Centre for Environment and Development v. Kerala Water Authority and Others

## **IN THE HIGH COURT OF KERALA AT ERNAKULAM** ## **PRESENT** ## **THE HONOURABLE MR. JUSTICE T.R.RAVI** **WEDNESDAY, THE 02ND DAY OF DECEMBER 2020/11TH AGRAHAYANA, 1942** ## **WP(C).No.30732 OF 2018(N)** ## **PETITIONER:** **THE CENTRE FOR ENVIRONMENT AND DEVELOPMENT THOZHUVANAMCODE, VATTIYOORKAVU P.O, THIRUVANANTHAPURAM 695013, REPRESENTED BY ITS EXECUTIVE DIRECTOR, DR.BABU AMBAT, RESIDING AT CGRA 20, SOUPARNIKA, CONTINENTAL GARDEN, VATTIYOORKAVU P.O, THIRUVANANTHAPURAM 695013.** **BY ADV. SRI.RINNY STEPHEN CHAMAPARAMPIL** ## **RESPONDENTS:** **1 THE KERALA WATER AUTHORITY REPRESENTED BY ITS MANAGING DIRECTOR, JALA BHAVAN, VELLAYAMBALAM, THIRUVANANTHAPURAM, 695 033.** **ADDL.R2 TO R4 IMPLEADED:** **(ADDL.R2) THE UNION OF INDIA DEPARTMENT OF REVENUE,MINISTRY OF FINANCE,REPRESENTED BY THE SECRETARY(REVENUE),NOIRTH BLOCK,NEW DELHI-110001.** **(ADDL.R3)THE CENTRAL BOARD OF INDIRECT TAXES, DEPARTMENT OF REVENUE,MINISTRY OF FINANCE,GOVERNMENT OF INDIA,REPRESENTED BY ITS SECRETARY,NORTH BLOCK,NEW DELHI-110001.** **(ADDL-R4)THE CHIEF COMMISSIONER OF CENTRAL EXCISE, KERALA ZONE,CENTRAL REVENUE BUILDING,I.S.PRESS ROAD,COCHIN-682018** **(ADDITIONAL R2-R4 IMPLEADED AS PER ORDER DATED 26.10.2018 IN I.A.NO.01/2018)** **R1 BY SRI.P.BENJAMIN PAUL, SC, KERALA WATER AUTHORITY R2 BY ADV. SRI.P.VIJAYAKUMAR** **R4 BY SREELAL N.WARRIER, SC, CENTRAL BOARD OF EXCISE & CUSTOMS** **THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY HEARD ON 02.12.2020, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:** W.P.(C).No.30732/2018 2 ## **JUDGMENT** The petitioner is engaged in providing consultancy services and is recognised by the Department of Scientific and Industrial Research, Government of India. The 1[st] respondent had engaged the services of a consortium of consultants which included the petitioner and four other consultants, one from India and three from outside India, for the purpose of implementation of Japan Bank for International Co-operation (JBIC) aided Kerala Water Supply Project. The engagement was for the period from 01.09.2003 to 31.03.2016. 2. The service provided by the petitioner is exigible to service tax and as per the agreement between the petitioner and the 1[st] respondent, the service tax element is to be reimbursed by the 1[st] respondent to the petitioner. For the period from September, 2003 to June, 2012, the 1[st] respondent had provided the necessary funds to the petitioner for remittance of service tax. On 20.06.2012, the Government of India issued Ext.P2 notification whereby **any activity in relation to** water supply, public health, sanitation conservancy, solid waste management or slum improvement and upgradation were exempted from payment of W.P.(C).No.30732/2018 3 service tax with effect from 01.07.2012. The 1[st] respondent sought clarification from the Superintendent of Central Excise regarding the modification and by Ext.P3, the Office of the Superintendent of Central Excise clarified that the consortium consultancy is eligible for exemption from 01.07.2012 onwards. The 1[st] respondent informed the petitioner that in view of the exemption, their invoices should not include the service tax element. 3. Subsequently, on 11.07.2014, the Government of India issued Ext.P4 notification, whereby the exemption was limited to water supply, public health, sanitation conservancy, solid waste management or slum improvement and upgradation. That is to say, “any activity in relation to” water supply was no longer eligible for exemption from payment of service tax. The above aspect was clarified by Ext.P5 letter dated 10.07.2014. The Government of Kerala sought a clarification from the Government of India on 25.05.2015 and the Government of India by Ext.P6 reply, clarified that services of Consultants do not fall under the ambit of the exemption and is hence liable to be assessed for service tax. 4. The Commissioner of Central Excise issued Ext.P7 demand notice to the petitioner demanding the service tax for the period from August, 2014 to July, 2015, amounting to W.P.(C).No.30732/2018 4 Rs.26,78,564/- with interest and penalty. Since the 1[st] respondent had not provided the amount payable as service tax for the said period, the petitioner was obliged to pay the service tax including interest and penalty amounting to Rs.40,33,452/-. The above facts are not in dispute. The writ petition was filed when the 1[st] respondent failed to reimburse the service tax, interest and penalty paid by the petitioner, despite issuance of legal notice, with the following prayers; “(i) Issue a appropriate writ, order or direction declaring that the respondent is bound to pay the service tax of the Indian Partner Consultant as per Ext.P1 including that of the petitioner. (ii) Issue a writ of mandamus or any other appropriate writ, order or direction commanding the 1[st] respondent to refund to the petitioner the amount covered by Exts.P8 and P9 receipts expeditiously with interest @12% per annum from the date of the payments made by Exts.P8 and P9 receipts within a specific time frame to be fixed by this Hon'ble Court.” 