THE SECURITY PRINTING AND MINTING CORPORATION OF INDIA LIMITED AND ANR. v. M-S. GANDHI INDUSTRIAL CORPORATION

Citation: [2007] 11 S.C.R. 86

Court: Supreme Court of India

Bench: A.K. MATHUR, D.K. JAIN

Case summary

THE SECURITY PRINTING AND MINTING CORPORATION OF INDIA LIMITED AND ANR. v. M-S. GANDHI INDUSTRIAL CORPORATION.pdf

Judgment text

THE SECURITY PRINTING AND MINTING CORPORATION OF INDIA LIMITED AND ANR. v. MIS. GANDHI INDUSTRIAL CORPORATION OCTOBER 12, 2007 [A. K. MATHUR AND D. K. JAIN, JJ. ] )- Contract: Terms of contract vis-a-vis terms of tender/ 'r advertisement-Binding effect of-Held: Once contract comes into existence between parties they are bound by it and not by terms of tender/advertisement-On facts, tender not containing clause regarding non-availability of modvat credit to claimantmanufacturer-Whileplacingorder, appellant added term that modvat credit availed by claimant would be passed on to it-Claimant protested but continued with contract-Hence, claimant bound by contract and has to restore modvat credit received by it to the appellant-Terms ofcontract were very clear and understood by --\ claimant-Principle ofsub silentio not applicable. !

~ Central Excise Rules, 1944: Rule 57A-Modvat credit- Entitlementfor-Held: Appellant issuedgate passes and documentary evidencefor payment ofexcise duty on which claimant claimed benefit ~ ofmodvat credit-Hence appellant is entitled to benefit ofmodvat credit as it hadpaid excise duty. On 2. 6. 1994, the appellant floated tenders for gumming and ,_ super calendaring work. The claimant received the order, The r· appellant while placing orders on 31. 5. 1994 added a terr~ that the "! modvat credit ifany, availed by the claimant would be passed on to the appellant. The claimant by its letter dated 5. 6. ~995 agreed to accept the order subject to withdrawal ofthe term refating to passing of modvat credit to the appellant. The appellant did not respond but fonvarded base paper to the ~ I -+ · SECURITYPRINTINGANDMINTINGCORPN. OFINDIA 87 LTD. v. GANDHIINDUSTRIALCORPN. ;.. __ Claimant to carry out the work ofgumming and super-calendaring of base paper.

The finished goods were delivered by the claimant along with necessary documents including the gate passes for endorsement by the appellant. The claimant had been reminding them from time to time that the modvat credit is only available to the manufacturer i. e. the claimant. By letter dated 30. 12. 1995, the appellant informed that the modvat credit availed by the claimant -f would have to be transferred to the appellant. Though the claimant did not accept the same but the view of the appellant remained ""'! " unchanged. Finally on 25. 7. 1996, the appellant informed the claimant that the modvat credit availed by the claimant after 1996 would be adjusted by deduction of the amounts payable to the claimant. Accordingly, the modvat credit availed by the claimant was deducted. Matter was referred to arbitration. Arbitrator decided in favour of claimant and awarded Rs. 50 lakhs. Single Judge ofHigh Court and Division Bench of High Court affirmed the view ofthe arbitrator.

Hence the present appeal. ';.. / Allowing the appeal, the Court )_ HELD: 1. The view taken by the Arbitrator and affirmed by the Single Judge and the Division Bench ofthe High Court cannot be sustained. Firstly, when the terms and conditions had been reduced in the supply order dated 31. 5. 1995, the condition ofmodvat credit was incorporated. The contract had come into existence and the supply had been started on the basis ofthat supply order. Though the claimanthad protested with regard to this clause but the appellant did not accede to the request for deleting that clause and the . ,. appellant had informed the claimant on 31. 12. 1995 that there was . ,,. no change in the conditions of the supply order, still claimant continued to supply the goods as per the order. Therefore, on the face ofthis condition there is no going back from that. In case the claimant was not inclined to accept this clause, it could have very well withdrawn from the contract.

But it did not do so and continued '> with the contract. Therefore,. on the basis of the clear terms of the contract, the claimant is bound by it and it has to restore whatever the modvat credit received by it to the appellant. [Para 8] [97-B-E] \ +- 88 SUPREME €0URT REPORTS [2007] 11 S. C. R. A 2. The view taken by the Arbitrator that since it was not the condition when the tender was floated is not correct as after the complete contract having come into existence, there is no purpose to refer to the terms of tender. What is binding is the completed contract and not the terms of offer of the advertisement. There is no two opinion in the matter in the present case that the terms and conditions of the supply order dated 31. 5. 1995 were complete. [Para 8)(97-E-G] r 3. It is true that normally the Courts are very slow in interfering -y with the finding and interpretation given by the Arbitrator.

