5) (b) are referrable to the registered dealers / Government specified in the notification cannot be accepted, because, Section 8(5)(b) distinctly refers to two separate notifications i.e. one notification specifying the names of the registered dealer / Government and another notification specifying the name of any person or class of persons to whom the State Government considers it necessary in public interest to grant total / partial exemption from tax payable under Section 8(1) or Section 8(2). It is relevant to note that the words 'any person or class of persons' were inserted to Section 8(5) by Central Sales Tax (Amendment) Act, 1972, with a view to empower the State Governments to grant in public interest total / partial exemption from tax payable under the CST Act as it was not possible to visualise in advance the cases in which such exemptions or reductions may be necessary. Therefore, when the power to grant exemption to any person or class of persons was conferred upon the State Governments to cater to the needs of unforeseen circumstances, it cannot be said that power has been taken away especially when Section 8(5) as amended by Finance Act 2002 specifically refers to the power of the State Governments to grant exemption from tax payable in respect of interstate sales to any person or any class of persons. In other words, when the legislature with a view to meet the unforeseen circumstances had conferred power upon the State Governments to grant total / partial exemption from tax payable by any person or class of persons under Section 8(1) or 8(2), in the absence of any material to show that either the unforeseen circumstances have ceased to exist or the State Governments have misused such power or for any other reason it became necessary to withdraw such power, the self destructive argument of the Revenue that by 2002 amendment the powers of the State Governments to grant exemption to any person or class of persons has been taken away cannot be accepted, especially the language used in the amended Section 8(5) negates such argument of the Revenue. 57. The alternative argument of the Revenue that the words 'subsection (2)' as also the words 'to any person or to such class of persons' in Section 8(5)(a) and 8(5)(b) must be treated as redundant and ignored is equally unsustainable, because, it is well established in law that the intention of the legislature is to be gathered from the language used in the statute and if the language is clear and unambiguous then that meaning has to be adopted and it is not open to the Court to give a different meaning by treating the words used in the statute as redundant or superfluous. The object of 2002 amendment was to make it mandatory to comply with the requirements of Section 8(4) in respect of transactions covered under Section 8(1) and while keeping the powers already conferred upon the State Governments intact, the said object has been achieved by inserting necessary words to that effect by the 2002 amendment. Therefore, the argument of the Revenue that reference to the words 'subsection (2)' and the words 'any person or class of persons' in Section 8(5) as amended by Finance Act 2002 are redundant or surplus cannot be sustained. In this view of the matter, we do not consider it necessary to deal with the decisions relied upon by the counsel for the Revenue in support of their contention that the redundant or surplus words in a statute must be ignored. 58. Once it is held that the powers vested in the State Governments under Section 8(5) are not divested by the 2002 amendment and that even after the 2002 amendment, the State Governments subject to compliance of Section 8(4) have power to grant exemption in respect of transactions covered under Section 8(1) as also under Section 8(2), we see no reason to consider the second and the alternative argument of the petitioners that Section 8(5) as amended by Finance Act 2002 does not affect the rights vested in the petitioners under PSI 1993 to avail the exemption upto the quantum specified / period specified in the Entitlement Certificate granted to the petitioners. 59. For all the aforesaid reasons, we reject the self destructive argument of the Revenue that Section 8(5) of the CST Act as amended by Finance Act 2002, restricts the power of the State Governments to grant total / partial exemption in respect of interstate sales covered under Section 8(1) only. We further hold that even after the amendment of Section 8(5) by Finance Act 2002, the State Governments in public interest may subject to fulfillment of the requirements of Section 8(4) applicable to transactions covered under Section 8(1), grant total / partial exemption from tax payable on interstate sales covered under Section 8(1) as also under Section 8(2) of the CST Act. Since the trade circulars impugned in the petition and also the impugned proceedings initiated against the petitioners proceed on the footing that after the 2002 amendment, the State Governments do not have power to grant total / partial exemption in respect of the transactions covered under Section 8(2), the impugned trade circulars and the impugned notices issued under Section 38 of the BST Act are quashed and set aside. 60. Rule is made absolute in the above terms with no order as to costs. (R.Y. Ganoo, J.) (J.P. Devadhar, J.) |
| | Court does not sit in appeal over the award of an Arbitral Tribunal by reassessing and re-appreciating the evidence |
| Posted on 25 September 2012 by Apurba Ghosh | ||||||||||||||||||||||||||
CourtHIGH COURT OF DELHI BriefOIL issued Notice Inviting Tender ('NIT') dated 19th July 1993 for setting of four Offshore Exploratory Oil/Gas Wells, three Wells at Saurashtra Offshore of the West Coast of Gujarat and one Well in NEC, Offshore of Orissa (drilled with self-propelled floater including all supporting services for the exploration of oil and/or gas on turnkey basis). In response to the NIT, EOL submitted its offer on 6th December 1993 which was subsequently clarified / amended. EOL submitted its final priced bid dated 13th January 1995 offering to deploy one Turret Moored Self- Propelled Drillship "Essar Discoverer" on turnkey basis complete with drilling and other associated equipment, personnel and services for the purpose of drilling of exploratory oil and gas wells and performing the Auxilary Operations and services for OIL (referred to in the contract as 'Operator'). After some exchange of correspondence, OIL accepted EOL's offer and a Letter of Intent ('LOI') dated 20th February 1995 was issued. Consequent upon the acceptance of EOL's offer, the parties entered into a contract dated 8th May 1995. CitationOIL INDIA LIMITED. ..... Petitioner Through: Mr. Shanti Bhushan, Senior Advocate with Mr. Navnit Kumar and Ms. Deepika Ghotawar, Advocates. Versus ESSAR OIL LIMITED. ..... Respondent Through: Mr. Sandeep Sethi, Senior Advocate with Mr. Rishi Agrawal, Ms. Megha Mehta Agarwal and Ms. Misha Rohtagi, Advocates. Judgement IN THE HIGH COURT OF DELHI AT NEW DELHI O.M.P. 416 of 2004 & I.A. No. 10758 of 2012 Reserved on: 23rd July, 2012 Decision on: 17th August, 2012 OIL INDIA LIMITED. ..... Petitioner Through: Mr. Shanti Bhushan, Senior Advocate with Mr. Navnit Kumar and Ms. Deepika Ghotawar, Advocates. Versus ESSAR OIL LIMITED. ..... Respondent Through: Mr. Sandeep Sethi, Senior Advocate with Mr. Rishi Agrawal, Ms. Megha Mehta Agarwal and Ms. Misha Rohtagi, Advocates. CORAM: JUSTICE S. MURALIDHAR JUDGMENT 17.08.2012 Introduction 1. Oil India Limited ('OIL') has in this petition under Section 34 of the Arbitration and Conciliation Act, 1996 ('Act') challenged the majority Award dated 6th August 2004 of the three member Arbitral Tribunal ('AT') that adjudicated the disputes between OIL and the Respondent Essar Oil Limited ('EOL') arising out of a contract dated 8th May 1995 entered into between the parties for drilling of offshore wells on turnkey basis offshore Saurashtra Coast, Gujarat and offshore North East Coast ('NEC'), Orissa for the purpose of exploration of oil and/or gas. Background Facts 2. OIL issued Notice Inviting Tender ('NIT') dated 19th July 1993 for setting of four Offshore Exploratory Oil/Gas Wells, three Wells at Saurashtra Offshore of the West Coast of Gujarat and one Well in NEC, Offshore of Orissa (drilled with self-propelled floater including all supporting services for the exploration of oil and/or gas on turnkey basis). 