RASHTRIYA ISPAT NIGAM LTD.versusM/S. DEWAN CHAND RAM SARAN

                     (2012] 4 S.C.R. 1


             RASHTRIYA ISPAT NIGAM LTD.                       A
                             v.
           M/S. DEWAN CHAND RAM SARAN
             (Civil Appeal No. 3905 of 2012)

                      APRIL 25, 2012
                                                              B
         [R.M. LODHA AND H.L. GOKHALE, JJ.]

     Contract - Work contract - Payment of service tax -
Liability of - Whether of the availer of service or the service
provider - Service availer deducting service tax from the bill C
of the service provider - Dispute referred to arbitrator -
Arbitrator holding that service tax was rightly deducted from
the bills of the service provider in terms of the contractual
obligation - In arbitration petition Single Judge of High Court
holding that availer of service was liable since it was the o
assessee - Order of Single Judge confirmed by Division
Bench of High Court - On appeal, held: Service provider
under contractual obligation was liable to pay the service tax
- Availer of service became the assessee after amendment
by Finance Act 2000 - The liability arose out of the services E
rendered prior to 2000 amendment when the liability was on
the service provider - Even when the service availer
becomes liable to pay the service tax after 2000 amendment,
there is no bar from entering into an agreement and passing
on the tax liability on the service provider - Award of the F
arbitrator is upheld - Arbitration - Finance Act, 1994 - s. 65
- Finp.nce Act, 2000 - s. 116.

    Doctrine/Principle - Doctrine of contra proferentem -
Applicability of.
                                                              G
    The appellant-manufacturer of steel products,
appointed the respondent as the handling contractor for
transportation of its materials. The parties entered into a
contract on 17.6.1998. Clause 9.3, thereof provided that
                             1                                H
    2        SUPREME COURT REPORTS               [2012] 4 S.C.R.


A   contractor had to bear all taxes, duties and other liabilities
    in connection with discharge of his obligations.

         By Finance Act, 1997, the service tax was extended
    to 'handling contractor'. The service tax was brought into
    force w.e.f. 16.11.1997. Consequent thereto, the appellant
8
    deducted service tax on the bills of the respondent for
    the period 30.11.1997 to 6.8.1999. The respondent refused
    to accept the deductions and raised a dispute for
    arbitration.

C       By Finance Act, 2000, an amendment was brought in
    whereby 'assessee' would be the person who availed the
    services and not the service provider.

       The arbitrator dismissed the claim petition, holding
0 that though the party who availed the service (appellant
  herein) was the 'assessee', in view of the agreement in
  clause 9.3 of the contract, it is contractual obligation of
  the claimant (respondent herein) to pay the service tax
  and the same was rightly deducted from the bills of the
E claimant in terms of the contractual obligation.

      Respondent filed arbitration petition. Single Judge of
  High Court set aside the award holding that availer of
  service (appellant herein), as 'assessee' was liable to pay
  the tax. Appeal against the order was dismissed by
F Division Bench of the High Court. Hence the present
  appeal.

        Allowing the appeal, the Court

      HELD: 1. The respondent as the contractor had to
G bear the service tax under clause 9.3 as the liability in
  connection with the discharge of his obligations under
  the contract. The appellant could not be faulted for
  deducting the service tax from the bills of the respondent
  under clause 9.3, and there was no reason for the High
H
 RASHTRIYA ISPAT NIGAM LTD. v. DEWAN CHAND                3
                 RAM SARAN
Court to interfere in the view taken by the arbitrator which   A
was ~ased, in any case on a possible interpretation of
clause 9.3. The Single Judge as well as the Division
Bench clearly erred in interfering with the award rendered
by the arbitrator. The award made by the arbitrator is
upheld. [Paras 30 and 31] [23-C-E]                             B

     2. If the evolution of the service tax law is seen,
initially the liability to pay the service tax was on the
service provider, though it is now provided by the
amendment of 2000 that the same is on the person who
avails of the service. The agreement between the parties C
was entered into on 7.6.1998. The appellant had deducted
5% service tax on the bills of the respondent for the
period 30.11.1997 to 6.8.1999 which in fact it was required
to deduct under the service tax law as it then stood.
Subsequently, by the amendment of the definition of D
assessee effected on 12.5.2000 (though retrospectively
effective from 16.7.1997) the liability to pay the service tax
was shifted to the person who was availing the service
as the assessee. [Para 22] [18-G-H; 19-A-C]
                                                               E
     3. Since clause 9.3 of the contract refers to the
liabilities of the contractor in connection with discharge
of his obligations, one will have to refer to clause 6 of the
"Terms and Conditions for Handling of Iron and Steel
Materials of RINL, VSP" which was an integral part of the F
contract between the petitioner and the respondent, and
which was titled "Obligations of the Contractor". The said
paragraph 6 deals in great details with the work which
was required to be done by the respondent as clearing
and forwarding agent. It is therefore absolutely clear that G
the term "his obligations under this order" in clause 9.3
of the contract denoted the contractor's responsibilities
under clause 6 in relation to the work which he was
required to carry out as handling contractor. [Para 23] [19-
D-F]
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    4        SUPREME COURT REPORTS                [2012] 4 S.C.R.


