TJSV Steel Fabrication and Galvanizing (India) Ltd. v. Kerala State Electricity Board

## **IN THE HIGH COURT OF KERALA AT ERNAKULAM** **PRESENT:** **THE HONOURABLE MR.JUSTICE A.M.SHAFFIQUE** **THURSDAY, THE 8TH DAY OF DECEMBER 2016/17TH AGRAHAYANA, 1938** ## **WP(C).No. 19861 of 2016 (G)** **------------------------------------------** ## **PETITIONER(S) :** **-------------------------** **TJSV STEEL FABRICATION AND GALVANIZING (INDIA) LTD., GUDIMANGALAM, KONDAMPATTI, TAMIL NADU 642 201.** **BY SRI.M.PATHROSE MATTHAI (SENIOR ADVOCATE) ADVS. SRI.SAJI VARGHESE SMT.MARIAM MATHAI** ## **RESPONDENT(S) :** - **-----------------------------** **1. KERALA STATE ELECTRICITY BOARD, VYDYUTHI BHAVANAM, PATTOM, THIRUVANANTHAPURAM 695 004, REPRESENTED BY ITS CHAIRMAN.** **2. THE ASSISTANT COMMISSIONER OF CENTRAL EXCISE, EXCISE, CUSTOMS & SERVICE TAX, JOTHI NAGAR 'D' COLONY, POLLACHI 642 001.** - **R1 BY SRI.RAJU JOSEPH (SENIOR ADVOCATE) ADV. SRI.SAJEEVKUMAR K.GOPAL, S.C ADV. SRI.GEORGEKUTTY MATHEW, S.C R2 BY ADV. SRI.THOMAS MATHEW NELLIMOOTTIL, S.C ADV. SMT.SHEELA DEVI.I., S.C** **THIS WRIT PETITION (CIVIL) HAVING COME UP FOR ADMISSION ON 08-08-2016, THE COURT ON 08-12-2016 DELIVERED THE FOLLOWING:** Msd. **------------------------------------------** ## **WP(C).No. 19861 of 2016 (G)** ## **APPENDIX** ## **PETITIONER(S)' EXHIBITS :** **P1 TRUE COPY OF THE AGREEMENT DATED 19-10-2012 BETWEEN THE PETITIONER AND THE RESPONDENT.** - **P2 TRUE COPY OF THE UNDERTAKING GIVEN BY THE 1ST RESPONDENT BOARD TO THE ASSISTANT COMMISSIONER OF CENTRAL EXCISE, POLLACHI DIVISION DATED 12-10-2012.** - **P3 TRUE COPY OF THE NOTIFICATION NO. 214/86-CE DATED 25.03.1986 ISSUED BY THE CENTRAL GOVERNMENT.** - **P4 TRUE COPY OF THE LETTER DATED 03-03-2016 FROM THE PETITIONER TO THE CHAIRMAN OF THE 1ST RESPONDENT.** - **P5 TRUE COPY OF THE DATED 18-03-2015 FROM THE PETITIONER TO THE DIRECTOR (GENERATION & HRM).** - **P6 TRUE COPY OF THE AGREEMENT DATED 09.12.2013 EXECUTED WITH CALICUT CIRCLE OF THE 1ST RESPONDENT.** **RESPONDENT(S)' EXHIBITS :** **EXHIBIT R1(A): TRUE RELEVANT EXTRACT OF THE ADDITIONAL CONDITIONS OF CONTRACT ENTERED INTO BETWEEN PETITIONER AND 1ST RESPONDENT.** **//TRUE COPY//** **P.S.TO JUDGE.** Msd. ## **A.M. SHAFFIQUE, J.** ## =============== W.P. (C) No. 19861 of 2016 ================== Dated this, the 8[th] day of December, 2016 ## **J U D G M E N T** Writ petition is filed challenging Ext.P5 and seeking for a direction to the 1[st] respondent to pay the petitioner a sum of `1,63,05,069/- with 18% interest. Ext.P5 is an order passed by the Kerala State Electricity Board on 18/3/2016 informing the petitioner that the deduction made from the bills of the contractor was based on mutually agreed terms and therefore it will not be correct to refund the excise duty. 2. The short facts involved in the writ petition would disclose that the petitioner is a company engaged in the business of steel fabrication and hot dip zinc galvanizing. They entered into an agreement with KSEB for galvanizing on job work basis, semi finished iron and steel products of electric line materials. Ext.P1 is the agreement dated 19/10/2012 and it is stated that another agreement was also executed for the very same quantity on 1/9/2013. 3. The petitioner raises a question regarding the terms of W.P(C) No.19861/16 -:2:- the agreement especially Article VII which provides that all duties and taxes including Excise Duty, Sales tax, Value Added Tax, Entry Tax etc, if any, will have to be borne by the contractor. It is submitted that excise duty liability, if any, to be borne by the contractor is limited to the excise duty payable for the galvanization job work. Reference is made to Ext.P2, an undertaking given by the Board to the Assistant Commissioner of Central Excise, Pollachi Division stating that the goods are send for job work for galvanization and the Board undertook that the goods returned from the job worker shall be used in or in relation to the manufacture of final products or cleared on payment of duty for home consumption and they also undertook the responsibility of discharging the liabilities in respect of Central Excise duty leviable on final goods. Petitioner submits that they completed the job work in terms of the agreement. However, the respondent Board deducted a sum of `1,63,05,069/- alleging to be central excise duty on the job work of galvanization on the semi finished goods from the bills issued by the petitioner alleging W.P(C) No.19861/16 -:3:- that it is based on agreement between the parties. Petitioner relies upon Ext.P3 notification No.214/86 wherein exemption is granted from payment of excise duty on semi finished galvanized work as job work from the factory. Petitioner therefore addressed a letter to the Chairman of the Board requesting for refund of the aforesaid amount, but the same came to be rejected as per Ext.P5 letter dated 18/3/2016. Alleging that the recovery is bad in law and not in terms with the contract, this writ petition is filed. 