3. In response to the NIT, EOL submitted its offer on 6th December 1993 which was subsequently clarified / amended. EOL submitted its final priced bid dated 13th January 1995 offering to deploy one Turret Moored Self- Propelled Drillship "Essar Discoverer" on turnkey basis complete with drilling and other associated equipment, personnel and services for the purpose of drilling of exploratory oil and gas wells and performing the Auxilary Operations and services for OIL (referred to in the contract as 'Operator'). After some exchange of correspondence, OIL accepted EOL's offer and a Letter of Intent ('LOI') dated 20th February 1995 was issued. Consequent upon the acceptance of EOL's offer, the parties entered into a contract dated 8th May 1995. 4. Certain relevant definitions contained in the contract read as under: "1.1 "Drilling Unit" means the Turret Moored Drillship Essar Discoverer with all equipment supplies and supporting services in good operating condition as detailed in Annexures 2 to 4. 1.3 "Commencement Date" means the date when the drilling unit arrives on first or standby location with all equipment, supplies as detailed in Annexure 2 to 4 and personnel as detailed in Annexure-5. 1.4 "Termination Date" means the date when the drilling unit is released by Operator, all equipment of Operator and other contractors of operator having been off-loaded, and the Drilling Unit is available to contractor after deanchoring for cruising from Demobilization site, i.e. the location drilled last. 1.13 "Operations Base": Contractor shall establish an operations base at Rajkot, Gujarat for Saurashtra Offshore operations and at Bhubaneswar, Orissa for North East Coast Offshore operations, to keep close liaison with Operator and shall ensure that services of operations manager of contractor or his representative shall be available to operator for emergencies. 1.14 "Supply Base": Contractor shall establish a Supply Base at Okha Port, Gujarat and/or any other port suitable to the contractor with prior permission of the Operator to feed drilling operation at Saurashtra Basin. In the event of establishment of base other than at Okha Port all expenses pertaining to shift of operators equipment and materials shall be at Contractor's account. An offshore supply base will also be established by the Contractor at Paradip Port, Orissa for North East Coast Offshore Operations. Both the supply bases should be equipped with cranes, warehouse and storage facilities and shall also receive all the materials of operator for further transportation to the Drilling Unit at such bases." 5. Under Article 2.2, the four offshore wells were to be completed within a period of one year with a provision for extension to complete the Wells, if necessary. The Contractor (EOL) confirmed that the Operator (OIL) shall not have to pay EOL during the extension period required for completing the four wells, except for meal charges beyond 12 Operator's personnel as per the contract and additional day rate operations, if carried out by OIL other than indicated in the contract. The first drilling location was L-2, the second L-3 and third L-4, on the offshore of Saurashtra Coast, Gujarat. The last drilling location was to be L-1 on the NEC, Orissa. Under Article 2.3, a precondition for commencement of actual drilling work by EOL was to be a written declaration drawn and signed at the first drilling location i.e. L-2 by the representatives of the OIL and EOL as to the availability of the equipment, material, other allied items and the fulfillment by EOL of both the personnel requirements and the objective conditions to satisfactorily commence uninterrupted drilling operations by the Drilling Unit ('DU') at the drilling locations. 6. Under Article 3.1, OIL held out that it had a Petroleum Exploration Licence ('PEL') in the Arabian Sea off the Saurashtra Coast, Gujarat and in Bay of Bengal off the NEC. Under Article 3.3, EOL was to provide its drillship (Essar Discoverer) along with material, associated services and personnel. Four locations were to be set up in a period of one year as per the following schedule:
7. The inter-location move time between L-2 and L-3 was one day, from L- 3 to L-4 one day and from L-4 to L-1 fifteen days. The drilling days included 43 days wire line logging period and 9 days coring period. Under Article 3.25, EOL personnel were to inspect all materials to be furnished by OIL upon delivery and were to notify OIL representative of any apparent defect found so that OIL could replace such defective materials. If EOL failed to notify OIL of any defects, it was to be conclusively presumed that such appliances and materials were free from apparent defects. 8. Article 4 dealt with mobilization and demobilization of the DU. Under Article 4.4, the mobilization of the DU could be delayed for better weather conditions, if mutually agreed between OIL and EOL. Article 5 dealt with termination. Under Article 5.1, OIL could by giving 30 days written notice to EOL with a copy to their Head of Team at the drill site, terminate the contract at any time during the period of contract, if OIL was satisfied that EOL "is incompetent and incapable of performing any of its obligations under this contract, including change of any crew member in spite of being advised in writing to improve upon its performance". 9. Under Article 27, the parties agreed that all disputes and differences between them were to be referred to arbitration under the Rules of the Indian Council of Arbitration ('ICA'). The venue of the arbitration was to be New Delhi or Rajkot or Bhubaneswar at the option of OIL. 10. OIL states that there was an initial delay of 6 days in the commencement of the operations at L-2. The first well was spudded only on 14th June 1995. The drilling at L-2 was completed after the expiry of 161 days on 21st November 1995. There was a delay of 119 days in drilling which included 45 days lost for repair of EOL's various equipments and four days lost for cementing squeeze. The inter location move time from L-2 to L-3 took 19 days resulting in a delay of 18 days. The operation at L-3 took 46 days. Three days were lost for improving the cementing of the casing and two days were lost in repairs. The inter location move time from L-3 to L-4, took 8 days thereby causing a delay of 7 days. The delay of 25 days in inter location movement resulted in the stipulated time for drilling being exceeded by 92 days. Consequently, the further inter location movement from L-4 to L-1 was delayed. 11. The work at L-2 commenced on 8th June 1995 and work at L-4 was completed on 16th July 1996, whereas under the contract EOL was obliged to drill all the four wells within 365 days. The inter location movement from L- 4 to L-1 which ought to have been completed on 31st July 1996 did not commence till 3rd September 1996. It is the case of OIL that the drillship (Essar Discoverer) reached at L-1 around 24th September 1996. According to OIL the drill ship did not conform to the definition of a DU in terms of Article 1.1 of the contract. 12. At this stage, it is necessary to note certain relevant facts. By a letter dated 19th July 1996, EOL informed the OIL that the Essar Discoverer was in the process of pulling up BOP stack after release at location L-4 and was awaiting a better weather for travel. The Ministry of Petroleum and Natural Gas ('MoPNG'), Government of India granted PEL for Offshore NEC under the cover of a letter dated 22nd July 1996. 13. In a letter addressed to EOL on 23rd July 1996, OIL pointed out various shortcomings and operational deficiencies in EOL's performance of the contract as noticed during the drilling operation at L-2, L-3 and L-4. EOL replied on 23rd July 1996 denying the contentions of OIL and inter alia setting out decisions of EOL to ensure that the standard of equipment maintenance was further improved. On 13th August 1996, EOL informed OIL that Essar Discoverer had been "waiting on weather till 12th August 1996" and that the period between 18th July and 12th August 1996 should be added to the time allowed for completion of the contract without levying any penalty. 