5. Heard Sri Rinny Stephen Chamaparambil on behalf of the petitioner, Sri P.Vijayakumar, ASGI on behalf of the 2[nd] respondent, Sri P.Benjamin Paul, Standing Counsel for the 1[st] respondent and Sri Sreelal Warrier for the 4[th] respondent. 6. The 1[st] respondent has filed a counter affidavit stating W.P.(C).No.30732/2018 5 that since the 1[st] respondent had disputed the levy of service tax and the Government of Kerala has moved the Central Government, the petitioner ought not to have paid the service tax without consulting the 1[st] respondent. The grievance is actually against the levy of service tax by the Central Government and not a denial of liability under the contract between the parties. According to the 1[st] respondent, since the dispute is virtually between the Government of India and the Government of Kerala, they cannot reimburse the amounts paid by the petitioner, till a final decision is taken in the matter. 7. Ext.P1 is the agreement between the parties. The 1[st] respondent is referred to as 'client' in the agreement. Clause 6 of the agreement relates to obligations of the client. Clause 6.1(c) reads thus; “6.1(c). For Indian partner Consultants/personnel:- The Indian Partner Consultants and the personnel shall pay the taxes, duties, fees, levies and other impositions levied under the existing, amended or enacted laws during the life of this contract and the Client shall perform such duties in regard to the deduction of such tax as may be lawfully imposed. **The Service Tax shall however be paid by the Client** .” (emphasis supplied) 8. Going by the agreement, the Indian Partner Consultants W.P.(C).No.30732/2018 6 are to pay the taxes, duties, etc. under the existing, **amended** , enacted clause. However the service tax liability is on the client, that is, the 1[st] respondent. In the above circumstances, the petitioner cannot be found fault with for making payment of the service tax when a demand was raised against it, since nonpayment would have only resulted in further enhancement of the liability by way of interest and penalty. The 1[st] respondent is duty bound under the contract to meet the expenses of the service tax. Admittedly, prior to the exemption granted as per Ext.P2, the 1[st] respondent had provided the amounts for remittance as service tax, for the period from September, 2003 to June, 2012. As such, the 1[st] respondent cannot avoid the said liability for the period from August, 2014 to July, 2015. The consultancy period has also expired in 2016. 9. The counsel for the petitioner relied on the judgment of the Hon'ble Supreme Court in **ABL International Limited and another v. Export Credit Guarantee Corporation of India Ltd.** **and others,** reported in **[(2004) 3 SCC 553]** , in support of his contention that a writ petition under Article 226 is maintainable for a claim under a contract with the State. In the above case, the Apex Court held that Export Credit Guarantee Corporation of India W.P.(C).No.30732/2018 7 Ltd. is an instrumentality of State discharging public function/duty and the High Court can intervene under Article 226 if it is found that the authority is acting contrary to public good and public interest, unfairly, unjustly and unreasonably in its contractual, constitutional or statutory obligations. The Apex Court found that such action is contrary to the constitutional guarantee under Article 14 of the Constitution. The dictum laid down by the Apex Court still holds good. Recently in the decision in **State of U.P. v. Sudhir Kumar Singh and others** reported in **[2020 SCC Online SC 847]** , the Hon'ble Supreme Court has referred to the above decision with approval and stated in paragraph 20 that the principle has been consistently upheld in **Noble Resources v. State of Orissa [(2006) 10 SCC 236]** (at paragraph 15) **; Food Corp. of India v. SEIL Ltd. [(2008) 3 SCC 440]** (at paragraph 16) **; Central Bank of India v. Devi Ispat Ltd. [(2010) 11 SCC 186]** (at paragraph 28) **; and Surya Constructions v. State of U.P. [(2019) 16 SCC 794]** (at paragraph 3). 10. The 1[st] respondent, given the nature of their functions, cannot deny the fact that they are an instrumentality of the State discharging public function/duty. Going by Ext.P1 and the fact that for the period from 2003 to 2012, they had met the payments due W.P.