But the fact remains that if any perverse order is passed, then the Courts are not powerless to interfere with the matter. [Para 8] (97-G-H~ 98-A] 4. There is no question ofprinciple ofsub silentio involved. The terms and conditions ofthe contract are very clear and it was clearly understood by the claimant as it protested that the condition with regard to Modvat credit should not be allowed to continue in the -{ terms and conditions of the contract and the same may be deleted which is evident from the communication dated 5. 6. 1995 and .. >. __ 20. 6. 1995. Therefore, there was no misunderstanding. More so, the modvat credit is available in order to avoid double taxation on the papers which were imported by the appellant after paying the excise duty and therefore, the claimant claimed the benefit ofexcise duty paid by the appellant. The appellant had issued gate passes and documentary evidence for the payment ofexcise duty on which the claimant claimed the benefit of modvat credit.

Therefore, on that count also the benefit could legitimately be claimed by the appellants r as they have paid the excise duty also. [Para 9] (98-C-F] ""! " Oil & Natural Gas C01poration Ltd. v. Saw Pipes Ltd. , (2003] 5 SCC 705; Centrotrade Minerals & Metals Inc. v. Hindustan Copper Ltd. , (2006] 11SCC245, held inapplicable. Ramji Dayawala & Sons (P) Ltd. v. Invest Import, (1981} 1 SCC is true that when the advertisement was issued there was no such condition but when the purchase order was is$ued it clearly stipulated this condition and it was accepted by the claimant, though it protested which is evident from the communication dated 5. 6,1995 which reads as under " GANDHI INDUSTRIAL CORPORATION SPEED POST GIC/ISP/S. 0. 291/95/079/95-96 5. 06. 1995 The General Manager, India Security Press, Nashik Road, C. Rly. Dear Sir, Reg: Your S. O. No. PR-30(Adh)/291/95 dt. 31. 5. 95 For SECURITY PRINTING AND MINTING CORPN. OF INDIA 9'.

3 Gumming & Supercalendaring ofall over Ashoka Pillar Watennarked Stamp Base Paper Reels and Cutting into Reels & Sheets. We acknowledge the receipt ofyour above referred Supply Order dt. 31. 5. 95 and have to infonn you that since there was considerable delay in its finalization, our entire costing has gone awary as our plant and labour, all tailor made only for doing your above said job have remained idle for the last 5 months, putting us to a great loss. Our capacity utilization during 1994-95 was utilized. Such under utilization ofour capacity is going on since last 5-6 years, causing us great hardship. You are aware that we have put up our, plant only for you and that there is no such huge demand for such a job from the general market. We do not mind even ifyou give us little lesser rate but it is our humble request to you to kindly utilize our capacity optimally.

Under such circumstances, we agree to accept your aforesaid order with a request that for future, a durable long tenn arrangement be worked out on mutually acceptable tenns so that l. S. P. regularly and at reasonable rates and our plant and labour remain optimally utilized all round the year. We have also to request you to: (i) Kindly withdraw the clause relating to the Modvat Credit to be passed on to I. S. P. since it is extraneous to the tender conditions. Xx xx xx. " Therefore, the supply order which had the aforesaid condition was protested by the claimant-respondent herein. On 5. 6. 1995 however, it had protested for withdrawal ofthe clause relating to Modvat credit since it was extraneous to the tender conditions. Thereafter, on 20. 6. 1995 the respondent herein again explained to the General Manager, Security Press that the Modvat credit was available only to manufacturer and that too .

from the payment ofexcise duty as per Rule 57H of the Central Excise Rules and it was not a cash benefit, it is only a book credit and hence it was not refundable. TI1erefore, this modvat credit was not legally available to the Security Press. As such it requested that this condition be deleted. On 16. 10. 1995 a communication was sent by the Security Press to the \claimant that the issue ofmodvat credit was being examined and further communication in this regard would follow in due course oftime. Thereafter, on 30. 12. 1995 a clear reply was sent to the claimant infonning that it was not possible to accede to the request of the claimant for waiving the condition of modvat credit.