14. By letter dated 20th August 1996, OIL informed EOL that it was "pleased to extend the contract under Article 2.2 for a period for completion of the wells, one in location L-4 in SEP and the other in location L-1 in NEC or until 31st March 1997 whichever is earlier at the same rate, terms and conditions". By a separate letter dated 20th August 1996, EOL informed OIL that it would be able to mobilize to the NEC only by the end of September 1996 and further that the period from October to December was unfit for carrying out drilling operations in the NEC. It also expressed its apprehension that even after mobilization EOL would not be able to complete anchoring and commence drilling operations due to adverse weather conditions. 15. OIL claimed to have written to EOL on 22nd and 24th August 1996 showing various defaults and deficiencies on the part of EOL while drilling the wells at locations L-2 and L-3. This was followed by a meeting which took place between the parties on 26th August 1996 at Rajkot. In the technical presentation made by EOL at the meeting it claimed that it had lost considerable amount of time and money on drilling at location L-2 due to incorrect data provided by OIL and it was in the interest of OIL and the safety of the well to review the drilling programme for location L-1. EOL had carried out a third party inspection of the casing pipes offered by OIL at Bhubaneswar and Paradip. Many of the casings had been rejected due to heavy corrosion and not meeting the required oilfield standards, there was need to immediately replace them. The clearances between 10-3/4" and 8- 5/8" casings were inadequate. Several vital parameters of 14" casing were found in not conformity with API recommendations. It was pointed out that this deficiency had serious consequences endangering the well, the rig and the life of the people on board. This was reiterated by EOL in its letter dated 3rd September 1996 to OIL. 16. On 13th September 1996, EOL informed OIL that Essar Discoverer which had sailed from Okha to location L-1 was estimated to arrive at Paradip on 24th September 1996 and that all associated services required to be provided by EOL would be mobilized in time for the drillship to commence drilling operations on arrival at location L-1. EOL asked OIL to arrange to obtain Offshore Defence Advisory Group (ODAG) clearance as well as other clearance that may be required for the drillship. On 20th September 1996, EOL informed OIL that the drillship had been taken directly to location L-1. On 21st September 1996, OIL insisted that Essar Discoverer should reach at Paradip soon to obtain clearances from the different authorities before moving to location L-1. EOL in response asserted that there was no need for drillship to call at any port. However, OIL's stand in its letter dated 23rd September 1996 was that the Essar Discoverer should be brought to Paradip for taking clearances from the various authorities. In its letter dated 23rd September 1996, EOL stated that the responsibility for obtaining clearance, under Article 9.9(b) of the contract from the naval authorities and ODAG was of OIL. By another letter dated 25th September 1996, EOL informed OIL that it would be charging Day Rate D-3 from 24th September 1996 till such time OIL arranged the clearances. 17. In the meanwhile, on 24th July 1996 itself OIL had written to the Defence Research and Development Organisation ('DRDO') about the drilling in the NEC being proposed to be started by 3rd week of August 1996. The Secretary, MoPNG also wrote a letter dated 11th September 1996 to the Ministry of Defence ('MoD') making a fervent plea for clearance to be granted for oil exploration in the NEC. This was reiterated in a letter dated 25th September 1996 from OIL to the Chief Controller (R&D), MoD. OIL also wrote to the MoPNG on 16th September 1996 stating that it had approached the naval authorities for grant of "No Objection Certificate" ('NOC') and requested the MoPNG also to suitably advise the Naval Headquarters for instructions to appropriate naval command for carrying out the inspection of the drillship immediately. The DRDO rejected the grant of permission for any period after 31st December 1996. In its letter dated 1st October 1996, the DRDO stated that operation in the NEC would be stopped with effect from 1st January 1997, since the zone was needed by the DRDO for undertaking defence related missions. 18. Without mentioning the above efforts made by it to obtain naval and DRDO clearances, OIL wrote to EOL on 1st October 1996, calling upon it to fulfill its contractual obligation to obtain necessary clearance stating that all possible assistance would be provided by OIL in terms of Article 6.9 of the contract. EOL was asked to position its drillship at location L-1 immediately. On 10th October 1996, OIL wrote to EOL stating that it was EOL's obligation to obtain clearance from the Naval Authorities as per Article 6.9 of the contract. It took the stand that the requirement that the OIL should obtain the clearances was outside the provisions of the contract and not acceptable to them. 19. Within two days thereafter on 12th October 1996, OIL addressed the following letter to EOL: "Dear Sirs, Whereas you are incompetent and incapable of performing your obligations under the aforesaid contract, please take notice that Oil India Limited hereby terminates the above contract in terms of the relevant conditions thereof with immediate effect. This is without prejudice and in addition to all other rights and contentions which Oil India Limited has against you under the aforesaid contract and in law." 20. On 11th October 1996, the naval authorities visited the drillship Essar Discoverer, carried out an inspection and granted clearance that was valid till 31st December 1996 which was the period up to which DRDO had also granted permission to OIL. On 18th October 1996, the naval clearance was conveyed to OIL by the Flag Officer Commanding-in-Chief of the Eastern Naval Command. 21. It is the case of EOL that under Article 3.3 of the contract a total time of 163 days had been allocated for completion of drilling at location L-1. By 12th October 1996, OIL realised that only less than 80 days would be available for this purpose up to 31st December 1996 and therefore, the drilling process at location L-1 could not be completed by then. Also, OIL's liability to compensate EOL for non-utiltisation of the DU for the entire period would stand attracted. To avoid this, OIL decided unilaterally to terminate the contract. EOL further contends that this termination was contrary to Article 5 of the contract in terms of which 30 days' prior notice was to be given. Admittedly, no such notice was given by OIL to EOL. As a result of the sudden termination of the contract, EOL was compelled in turn to terminate its contracts with various parties for rig positioning services, supply services, mud logging services, cementing services and ROV services etc. 22. It is the case of OIL that EOL did not have a complete DU at location L- 1 on 24th September 1996. It was supposed to have two Offshore Supply Vessels ('OSV') and one Blowout Preventer ('BOP'). According to OIL only one OSV Nand Cauvery carrying material from Base Station at Okha reached location L-1 on 1st October 1996. The BOP stack had been sent for maintenance to Abu Dhabi, and one OSV was waiting at Dubai. The BOP was loaded on the said OSV by 7th October 1996. It was therefore contended that EOL was not in a position to commence drilling operation at L-1 on the date when the Essar Discoverer reached L-1. 