4. Counter affidavit is filed on behalf of the 1[st] respondent Board inter alia stating that in Article VII of Ext.P1, it is clearly mentioned that the amount quoted is inclusive of all taxes and duties which includes excise duty as well. The excise duty liability to be borne by the contractor is limited to the excise duty payable for the galvanization alone at the applicable rate. It is stated that Board has right to recover all charges on account of galvanization process if any occurring in future. It is further stated that other than the general conditions in Ext.P1, additional conditions have been incorporated which is produced as Ext.R1(a). It is further W.P(C) No.19861/16 -:4:- stated that from the year 2011 onwards, galvanization process is declared as dutiable item as per Chapter 72 of Central Excise Tariff Act. The Board refers to two options for moving materials from their premises to the job worker. First option is to create excise invoice to transfer the material in semi finished stage after remitting excise duty and obtaining back the products after galvanization showing remittance of excise duty on the finished goods. Second option is to transfer the semi finished goods to the galvanization contractor treating the work as job work as part of manufacturing excisable goods. The second option was available as per notification No. 214/86 dated 25/3/1986 produced as Ext.P3. It is contended that excise duty as such is not exempted but the exemption is only to the job worker in respect to the job specified in column No.1 of the table annexed to the notification. It is therefore contended that though the job worker is exempted from the liability to pay excise duty, it is shifted to the principal manufacturer, the 1[st] respondent, which is clear from Ext.P3 notification. Board therefore justified their ## W.P(C) No.19861/16 ## -:5:- stand in the matter. 5. A reply affidavit has been filed by the petitioner reiterating their stand in the matter and producing another agreement dated 9/12/2013 entered with the 1[st] respondent Board with reference to Calicut circle. 6. Heard the learned senior counsel appearing for the petitioner and learned counsel appearing on behalf of the respondents. 7. Primarily it is evident that the claim made by the petitioner is with reference to a contractual obligation between the parties arising out of the terms of a contract. The question to be considered is whether the petitioner is under obligation to pay any excise duty payable for the galvanization work carried out by him or not as per the terms of contract. The terms of the contract is not in dispute. Ext.P1 is the agreement. Article II refers to payment by which the Board has agreed to pay the contractor a certain sum of money inclusive of all taxes and duties for the work as shown in the schedule of items which includes all the items of ## W.P(C) No.19861/16 -:6:- the work contemplated under the agreement at the rates mentioned therein and the additional conditions of contract of volume III etc. That the work is a job work is also not disputed. Article VII which is the subject matter in issue reads as under:- _“The amount expected is inclusive of all taxes and dues. All duties and taxes (including Excise Duty, Sales Tax, Value Added Tax, Entry Tax, if any etc ) will have to be borne by the contractor. But the excise duty liability to be borne by the contractor shall be limited to the excise duty payable for the galvanization work alone at the applicable rate, which shall be recovered from the bills of the contractor as excise duty for the galvanization part. The galvanization of line materials shall be arranged as job work by transferring fabricated materials through chellan. Board has right to recover all tax liability on account of galvanization process, if any, occur in future from