It was clearly informed to the claimant that since the Modvat credit was directly linked with the payment ofExcise duty indicated in the terms and conditions of the tender as well as the referred order, the benefits, ifany, will have to be invariably passed on to the India Security Press and this cannot be waived under any circumstances. The aforesaid communication dated 30. 12. 1995 is reproduced as under "GOVERNMENT OF INDIA From The General Manager, India Security Press, ·~ NASIK ROAD-422101 Reference No. 15858/PR-30(ADH) Dated 30/12/1995 . I>, To Mis Gandhi Industrial Corporation, 20, Ajmal Road, Opp. Malaviya Road, Vile Parle (East) BOMBAY-400057 Sub: ISP Order No. PR-30(ADH)/291/95/ dated 311511995 .. , Sir, ... , Further to this office letter No.

10866/PR-30 dated 16/10/ 1995, it is to inform you that since the Modvat Credit is directly linked with the payment ofExcise duty indicated in the terms and conditions ofthe tender as well as the referred order, the benefits, ifany, will have to be invariably passed on to the India Security Press and this cannot be waived under any circumstances. 2. Hence, you are advised in your own interest to arrange to pass \: .. ,,- .. -. - . ,. -·· • on all the benefit availed against Modvat Credit immediately. Yours faithfully Sd/- xx (B. S. LALCHANDANI) DY. GENERAL MANAGER'' Then, again on 12. 1. 1996 the claimant tried to argue with the appellant -<· that the modvat credit is only available to the manufacturer i. e. the claimant and it is not allowed in cash but it is a book entry. 5.

Now, in the background ofthese communication, the Arbitrator took the view that since the modvat credit is only available to the manufacturer on account of book credit and the claimant was the manufacturer, therefore, the appellant cannot get that benefit. It was also observed that the unilateral decision taken by the appellant is entirely against the Modvat scheme and contrary to tender notice issued and on . D the basis o~which offer was made by the claimant. It is not permissible to alter the terms and condition of the offer letter to the detriment of /" contractor who has been awarded the tender contract and certainly not j by unilateral decision. 6. Learned counsel for the appellants submitted that in fact the complete contract has come into existence after the supply order dated 31. 5.

1995 and it was accepted by the claimant and the terms and conditions which were mentioned in the supply order are binding and not the adve11isement which was floated where these terms and conditions were not mentioned. Learned counsel further submitted that once the contract has come into existence between the parties the terms of the l contract shall govern and not the earlier so called conditions when the y tenders were floated inviting tenderers to file their response to the offer. Whatever may be the tern1s and conditions ofthe advertisement which were floated, that is not binding and what is binding is the terms and conditions ofthe contract. Therefore, as per the terms and conditions of clause (i) ofthe supply order, the claimant has to refund the modvat credit to the security press. Learned counsel also submitted that modvat credit is available on the excise duty paid by the party and in this case the papers on which the excise duty was paid by the appellant- security press.

Thus the gate passes were given to the claimant to claim the benefit ofmodvat credit and on the basis of excise duty paid on the paper by the security press, the benefit was drawn by the claimant by producing the gate passes and the benefit ofmodvat credit was claimed by the claimant on that basis. Therefore, it was submitted that the security press is entitled to the benefit of modvat credit. As against this, learned counsel for the respondent submits that since the modvat credit is only available to the manufacturer and it was clearly understood that this will go to the claimant. Therefore, the view taken by the Arbitrator, affirmed by learned Single Judge and y the Division Bench of the High Court is correct and in support tl1ereof, invited our attention to a decision of this Court in Ramji Dayawala & Sons (P) Ltd v. Invest Import, (1981] 1 SCC 80. This case was decided on the question-of fact only.

In the present case as mentioned above, the ·tenns and conditions were very clear and despite the protest by the claimant for deletion ofthe modvat credit benefit, it supplied the goods and it was informed that change in the supply order cannot be acceded to. Therefore, there is no question ofany principle ofsub silentio. There is no ambiguity or any tacit understanding. Learned counsel further submitted that the finding ofthe Arbitrator should not be interfered with because the Arbitrator is the best judge and the Courts should not interfere with the finding of the Arbitrator or the interpretation given by the Arbitrator. In support of his contention, learned counsel invited our attention to the decisions ofthis Court in Oil & Natural Gas Corporation Ltd. v. Saw Pipes Ltd. , [2003] 5 SCC 705 and in Centrotrade Minerals & Metals Inc. v. Hindustan Copper Ltd. , [2006] 1lSCC245.