23. On 17th October 1996, EOL submitted three invoices to OIL, one claiming amount in lieu of notice period, the second for demobilization charges after completion of operations at L-4 and the third for Day Rate charges for 18 days on the basis of denial of access to L-1. Arbitral proceedings 24. The disputes and differences were referred to the AT comprising Mr. Justice R.S. Pathak, former Chief Justice of India as Presiding Arbitrator, Mr. Justice Rajinder Sachar, retired Chief Justice of High Court of Delhi and Mr. Justice J.K. Mehra, retired judge of Delhi High Court as co- Arbitrators. EOL filed its statement of claims, claiming the following amounts: "(a) Value of work done but payment not made Rs.113,707 $7,761,754 (b) Wrongful and unauthorized deduction by OIL from Essar's invoices $2,620,460 (c) Expenses incurred by Essar at Rajkot and Bhubaneswar for completing the Well L-2, that is to say, from 17 July 1996 to 3 September 1996. Rs.11,966,059 $837,292 (d) Value of extra work done at Location L-2. $4,377,674 (e) Damage for wrongful invocation of bank guarantee. Rs.6,172,600 (f) Damages for breach of contract. Rs. 502,900,000 $2,180,950" 25. While denying the above claims, OIL filed its counter-claims, which are as under: "1) Recovery of cost being the difference (In Rs.) of the cost between 9-5/8" casing and 7" casing used in well at Loc. L-2. 19,16,923 2) Recovery towards excess payment made to Claimant due to variation in exchange rate in view of delay in drilling of wells in Saurashtra. 1,56,08,446 3) Liquidity damages for the period from 1 August 1996 to 11 October 1996 @ US$7,500.00 per day amounting to US$540,000.00 (Excange rate @ Rs.36.00/US$). 1,94,40,000 4) Delay in inspection of the defendant's materials for Loc.L-1 23,38,644 5). Defendant's third party materials which were not handed over in time as per contract resulting in extra expense to OIL for the period 12 November 1996 to 28 December 1996 (i) Hire charges for wireline logging equipment@US$1,13,000.00 per month for 44 days: $165,733.33 (ii) Production Testing: (a)Hire charges of essential equipment @US$39,631.00 per month for 44 days: $58,125.47 (b)Hire charges of additional equipment @US$18,600.00 per month for 44 days: S$27,280.00 Total : $251,138.80 (Exchange rate @ Rs.36.00/US$) 90,40,997 6) Service of third party (Schlumberger) availed by the Claimant: $47,139.80 (Exchange rate @ Rs.36.00/US$) 16,97,033 7) Telephone and other charges, the services of which have been availed by the Claimant from OIL's different offices: - For Saurashtra Operations: - Telephone charges from November 1995 to 3,24,856 September 1996: - Port space hiring charges at Okha for the period September 1995 to March 1997: 2,04,925 - Port electricity charges paid on behalf of Essar: 4,244 - Car used by Essar: 2,897 - Transportation charges of Dressing Mill as per the request of Essar: 12,000 - Wireless license fee paid by OIL for the period June 1995 to 30th September 1996: 20,267 -Transportation charges for Regan Slope Indicator: 12,000 - Off-loading of OIL's third party contractor's material at Okha: 19,854 - Recovery of excess amount paid while settling Invoice No.EOL/02/96/MISC/6, EOL/02/96/12, 8; EOL/03/96/MISC/20 for boarding and lodging charges of Essar: 78,961 - Expenses for NEC Operation - Telephone charges for the period 16 April 1996 to 15 June 1996 spent by OIL's Bhubaneswar Office: 3,448 - Supply of labour at Paradeep Port paid to Orissa Stevedors Ltd. 92,074 - Amount paid to M/s. M.J. Engineers. 3,000 - Payment made for cleaning and servicing of 30" Casing and wellhead items. 2,876 - Advance rent for Plot paid to Paradeep Port Trust for open area and go-down for the period from 1 October 1996 to 31 December 1996 46,094 - Compressor hire charges, HSD cost etc. paid to Paradeep Port Trust on behalf of Essar. 8,734 Total: 5,08,78,273" 26. The AT framed the following issues: "1. Whether the Claimant or the Respondent was obliged to obtain any clearance for drilling at location L-1 from the Government including DRDO and Naval authorities? 2. Whether under the facts and circumstances of the case the Claimant was incompetent and incapable of performing the contract? 3. Whether under the facts and circumstances, the contract was rightfully terminated by the Respondent? 4. Whether the various claims and counter-claims made by the parties are maintainable under the contractual terms and conditions? 5. Whether under the facts and circumstances, the Claimant is entitled to relief on any or all of its claims? 6. Whether the Respondent is entitled to relief on its counter-claim? 7. To what other relief is the Respondent entitled?" 27. On behalf of EOL Mr. N. Ramesh was examined as CW-1, Mr. A.D. Amladi as CW-2 and Mr. E. Kotylak as CW-3. The said witnesses filed their affidavits and were cross-examined. OIL's witnesses were Mr. Ranabir Sircar, RW-1, Mr. Tradip Kataky, RW-2 and Mr. Dwijaraj Dash, RW-3. They filed affidavits and were cross-examined by EOL. The Majority Award 28. The majority Award dated 6th August 2004 by Justice Pathak and Justice Mehra decided as under: (i) It was OIL and not EOL which was obliged to obtain prior clearances from DRDO and the naval authorities for drilling at location L-1; (ii) OIL failed to prove that EOL was incompetent and incapable of performing the contract. Consequently, the contract was not rightfully terminated by OIL; (iii) EOL was entitled to US Dollar ('USD'): 1,296,880 as acknowledged by OIL towards well completion charges for L-42083.33 being the Day Rate 3 for one hour in terms of Article 4.3 of the contract being the time during which the drillship was on 15th July 1996 waiting for orders from OIL; and 750,000 on account of inter location move from L-4 to L-1; 3,000,000 towards demobilization charges; 540,000 for waiting at location L-1; 2,166 material procured by EOL for OIL 112,388 for Brine Solution 2,580 for Filter Cartridges Rs.50,630 + Rs.25,280 + Rs.37,548 towards telephone and fax charges (iv) EOL was held entitled to (in USD): 124,277 towards delay in payment of invoice dated 1st December 1995 at 12% per annum 12,740 being the interest at 12% per annum for delay in payment of invoice dated 1st January 1996 3,478 towards interest for delay in payment of invoice dated 1st February 1996 27,707 towards interest at 12% per annum on the delayed payment of the well completion charges; (v) EOL was entitled to (in USD) 595,781.25 for wrongful deduction by OIL of Liquidated Damages ('LD') from the invoice raised by EOL, beyond the scope of Article 15.2, 292,101.95 in respect of invoice on account of deductions made disallowing the time spent on remedial jobs 590,000 as regards the deductions made in respect of the period of 409 and 63 hours in December 1995 and January 1996 94,374.30 being 5% retention from the invoice of EOL by OIL 259,375 in respect of claims of EOL upon unjustified deduction from other invoices 313,985 for expenses incurred at Rajkot and Bhubaneswar after completing location L-4 349,423.51 for the cost of additional material purchased and used at location L-2 Rs.7,31,178 as damages for wrongful invocation of the bank guarantee and Rs.15 lakhs towards costs and expenses of litigation. (vi) Interest at 12% per annum from 1st May 1997 till the date of the Award and post-Award interest at 8% per annum till the date of actual payment was awarded to EOL. However, EOL's claim for USD 1,500,000 for compensation in lieu of notice of termination, was rejected. The total claims of EOL allowed were in the sum of USD 8,369,339 and Rs. 68,30,504 together with interest at 12% per annum till the date of the Award and at 8% per annum thereafter till the date of payment. (vii) The following counter-claims of OIL were allowed (in Rs.): 3,28,304 towards reimbursement of telephone expenses (Counter Claim No. 6) 2,51,019 towards hire charges for port space at Okha in Paradip (Counter Claim No.7) 4,244 towards electricity charges (Counter Claim No.8) 2,897 towards hiring charges for cars (Counter Claim No. 9) 20,267 towards wireless licence fee (Counter Claim No. 10) 12,000 towards transportation charges of dressing mill (Counter Claim No. 11) 19,854 towards cost of off-loading third party Contractors' material (Counter Claim No. 12) 1,66,884 towards compensation for labour force provided for inspection of material (Counter Claim No. 14) 77,00,000 towards recovery of material cost (Counter Claim No.15) (viii) The remaining counter-claims of OIL were rejected. A total of Rs. 85,05,469 of OIL's counter-claims were allowed together with interest