National Highways Authority of India vs M/s. JSC Centrodorstroy

Rajiv Shakdher, J.—In the captioned petitions, the issues involved are common. The first issue relates to compensation for additional cost on account of increase in the rate of service tax on insurance premium under the insurance policy taken qua the project in issue. The second issue also involves compensation towards additional cost incurred on account of increase in the rate of service tax, though qua bank guarantee charges. The arbitral tribunal in both cases has ruled in favour of the respondent based on its construction of clause 70.8 of the General Conditions of the Contract (GCC). The relevant extract of clause 70.8 reads as follows:

If after the date 28 days prior to the latest date for submission of tenders for the Contract there occur in the country in which the Works are being or are to be executed changes to any National or state Statute, Ordinance, Decree or other Law or any regulation or by-law of any local or other duly constituted authority, or the introduction of any such State Statute, Ordinance, Decree, Law, regulation or by-law which causes additional or reduced cost to the contractor, other than under the preceding Sub-Clause, in the execution of the Contract, such additional or reduced cost shall, after due consultation with the Employer and the contractor, be determined by the Engineer and shall be added to or deducted from the Contract Price and the Engineer shall notify the Contractor accordingly, with a copy to the Employer. Notwithstanding the foregoing, such additional or reduced cost shall not be separately paid or credited if the same shall already have taken into account in the indexing of any inputs to the Price Adjustment Formulae in accordance with the provisions of Sub-Clauses (1) to (7) of this Clause.

A bare reading of the said clause would show that it entitles the aggrieved party to an increase or reduction in the costs which rises on account of the changes to the National or State Statute, Ordinance, Decree etc.

Admittedly, there was an increase in the rate of service tax both for insurance premium as well as bank guarantee charges. In case of insurance premium the rate of service tax increased from 5% to 8% in 2003 and thereafter, there were further increase in the rate of service tax. This aspect is referred to in paragraph 3.3 of the award passed in OMP No. 623/2013. Similarly, there was an increase in the rate of service tax on bank charges from 10.2% to 12.24% in 2006, and thereafter followed by further increase. This aspect is referred to in paragraph 7.5 of the very same award dated 28.02.2013 passed in OMP No. 623/2013. These basic facts are not disputed by the counsels for the parties.

Learned counsel for the petitioner, however, says that clause 70.8 of the GCC would only take care of increase in those costs which have a constructional input element.

According to me, this submission of learned counsel for the petitioner has to be rejected for two reasons. First, that it does not conform to a bare reading of clause 70.8 of the GCC culled out above. Second, that this issue is covered in at least three judgments of the Division Bench of this court, passed in the following cases:

(i) Judgment dated 18.09.2012, passed in FAO(OS) No. 451/2012, titled National Highways Authority of India vs. Oriental Structural Engineers Pvt. Ltd.;

(ii) Judgment dated 08.11.2012, passed in FAO(OS) No. 48/2012, titled National Highways Authority of India vs. Hindustan Construction Company, and

(iii) Judgment dated 02.08.2013 passed in FAO(OS) No. 347/2013 titled National Highways Authority of India vs. M/s. Sew Infrastructure Limited.

In FAO(OS) No. 347/2013 the issue was with regard to increase in costs on account of increase in local VAT; in FAO(OS) No. 48/2012 the increase was on account of toll tax and service tax on transportation; and the third judgment, i.e., judgment in FAO(OS) No. 451/2012, related to an increase in sales tax on fuels. In view of the above, the captioned objections are dismissed.