In ONGC Ltd (supra) this Court has laid down certain parameters that in certain cases, the Court can set aside the award if it is contrary to fundamental policy oflndian law, or the interest oflndia; or justice or morality; or is patently illegal; or is so unfair and unreasonable that it shocks the conscience ofthe CoUl1. In the present case on the face ofthe terms of the contract, the award, in our opinion, appears to be patently illegal as the terms and conditions of the supply order would govern and not the terms ofthe tender. Therefore, this case does not help the claimant in any manner. In Centrotrade Minerals & Metals Inc (supra) there was difference of opinion between brother Judges and it was referred to a larger Bench. Therefore, that case also does not help the respondent herein. 7.

Learned counsel for the claimant also submitted that at the time when the tender was floated, there was no condition incorporated therein that the Modvat credit will be claimed by the appellant- security press. Therefore, the view taken by the Arbitrator as well as learned Single Judge and the Division Bench ofthe High Court is correct. 8. After hearing learned counsel for the parties and perusing the record we are ofopinion that the view taken by the Arbitrator and affirmed by the learned Single Judge and the Division Bench ofthe High Court cannot be sustained. Firstly, when the terms and conditions have been reduced in the supply order dated 31. 5. 1995, therein the condition of modvat credit was incorporated and it was accepted by the claimant. The contract had come into existence and the supply had been started on the basis ofthat supply order.

Though the claimant had protested with regard to this clause but the appellant did not accede to the request of the respondent for deleting that clause and the appellant had infonned the claimant on 31. 12. 1995 that there was no change in the conditions ofthe supply order still claimant continued to supply the goods as per the order. Therefore, on the face ofthis condition there is no going back from that'. In case the claimant was not inclined to accept this clause he could have very well withdrawn from the contract. But it did not do so and continued with the contract. Therefore, on the basis ofthe clear terms ofthe contract, the claimant is bound by it and it has to restore whatever the modvat credit received by it to the appellant - security press. The view taken by the Arbitrator that since it was not the condition when the tender was floated is not correct as after the complete contract having come into existence, there is no purpose to refer to the terms oftender.

What is binding is the completed contract and not the terms of offer of the advertisement. Whatever may be the offers in the advertisement, once the completed contract has come into existence, this is binding. There is no two opinion in the matter in the present case that the terms and conditions ofthe supply order dated 31. 5. 1995 were complete. Therefore, what is binding is the terms of the contract and not the terms in the offer of advertisement. Therefore, under these circumstances the view taken by the Arbitrator as well as learned Single Judge and the Division Bench ofthe High Court is ex facie illegal. It is true that nomlally the Courts are very slow in interfering with the finding and interpretation given by the Arbitrator. So \ t- far as the principle oflaw is concerned, there is no two opinion and it has to be accepted. But the fact remains that if any perverse order is passed, then the Courts are not powerless to interfere with the matter.

As pointed out above, once the concluded contract has come into existence, then in that case the offer ofadvertisement cannot override the terms and conditions ofthe completed contract. Therefore, in our opinion, the view taken by the Arbitrator, as affirmed by learned Single Judge and the Division Bench ofthe High Court on the face ofit is illegal and against the law. y 9. Secondly, learned counsel has submitted that the principle ofsub silentio applies in the present case. There is no question ofprinciple of sub silentio involved in the present case. The terms and conditions ofthe contract are very clear and it was clearly understood by the claimant as it protested that the condition with regard to Modvat credit should not be allowed to continue in the terms and conditions ofthe contract and the same may be deleted which is evident from the communication dated 5. 6. 1995 and 20. 6. 1995. Therefore, there was no misunderstanding.

There was no question ofapplying the principle ofsub silentio when the terms and conditions were well known and clearly understood between the parties. More so, the modvat credit is available in order to avoid double taxation on the papers which were imported by the appellantsecurity press after paying the excise duty and therefore, the claimant claimed the benefit of excise duty paid by the security press and the security press had issued gate passes and documentary evidence for the payment of excise duty on which the claimant claimed the benefit of modvat credit. Therefore, on that count also the benefit could legitimately be claimed by the appellants as they have paid the excise duty also.

Therefore, under these circumstances, we are ofopinion that the view taken by the Arbitrator, as well as learned Single Judge and the Division Bench ofthe High Court cannot be sustained and we accordingly, allow this appeal and set aside the order ofthe Arbitrator with regard to the modvat credit and also the view taken by learned Single Judge and the Division Bench ofthe High Court ofBombay to this extent. The appellants will be entitled to retain the amount(s) equivalent to the Modvat credit as claimed by the respondent. There would be no order as to costs. _ D. G. Appeal allowed.