at 12% per annum till the date of the Award and at 8% per annum thereafter till the date of payment. The Dissenting Award 29. Justice Sachar who gave the dissenting Award first held that OIL could not be held to have acted illegally in terminating the contract. The claim for the inter location move from L-4 to L-1 was rejected, since even up to 18th October 1996, the BOP and OSV were not in a position to reach L-1. The claim for USD 3 million towards demobilization of the DU was allowed. Justice Sachar rejected the claim of EOL in the sum of USD 900,000 for waiting at location L-1. Justice Sachar had rejected the claims for delayed payment of invoices or the reimbursement of the deductions made by OIL. EOL's claims for telephone and fax charges, procurement of material, brine solution, filter cartridges were allowed. EOL's claim for cost of additional material at location L-2, the damages for wrongful invocation of bank guarantee as well as claim for past interest were all rejected. On the claims of EOL that he allowed, Justice Sachar granted post-Award interest at the rate of 12% per annum. Barring one counter-claim relating to entitlement of OIL to refund of the differences between cost of 9-5/8" and 7" casing, all other counter-claims were rejected. On the question of pro rata refund of mobilization charges, EOL was directed to refund to OIL half of USD 6.5 million. Delay in pronouncement of Award and I.A. No.10758 of 2012 30. The first submission by Mr. Shanti Bhushan, learned Senior counsel appearing for OIL, was that the impugned Award was delivered more than three years after it was reserved and extraordinary delay by itself rendered it contrary to the public policy of India. Referring to the judgments of the Supreme Court in Kanhaiyalal v. Anupkumar (2003) 1 SCC 430, Bhagwandas Fatechand Daswani v. HPA International (2000) 2 SCC 13, Anil Rai v. State of Bihar (2001) 7 SCC 318 and R.C. Sharma v. Union of India (1976) 3 SCC 574, he submitted that where an unexplained delay in the delivery of a judgment by a High Court itself gave "rise to unnecessary speculations in the minds of parties to a case" could be the sole ground for it being set aside, then a fortiori an arbitral Award that was delivered after an unexplained delay should be set aside as being opposed to the public policy of India. He referred to the decision in Oil & Natural Gas Corporation Ltd. v. Saw Pipes Ltd. (2003) 5 SCC 705 (hereafter 'the ONGC case') and submitted that the phrase 'public policy of India' was wide enough to include 'some matters which concern public good and the public interest' and expeditious pronouncement of arbitral Awards was one such. 31. Mr. Shanti Bhushan referred to the decision of the learned Single Judge of this Court in Harji Engg. Works Pvt. Ltd. v. M/s Bharat Heavy Electricals Ltd. 2009 I AD (Delhi) 50 and urged that in that case an Award that was delayed for over three years was set aside on that ground by the Court. Mr. Bhushan's attention was drawn to another judgment of this Court on the issue in Peak Chemical Corporation Inc. v. National Aluminium Co. Ltd. 2012 II AD (Delhi) 304 which sought to distinguish the judgment in Harji Engg. Works on facts. OIL then filed I.A. No. 10758 of 2012, praying that since a view contrary to Harji Engg. Works had been taken in Peak Chemical the issue ought to be referred to a larger Bench. In the said application, the Petitioner also sought to formally add a ground to the main petition to challenge the Award on the ground of delay in pronouncement. Referring to the decision in U.P. Power Corporation Ltd. v. Rajesh Kumar 2012 (4) SCALE 687, Mr. Bhushan submitted that a failure to refer the issue to a larger Bench would be a 'deviation from the judicial decorum and discipline'. He referred to the decisions in Tarini Kamal Pandit v. Prafulla Kumar Chatterjee (Dead) by LRs. (1979) 3 SCC 280 and Gurucharan Singh v. Kamla Singh (1976) 2 SCC 152 in support of the amendment sought to the petition to add a ground at the stage of arguments. 32. Mr. Sandeep Sethi, learned Senior counsel appearing for EOL, referred to Rule 58 of the ICA Rules, and submitted that since OIL failed to raise an objection at the first available instance before the AT about exceeding the time limit of two years specified in Rule 63 for completion of the arbitral proceedings and continued to participate even thereafter, OIL should be deemed to have waived such objection as to the delay in the completion of arbitral proceedings and pronouncement of the Award. He referred to Section 4 of the Act and to the decisions in Bharat Sanchar Nigam Ltd. v. Motorola India Private Limited (2009) 2 SCC 337 and Shyam Telecom Ltd. v. ARM Ltd. (2004) 3 Arb.LR 146 (Delhi) and submitted that where a party which knows that the requirement under the arbitration agreement has not been complied with still proceeds with the arbitration without raising an objection it should be held to have waived its right to object. Reliance was placed on the decisions in Indian Oil Corporation Limited v. Devi, Constructions Engineering Contractors (2009) 2 Arb.LR 361 (Madras) (DB) and Reliance Industries Ltd. v. Madan Stores Pvt. Ltd. 146 (2008) DLT 543. It was further submitted that the Petitioner had to demonstrate the prejudice caused to it on account of such delay. Reliance was placed on the decisions in C. Beepathumma v. Velasari Shankaranarayana Kadambolithaya (1964) 5 SCR 836 and Narayan Prasad Lohia v. Nikunj Kumar Lohia (2002) 3 SCC 572. Referring to the decision in National Thermal Power Corporation Ltd. v. Wig Brothers Builders and Engineers Ltd. 2009 (2) Arb.LR 238 (Delhi) Mr. Sethi submitted that an amendment sought to the petition eight years after it was filed, and that too at the stage of final arguments, ought not to be permitted. He further submitted that if OIL was aggrieved by the delay in pronouncement of the Award it could have initiated steps under Section 14(2) read with Section 14(1) of the Act by seeking intervention of the Court. However, it did not do so. 33. The question whether an Award is vulnerable to invalidation on account of the unexplained delay in its pronouncement, in the context of the 1996 Act, was considered by the Supreme Court in the ONGC case in which in para 30 it said: "30. It is true that under the Act, there is no provision similar to Sections 23 and 28 of the Arbitration Act, 1940, which specifically provided that the arbitrator shall pass award within reasonable time as fixed by the Court. It is also true that on occasions, arbitration proceedings are delayed for one or other reason, but it is for the parties to take appropriate action of selecting proper arbitrator(s) who could dispose of the matter within reasonable time fixed by them. It is for them to indicate the time-limit for disposal of the arbitral proceedings. It is for them to decide whether they should continue with the arbitrator (s) who cannot dispose of the matter within reasonable time. However, non-providing of time-limit for deciding the dispute by the arbitrators could have no bearing on interpretation of Section 34. Further, for achieving the object of speedier disposal of dispute, justice in accordance with law cannot be sacrificed. In our view, giving limited jurisdiction to the Court for having finality to the award and resolving the dispute by speedier method would be much more frustrated by permitting patently illegal award to operate. Patently illegal award is required to be set at naught, otherwise it would promote injustice." 