the contractor. The contractor should furnish Kerala Government Sales Tax, Central Sales Tax and Excise registration numbers”._ 8. Petitioner places reliance upon Ext.P3 exemption notification and contends that there is no excise duty payable for job work. Ext.P3 is a notification by which exemption has been W.P(C) No.19861/16 -:7:- given to all the goods used in the manufacture of final products on job work basis. As per the exemption notification, the Central Government has in exercise of powers vested in it under Section 5A of the Central Excise Act, 1944 read with Section 3(3) of the Additional Duties of Excise (Goods of Special Importance) Act, 1957 and Section 136(3) of the Finance Act, 2001 exempted goods specified in column (1) of the table “manufactured in a factory as a job work and used in relation to the manufacture of final products specified in column (1) of the table”. Column (1) of the table includes all goods falling under the First Schedule to the Central Excise Tariff Act, 1985, other polyester filament yarn falling under heading 5402 and tariff item 5406 00 10, light diesel oil, high speed diesel oil and motor spirit, commonly known as petrol. The final product is all goods falling under the First Schedule falling under Central Excise Tariff Act, 1985, other than matches. It is therefore apparent that as far as the job work of galvanization is concerned, it is exempted from payment of excise duty. That exemption will apply to the final products also as it W.P(C) No.19861/16 ## -:8:- comes under the First Schedule to the Central Excise Tariff Act. In such an event, if the job work of galvanization part is exempted from payment of excise duty, there is no reason why the Board is under obligation to pay the said amount. 9. Learned counsel appearing for the Board has placed reliance on a judgment in _**Rashtriya Ispat Nigam Limited v. Dewan Chand Ram Saran**_ [(2012) 5 SCC 306] to contend that nothing in law prevents a statutory assessee from entering into agreement with another party that the burden of all indirect tax arising out of obligations of promisor under contract would be borne by the promisor. In the above judgment, it is held that service tax being an indirect tax can be passed on to another party by entering into contract even though he is not the assessee under the statute. It is therefore contended that when the liability to pay excise duty is undertaken by the contractor, and he has further agreed that it could be recovered from the bills periodically, there is no reason why the petitioner should seek refund of the tax. W.P(C) No.19861/16 -:9:- 10. On the other hand, it is contended that when the Board enters into a contract with a private party, they are expected to act reasonably and fairly. When there is no obligation to pay excise duty on a job work being carried on by the petitioner and it is an exempted feature, there is no reason why such an amount should be recovered, which would also amount to unlawful enrichment on the part of the Board. 11. In the counter affidavit filed by the 1[st] respondent, their contention is that there is no total exemption of goods in respect of the manufacture made by the job worker. In other words, it is stated that a careful reading of the notification would show that while the job worker is exempted from the liability to pay excise duty, it is shifted to the principal manufacturer. Para (a)(2)(iii) reads thus:- _“(2) The exemption contained in this notification shall be applicable only to the said goods in respect of which,_ _(iii) The said supplier undertakes the responsibilities of discharging the liabilities in respect of the Central Excise duty leviable on the final products.”_ W.P(C) No.19861/16 ## -:10:- Explanation 1 which forms part of the notification reads as under:- _“For the purposes of this notification, the expression “job work” means processing or working upon of raw materials or semi- finished goods supplied to the job worker, so as to complete a part or whole of the process resulting in the manufacture or finishing of an article or any operation which is essential for the aforesaid process.”