(C).No.30732/2018 8 towards service tax, the 1[st] respondent is not entitled to contend that they are not liable to reimburse the service tax, interest and penalty paid by the petitioner, as demanded. Such a denial is itself, arbitrary, unfair and unreasonable. I therefore hold that the petitioner is justified in praying for a direction to the 1[st] respondent to pay such amounts. 11. Regarding the liability to pay interest, for the amounts expended by the petitioner on behalf of the 1[st] respondent, the counsel for the petitioner relied on the judgment of the Hon'ble Supreme Court in **Union of India through Director of Income Tax v. TATA Chemicals Ltd.** reported in **[(2014) 6 SCC 335]** . The Hon'ble Supreme Court was considering a question whether the Revenue is legally responsible for payment of interest on the refund of tax under the Income Tax Act. In paragraph 38, the Court held as follows; **38** . Providing for payment of interest in case of refund of amounts paid as tax or deemed tax or advance tax is a method now statutorily adopted by fiscal legislation to ensure that the aforesaid amount of tax which has been duly paid in prescribed time and provisions in that behalf form part of the recovery machinery provided in a taxing Statute. Refund due and payable to the assessee is debt-owed and payable by the Revenue. The Government, there being no express statutory W.P.(C).No.30732/2018 9 provision for payment of interest on the refund of excess amount/tax collected by the Revenue, cannot shrug off its apparent obligation to reimburse the deductors lawful monies with the accrued interest for the period of undue retention of such monies. The State having received the money without right, and having retained and used it, is bound to make the party good, just as an individual would be under like circumstances. The obligation to refund money received and retained without right implies and carries with it the right to interest. Whenever money has been received by a party which ex aequo et bono ought to be refunded, the right to interest follows, as a matter of course.” 12. Going by the above dictum, it is abundantly clear that if a person who is obliged to refund the money, “according to right and good” or “from equity and conscience”, retains it, the person entitled to get the money will also be entitled to claim interest as a matter of course. The above said judgment has been later followed by the Hon'ble Supreme Court in the decisions in **Universal Cables Ltd. v. Commissioner of Income Tax, Jabalpur** reported in **[2019 SCC Online SC 1742]** , and **K.Lakshmanya & Company v. Commissioner of Income Tax and another** reported in ## **[(2018) 11 SCC 620].** 13. In the result, the writ petition is allowed. The 1[st] respondent is directed to pay to the petitioner, the sum of W.P.(C).No.30732/2018 10 Rs.26,78,564 and Rs.13,54,888/- paid as per Exts.P8 and P9 on 14.02.2017 and 20.02.2017, along with interest at the rate of 9% per annum on the said amounts from the dates of Exts.P8 and P9 respectively, till the date of payment. The 1[st] respondent shall pay the amounts within a period of three months from the date of receipt of a copy of this judgment. It is made clear that in the event the 1[st] respondent through the State of Kerala is able to prevail upon the Central Government and get extension of the exemption granted in Ext.P2 till the completion of the consultancy agreement with the petitioner, they will be entitled to get repayment of such amounts paid from the Central Government. The parties will bear their respective costs. Sd/- **T.R. RAVI JUDGE** dsn W.P.(C).No.30732/2018 11 ## **APPENDIX** ## **PETITIONER'S EXHIBITS:** - **EXHIBIT P1 A TRUE COPY OF THE RELEVANT PAGES OF AGREEMENT NO. KWA/HO/JBIC/2003-04 DATED 19/06/2003** - **EXHIBIT P2 A TRUE COPY OF NOTIFICATION NO. 25/2012-SERVICE TAX DATED 20/06/2012 ISSUED BY THE GOVERNMENT OF INDIA** - **EXHIBIT P3 TRUE COPY OF LETTER DATED 02.04.2013 ISSUED BY SUPERINTENDENT OF CENTRAL EXCISE, THIRUVANANTHAPURAM** - **EXHIBIT P4 TRUE COPY OF RELEVANT PAGES OF NOTIFICATION NO. 6/2014 DATED 11/07/2014 BY THE GOVERNMENT OF INDIA** - **EXHIBIT P5 A TRUE COPY OF RELEVANT PAGES OF LETTER NO. D.O.F. NO. 334/15/2014 TRU DATED 10/07/2014 ISSUED BY THE MINISTRY OF FINANCE, GOVERNMENT OF INDIA** - **EXHIBIT P6 A TRUE COPY OF OFFICE MEMORANDUM DATED 23/06/2015 ISSUED BY THE MINISTRY OF FINANCE** - **EXHIBIT P7 TRUE COPY OF RELEVANT PAGES OF THE DEMAND NOTICE DATED 13/02/2017 ISSUED BY THE OFFICE OF THE COMMISSIONER OF CENTRAL EXCISE. KOCHI** - **EXHIBIT P8 A TRUE COPY OF E-RECEIPT DATED 14/02/2017 FOR CENTRAL SERVICE TAX PAYMENTS** - **EXHIBIT P9 A TRUE COPY OF E-RECEIPT DATED 20/02/2017 FOR CENTRAL SERVICE TAX PAYMENTS** - **EXHIBIT P10 A TRUE COPY OF THE LETTER DATED 30/03/2017 ISSUED BY THE PETITIONER TO THE RESPONDENT** - **EXHIBIT P11 A TRUE COPY OF THE NOTICE DATED 03/04/2018 ISSUED BY THE PETITIONER TO THE RESPONDENT** - **EXHIBIT P12 A TRUE COPY OF THE LEGAL NOTICE DATED 29/05/2018 ISSUED TO THE RESPONDENT**