34. In Harji Engg. Works Pvt. Ltd., while the later paragraph in the ONGC case which explained when an Award could be said to be contrary to the 'public policy of India' was noticed, the above observations in para 30 were not. In any event, as explained in Peak Chemical Corporation Inc., the decision in Harji Engg. turned on its own facts. The decision in Harji Engg. should not be understood as laid down as an inviolable law that irrespective of the facts and circumstances of a case, if there is delay in pronouncing an Award then it should be set aside. OIL is therefore mistaken in concluding that there is a conflict between the decisions in Harji Engg. and Peak Chemical Corporation Inc. In a subsequent decision in Union of India v. Niko Resources 2012 V AD (Del) 573 the Court noticed both the above decisions and further explained the circumstances under which the delay in pronouncement of the Award could be but one factor, among others, that might persuade the Court to set it aside. It was explained that when an Award was challenged on the ground of delay in its pronouncement, the Court would examine the facts and circumstances and ascertain if such delay had led to the Award being rendered patently illegal or opposed to the public policy of India. On the facts of Niko Resources it was observed that the delay in that case had indeed led to an invalid Award being passed. Consequently, the Court declines the prayer of OIL that the said issue should be referred by the Court to a larger bench. 35. As regards the plea of OIL that it should be permitted to challenge the impugned majority Award, on the ground of delay in its pronouncement, by way of amendment to the petition, the Court notes that this plea was sought to be urged first only in the written submissions filed by OIL on 20th October 2008, four years after the petition was filed. The formal amendment to the grounds was sought only in 2012 during the course of final arguments. In National Thermal Power Corporation Ltd. v. Wig Brothers Builders and Engineers Ltd. the Court did not entertain a plea urged for the first time in written submissions without seeking amendment to the petition. In the present case, since OIL has filed a formal application, although belatedly, seeking permission to amend the petition without urging any new facts, the Court permits it to do so. 36. Turning to the challenge to the impugned majority Award on the ground of delay in its pronouncement, the Court notes that Rule 63 of the ICA Rules, which was applicable to the arbitration agreement between the parties, does set a time limit of two years for the conclusion of the arbitral proceedings by the AT. Rule 58 of the ICA Rules, provides that: "Any party who proceeds with the arbitration with the knowledge that any provision or requirement of these rules has not been complied with and who fails to state his objection thereto in writing, shall be deemed to have waived his right to object." OIL continued to participate in the arbitral proceedings beyond the period of two years without objecting to the delay beyond two years in its completion. The waiver under Rule 58 read with Section 4 of the Act did result. The decisions in Bharat Sanchar Nigam Limied v. Motorola India Private Limited, Shyam Telecom Ltd. v. ARM Ltd. and Indian Oil Corporation Limited v. Devi Constructions support this conclusion. 37. After the AT reserved the Award, and when no Award was pronounced for over a year thereafter, OIL could have, in the first instance persuaded the AT to expedite the pronouncement of the Award and if that was unsuccessful OIL could have filed an application in the Court under Section 14 (2) read with Section 14 (1) (a) of the Act to seek the termination of the mandate of the AT on the ground that there was unreasonable delay in the pronouncement of the Award. Section 14 (1) (a) specifically refers to the failure of the Arbitrator to act "without undue delay". This aspect was adverted to in Union of India v. Niko Resources Ltd. OIL for reasons best known to it did not opt for this course. 38. The Court notices an inconsistency in the plea of OIL as regards its challenge to the impugned Award. OIL states in para 'A' (page 2) and para 18 (page 29) of the petition that it confines its challenge to the extent the impugned majority and dissenting Awards allow the claims of EOL and disallow wholly or partially the counter claims of OIL. In other words OIL accepts the impugned Awards, even if there is a delay in their pronouncements, as long as they allow wholly or partly some of OIL's counter claims. This inconsistency contradicts and deprives OIL's plea of its force. 39. The Court proposes to apply the test explained in Niko Resources to examine if the delay in the pronouncement of the impugned Award has led to its being vitiated in law. As will be discussed hereafter, the impugned Awards, both the majority and the dissenting Awards, are detailed and reasoned and deal with each claim and counter claim at great length. The passage of time since the reserving the Award has not led to any plea or submission of the parties being overlooked. Unlike in Union of India v. Niko Resources Ltd. where this Court found that the majority Award had failed to deal with the issues raised in the dissenting Award, in the present case the majority Award deals with each of the issues dealt with by the dissenting Award. It cannot therefore be said that delay in pronouncement of the Award has rendered it patently illegal or opposed to the public policy of India. 40. The challenge to the impugned Award on the ground of delay in its pronouncement is hereby rejected. Challenge to the majority Award on merits 41. On merits, it was submitted by Mr. Bhushan that one of the essential conditions of the contract which had to be fulfilled by the Respondent was that the DU had to comprise the BOP and OSV at all times and that they had to necessarily be made available to commence the drilling. The obtaining of DRDO and naval clearance was the obligation of EOL and that had to mandatorily precede the commencement of drilling operations. The majority Award erred in holding that the obligation to obtain such clearance was not that of EOL. The majority Award overlooked the undisputed fact that when it reached the L-1 site, the DU did not have the BOP and the two OSVs. 42. Mr. Bhushan pointed out that EOL had acted in defiance of OIL's direction that the DU should report at Paradip port for the purpose of naval clearance. After initially informing OIL that the DU would report at Paradip on 24th September 1996, EOL unilaterally decided to take the DU to L 1 straightway. This was clearly in breach of the contract. Therefore, OIL was justified in concluding that EOL was incapable and incompetent to perform its obligations under the contract. There was no requirement in law that OIL had to give detailed reasons for such conclusions in its letter dated 12th October 1996 terminating the contract. As long as facts and documents on record supported the decision of the OIL, it was perfectly justified in terminating the contract. The requirement under Article 5 was only that 30 days' advance notice of termination had to be given and not a show cause notice. Mr. Bhushan submitted that the majority Award purported to sit in appeal over the decision of the OIL to terminate the contract, which was legally impermissible for it to do. Mr. Bhushan commended for acceptance the conclusion in the dissenting Award that there was no justification for EOL to have taken the DU directly to L-1. Reference was also made to the evidence of Mr. Tradip Kataky, the witness on behalf of OIL. 43. Turning to the majority Award in respect of the individual claims of EOL and counterclaims of OIL, Mr. Bhushan submitted that the drilling operations in relation to the wells at locations L-2, L-3 and L-4 in Saurashtra Offshore were not completed by EOL within the contractually stipulated periods. There were inordinate delays caused by EOL. The 365 days' period for completion of the drilling of all the four wells including the one at L-1 was exceeded. The facts showed that EOL was unwilling to proceed to location L-1 to complete the drilling operations within the stipulated time. The majority Award erred in interpreting Article 15.2 of the contract pertaining to levy of LD charges. There was no justification for the AT to award EOL USD 750,000 for interlocation move from L-4 to L-1 since the interlocation had not been completed as per the terms of the contract. Further, awarding USD 3,000,000 for de-mobilization of the DU was not justified. Awarding of USD 900,000 in favour of EOL for waiting at location L-1 was not justified as the DU as defined in Article 1.1 was not available at Location L-1 and there was no question of EOL being able to commence drilling at L-1. The application of Article 10.7 (B) for awarding a sum of USD 540,000, the awarding of USD 112,388 for procurements made by EOL and the applicability of Article 14.7 for interest on the delayed payments was also challenged. It was submitted that the contract was on a turnkey basis and therefore, the provisions of Article 18.11 were not applicable. The disallowing of the deductions made by OIL by the majority of the AT was also challenged as being contrary to the contractual provisions. The award of the amounts in foreign currency and the award of interest @ 12% per annum from 1st May 1997 till the making of the Award and post-Award interest @ 8% per annum were also challenged. 