_ 12. From the notification it is rather clear that in respect of the job work undertaken by a person, no excise duty is leviable. But the excise duty is leviable for the final product. When there is no excise duty for the job work portion for which a consideration has been agreed upon, the Board is also entitled to claim exemption for that part of the consideration paid for the job work. This is clear from the words used in the notification “ _exempts goods specified in column (1) of the table hereto annexed manufactured in a factory as a job work and:- (a) used in relation to the manufacture of final products specified in column (1) of the said table”_ . For that part of the work done through job work, there is a complete exemption but as far as the final product is W.P(C) No.19861/16 ## -:11:- concerned, the supplier shall be liable to pay central excise duty. Therefore, the contention of the Board that they are under obligation to pay central excise duty on the job work cannot be accepted. No doubt, Board will be under obligation to pay central excise on the final product but not for the job work. Therefore, the words , “if any”, occurring in Article 7 gains much importance. No doubt, the contract also contains a provision that the excise liability duty to be borne by the contractor shall be limited to the excise duty payable on galvanization alone at the applicable rate which shall be recovered from the bills of the contractor as excise duty for the galvanization part. But, when there is no such obligation as per exemption notification, either on the contractor or on the manufacturer, the Board, recovery is bad in law. Board has no case that they have remitted any excise duty for the galvanization part of the work which was undertaken by job work to the excise department. No such material is produced before this Court to prove the said fact, though it is contended that excise duty is paid for the final product. W.P(C) No.19861/16 ## -:12:- 13. Learned counsel for the petitioner placed reliance on a judgment in _**Ramana Dayaram Shetty v. International Airport Authority of India**_ (AIR 1979 SC 1628) to contend that action of the state must be fair, reasonable and just. If any person is subject to arbitrary and unfair action by an agency or instrumentality of the Government, this Court will be justified in granting relief under Article 226 of the Constitution of India against such arbitrary or unfair act. 14. Though it is contended that on the basis of _**Rashtriya Ispat Nigam Ltd**_ (supra), the liability for payment of tax can be passed on to another by entering into a contract, there is no such situation in the present case. In the case on hand, as far as the job work of galvanizing is concerned, the same is exempted from payment of excise duty. Therefore, that benefit will be available to the Board as well and not to the job worker alone. In such circumstances, I am of the view that the retention of the amount by the Board would result in unlawful enrichment on the part of the respondent especially in the light of Ext.P3 notification by W.P(C) No.19861/16 ## -:13:- which an exemption has been granted by the Government for job works. In Ext.P5, reference is only made to the terms of the agreement and it is stated that the Board is liable to pay the excise duty on the finished product. It is also stated that Board remitted the amount based on the purchase of materials, fabrication charges, galvanization and all other expenses less CENVAT credit to the excise department. But no material is produced to indicate that the Board had paid excise duty on the consideration part of the job work undertaken by the petitioner. If so, the same would have been mentioned in the counter affidavit with necessary materials. No such materials are forthcoming to indicate that the Board had incurred expenditure for payment of excise duty for the job work given in favour of the petitioner. Having regard to my finding that the job work involved in the present contract was not leviable with excise duty, necessarily, the said amount is liable to be refunded. In the said circumstances, I am of the view that petitioner is entitled to seek refund of the amount deducted towards excise W.P(C) No.19861/16 **==> picture [27 x 9] intentionally omitted <==** duty and accordingly, this writ petition is disposed of as under:The 1[st] respondent shall refund to the petitioner, an amount of `1,63,05,069/- (Rupees One crore sixty three lakhs five thousand and sixty nine only) with interest at the rate of 9% per annum from 1/6/2016, the date of filing the writ petition, till the date of payment. Sd/- **A.M. SHAFFIQUE, JUDGE** Rp //True Copy// P.S to Judge