44. Mr. Sandeep Sethi, learned senior counsel appearing for EOL, referred to the evidence on record which showed that OIL itself had accepted that EOL satisfactorily had drilled the wells at L-2 to L-4. OIL had itself renewed the contract on 20th August 1996 by extending the time for completion of the drilling at L-4 and L-1 up to 31st March 1997.There was no basis for OIL to suddenly conclude on 12th October 1996 that EOL was incompetent and incapable of performing its contractual obligations. OIL was pursuing the issue of grant of naval clearance with the DRDO even as of October 1996. This itself showed that requisite security clearance had to be obtained by OIL from the DRDO and naval authorities. Even before naval clearance could be granted on 18th October 1996, OIL abruptly terminated the contract on 12th October 1996. Mr. Sethi pointed out that the total number of days to be spent on each location, L-1 to L-4 were set out in the contract itself. OIL realized that on account of the delay in obtaining naval clearance, the number of days required for drilling at location L-1 would exceed the outer time limit for carrying such operations, as permitted by the DRDO i.e., 31st December 1996. The liability to pay 'well compensation charges' to EOL damages would accrue in the event that the DU mobilized by EOL at L-1 was unable to be used to its full potential in terms of the contract. OIL would also have to pay EOL the de-mobilisation charges in terms of the contract if the drilling operations at L-1 concluded prior to the scheduled completion date. It was with a view to avoiding this that OIL abruptly terminated the contract. 45. Referring to the decision in Fertiliser Corporation of India Ltd. v. I.D.I Management (U.S.A.) AIR 1984 Del 333, Mr. Sethi submitted that the dissenting Award could not be looked into by the Court for any purpose and even for determining the correctness of the majority Award. It was necessary for the Petitioner to show that the majority Award suffered from patent illegality. It was submitted that the majority of the AT had correctly interpreted the contractual provisions whereas the dissenting Award misread and misinterpreted them. Reliance was placed on the decision in Steel Authority of India Ltd. v. Salzgitter Mannesmann International GMBH 189 (2012) DLT 8 to urge that the scope of interference by the Court with an Award under Section 34 of the Act is limited. The Court is not to sit in appeal over the correctness of the findings of the learned Arbitrator on facts. Decision on merits 46. Before dealing with the submissions on merits, it is necessary to briefly recapitulate the scope of the powers of the Court in a petition under Section 34 of the Act. In McDermott International Inc. v. Burn Standard Co. Ltd. (2006) 11 SCC 181 the Supreme Court reiterated the dictum in the ONGC case and explained that (SCC, p.210): "the public policy violation, indisputably, should be so unfair and unreasonable as to shock the conscience of the Court." Further, "what would constitute public policy is a matter dependent upon the nature of transaction and nature of the statute. For the said purpose, the pleadings of the parties and the materials brought on record would be relevant to enable the Court to judge what is in public good or public interest, and what would otherwise be injurious to the public good at the relevant point, as contradistinguished from the policy of a particular government." It was explained in P.R.Shah, Shares & Stock Brokers (P) Ltd. v. B.H.H. Securities (P) Ltd. (2012) 1 SCC 594 that (SCC, p.601): "A Court does not sit in appeal over the award of an Arbitral Tribunal by reassessing and re-appreciating the evidence." 47. The central issue first determined in the majority Award was whether OIL's decision to terminate the contract by its letter dated 12th October 1996 was justified. In answering the said question in the negative the majority Award referred to the clauses of the contract, the correspondence between the parties and other relevant documents. The Court has perused the contract and the evidence only for the purpose of examining whether the view taken by the majority of the AT was a plausible one or suffers from a patent illegality. 48. Article 5.1 of the contract permits the Operator to terminate the contract "by giving 30 days' written notice to the Contractor's office and/or with a copy to their head of team at drill site." This was subject to the condition that the Operator is satisfied "that the Contractor is incompetent and incapable of performing any of his obligations under this contract including change of any crew member in spite of being advised in writing to improve upon his performance." The wording of Article 5.1 does not give OIL an unrestricted discretion to terminate the contract as was suggested by Mr. Bhushan. The word "satisfied" preceding the conclusion of OIL that the Contractor was "incompetent and incapable" had to be based on some material and not the ipse dixit of OIL. The notice to be given to the Contractor 30 days in advance would have to necessarily set out the reasons for such conclusion. Given the nature of the operations expected to be undertaken by EOL, and the investment it would have to make to execute it, it was but expected that it would be put on notice of any such proposed decision of OIL to terminate the contract. The wording of Article 5.1 also suggests that the ground for termination had to be that despite OIL's "advice" to EOL "in writing to improve upon its performance", EOL had not. This was a further indication that a decision to terminate the contract could not be taken by OIL at the spur of the moment. Article 5.1 is an instance of a power coupled with a duty to act reasonably and fairly. This must therefore be viewed as a mandatory requirement. Admittedly in the present case, this mandatory requirement was not complied with. OIL does not deny that it did not give 30 days' notice of termination to EOL. OIL was therefore in breach of its obligation under Article 5.1 of the contract. 49. The events leading up to the termination do not show that at any point in time OIL had expressed its dissatisfaction with the work done thus far by EOL or had asked EOL to "improve upon its performance." On the other hand, on 20th August 1996, OIL extended the time for EOL to complete the drilling at locations L-4 and L-1 up to 31st March 1997. If OIL was unhappy with EOL's discharge of its obligations under the contract it could not have possibly extended the time for completion of the drilling at locations L-4 and L-1. 50. The two major reasons highlighted by Mr. Bhushan as justifying OIL's decision to terminate the contract was EOL's failure to obtain naval and security clearance for the drilling operations at L-1 and the fact that the DU that reached L-1 was incomplete as it did not comprise the BOP and the two OSVs. In the first place it requires to be noted that under Article 6.9 of the contract the obligation of the Contractor was to obtain and maintain, with the Operator's assistance "all approvals, permits and authorizations required by laws and governmental regulations and orders, for labour, material, services and supplies to be furnished by contractor as specified herein." Significantly, this does not mention security clearance to be obtained by the Contractor. On the other hand Article 9.9 (A) sets out OIL's representation that "it is entitled to carry out in the operating area, the drilling operation herein contracted for." Article 9.9 (B) states that apart from the permits to be obtained by the Contractor under Article 6.9, "Operator shall obtain and keep informed, at its expense, all permits, licences and other governmental authorizations, if any, which are required to be obtained by operator for the performance of the contract." In the present case the PEL for the NEC was granted to OIL only on 22nd July 1996. This however did not mean that drilling could start at L-1 soon thereafter. In terms of Clause (13) of the PEL "at least two months clear advance notice on commencement of exploration work" had to be given to the MoD "so that exploration work does not clash with any naval exercise in the area." Further, under Clause (18) of the PEL "all vessels deployed in the area by contracted companies shall undergo naval security inspection prior to their deployment" and one month's notice was to be given to facilitate clearance. Para 7.2 of Annexure 8 to the contract specified that all permits and licences required to be obtained for the drilling site were the responsibility of OIL. All the above clauses unmistakably show that the obligation to obtain naval and security clearance was that of OIL. The said conclusion of the majority of the AT was not only plausible but based on a correct interpretation of the above provisions of the contract. The view of the dissenting Arbitrator that "it cannot be said with certainty from the record whether naval clearance was the sole responsibility of the claimant or the respondent" is contrary to the unambiguous clauses of the contract and is unacceptable. 51. OIL understood the position correctly as is evident from the fact that it was OIL that applied to ODAG on 5th May 1995 for security clearance for drilling the wells at locations L-1 to L-4. On 24th June 1996 OIL wrote to the DRDO stating that it was starting drilling operations in the NEC by the third week of August 1996 and asked what action was to be taken at its end. It wrote a similar letter to the Flag Officer Commanding-in-Chief at the Eastern Naval Command on 25th July 1996. The letter dated 11th September 1996 from Mr. Vijay Kelkar of OIL to the Scientific Adviser to the Defence Minister is significant. It pleaded that in light of the fact that the "drillship is expected to reach the location in the NEC area and start drilling by the end of September 1996", it was essential "that OIL is given permission, temporarily, for about 7 months till completion of this important exploratory well." It added that in case DRDO's permission was not given it would "lead to OIL's paying about $3.5 million to the contractors on account of early termination of the drilling contract and force majeure condition. Obviously this would make every serious impact on the company's finance." OIL wrote in the same vein to the Secretary MoPNG seeking his intervention "to advise Naval Headquarters, New Delhi to instruct appropriate Naval Command to carry out the inspection of the Drillship immediately." On 25th September 1996, the Director (Exploration and Development) OIL wrote to the Chief Controller (R&D) in the DRDO requesting earnestly for "immediate approval for our drilling operations in the NEC area as the contractor has already moved the drillship into that particular location and is awaiting our clearance." In response on 1st October 1996 the Chief Controller (R&D), DRDO conveyed to OIL that it was agreeable to "a maximum period of 3 months (i.e. up to 31st December 1996) for carrying out the drilling operations." In response to a question in his cross-examination, Mr. Ranabir Sircar, OIL's witness, admitted that "Essar had no role to play in the DRDO clearance." Referring to letters written by OIL seeking security clearance, Mr. Sircar admitted that "permission to drill from DRDO was the obligation of Oil India." 52. Strangely, after this entire exercise was undertaken by it, OIL wrote to EOL on 10th October 1996, not mentioning a word about the DRDO clearance given on 1st October 1996, and asked EOL to obtain security clearance as per Article 6.9 of the contract. This stand of OIL followed by its abrupt termination of the contract two days thereafter was inexplicable. The insistence by OIL that EOL should bring the DU to Paradip was not a requirement of the DRDO or the naval authorities. As it transpired, the naval authorities inspected the DU on 11th October 1996 at the location L-1 and granted naval security clearance by a letter dated 18th October 1996 to OIL with a copy to EOL. This negated the justification for OIL terminating the contract on the ground that EOL had failed to obtain naval and security clearance. EOL could not have commenced drilling operations at L-1 without the above clearances and so the question of it commencing spudding operations immediately upon reaching L-1 did not arise. Before EOL could be conveyed the naval clearance, OIL terminated the contract. At that stage therefore OIL could not have possibly concluded that EOL was incapable or incompetent to perform its obligations. 53. The second reason offered by OIL for terminating the contract was the absence of the BOP and the two OSVs at L-1 when the DU reached there on 24th September 1996. The majority Award has rejected this as not being a valid reason for termination of the contract and the Court finds, for reasons explained hereafter, that this conclusion was correct. There is no dispute that after EOL made two presentations, one at Rajkot on 26th August 1996 and another at Delhi on 2nd September 1996, OIL was satisfied of the drill worthiness and competence of EOL and consented to EOL moving the DU from L-4 to L-1. After the DU left L-4 on 3rd September 1996, daily progress reports were dispatched to OIL till the DU reached L-1. Consistent with its obligation under Articles 6.4 (E) and (F) of the contract, EOL sent the BOP to Abu Dhabi for repairs after dismantling it at L-4. OIL was informed of this by a letter dated 31st July 1996. In terms of the Drilling Programme, set out in Annexure -3 to the contract, the BOP could not have been installed before running and cementing of a casing of diameter less than 18.5/8". The BOP was therefore not required till the 29th day after spudding of the well at L-1. The BOP was overhauled and loaded on to the OSV in the first week of October 1996 and would have reached L-1 in time. The so-called reason for terminating the contract, i.e. the absence of the BOP and OSVs at L-1, was never communicated to EOL. Mr. Ranabir Sircar, a witness for OIL, in his cross-examination when asked if there was "any letter or document addressed to Essar between 1st and 11th October 1996 pointing out to alleged shortcomings relating to material, equipment, OSV and the like" sated "I do not find any document with me at present." Even subsequently no such document was produced before the AT by OIL. The conclusion of the majority of the AT that "the drillship did not contain the BOP and was not accompanied by both OSVs on 1 October 1996 at Location L-1 cannot be made the subject of a grievance by OIL" was correct. 54. As regards the other individual items of claims and counter claims, both the majority Award as well as dissenting Award have analyzed the evidence thoroughly. Merely because another view is possible does not constitute a valid reason for the Court to interfere with the majority Award. Although the Court has perused the entire evidence with the help of counsel, it is not necessary for the Court to discuss the evidence in respect of each claim and counter claim. OIL has been unable to persuade the Court to come to the conclusion that the majority Award in respect of the claims and counter claims suffers from any patent illegality and is opposed to the public policy of India. Conclusion 55. For all the aforesaid reasons, this Court does not find any ground having been made out for interference with the impugned majority Award. The petition is dismissed with costs of Rs.50,000 which will be paid by OIL to EOL within a period of four weeks from today. I.A. No. 10758 of 2012 is disposed of. S. MURALIDHAR, J | ||||||||||||||||||||||||||
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