A      4. If the clause 9.3 and the contract are read as a
  whole and various provisions thereof are harmonized,
  clause 9.3 will have to be held as containing the
  stipulation of the contractor accepting the liability to pay
  the service tax, since the liability did arise out of the
B discharge of his obligations under the contract. It appears
  that the rationale behind clause 9.3 was that the petitioner
  as a Public Sector Undertaking should be thereby
  exposed only to a known and determined liability under
  the contract, and all other risks regarding taxes arising
C out of the obligations of the contractor are assumed by
  the contractor. [Para 25) [20-C-E]

         5. Service tax is an indirect tax, and it is possible that
    it may be passed on. Therefore, an assessee can
    certainly enter into a contract to shift its liability of service
D   tax. Though the appellant became the assessee due to
    amendment of 2000, his position is exactly the same as
    in respect of Sales Tax, where the seller is the assessee,
    and is liable to pay Sales Tax to the tax authorities, but it
    is open to the seller, under his contract with the buyer,
E   to recover the Sales Tax from the buyer, and to pass on
    the tax burden to him. Therefore, though there is no
    difficulty in accepting that after the amendment of 2000
    the liability to pay the service tax is on the appellant as
    the assessee, the liability arose out of the services
F   rendered by the respondent to the appellant, and that too
    prior to this amendment when the liability was on the
    service provider. The provisions concerning service tax
    are relevant only as between the appellant as an
    assessee under the statute and the tax authorities. This
G   statutory provision can be of no relevance to determine
    the rights and liabilities between the appellant and the
    respondent as agreed in the contract between two of
    them .. There was nothing in law to prevent the appellant
    from entering into an agreement with the respondent
H   handling contractor that the burden of any tax arising out
 RASHTRIYA ISPAT NIGAM LTD. v. DEWAN CHAND                5
                 RAM SARAN
of obligations of the respondent under the contract            A
would be borne by the respondent. It is conventional and
accepted commercial practice to shift such liability to the
contractor. [Paras 26 and 28] [20-E-H; 21-A-B, G]

    Laghu Udyog Bharati vs. Union of India 1999 (6) SCC
                                                               8
418: 1999 (3) SCR 1199; Numaligarh Refinery Ltd. vs.
Daelim Industrial Co. Ltd. 2007 (8) SCC 466: 2007 (9) SCR
724 - relied on.

     6. Even, assuming that clause 9.3 was capable of two
interpretations, the view taken by the arbitrator was clearly C
a possible if not a plausible one. It is not possible to say
that the arbitrator had travelled outside his jurisdiction,
or that the view taken by him was against the terms of
contract. That being the position, the High Court had no
reason to interfere with the award and substitute its view D
in place of the interpretation accepted by the arbitrator.
[Para 29] [22-C-D]

     SAIL vs. Gupta Brother Steel Tubes Ltd. 2009 (10) SCC
63: 2009 (14) SCR 253; Sumitomo Heavy Industries Ltd. vs.
                                                               E
ONGC Ltd. 201 o (11) sec 296 - relied on.

     7. If clause 9.3 was to be read as meaning that the
respondent would be liable only to honour his own tax
liabilities, and not the liabilities arising out of the
obligations under the contract, there was no need to           F
make such a provision in a bilateral commercial
document executed by the parties, since the respondent
would be otherwise also liable for the same. A clause in
a commercial contract is a bilateral document mutually
agreed upon, and hence the principle of contra                 G
proferentem can have no application. Therefore, clause
9.3 will have to be read as incorporated only with a view
to provide for contractor's acceptance of the tax liability
arising out of his obligations under the contract. [Para 27]
~1~-~                                                          H
    6        SUPREME COURT REPORTS              [2012] 4 S.C.R.


A       Bank of India vs. K. Mohan Das 2009 (5) SCC 313:
    2009 (5) SCR 118 - distinguished.

        H.P. State Electricity Board vs. R.J. Shah 1999 (4) SCC
    214: 1999 (2) SCR 643; Mis Sudarsan Trading Co. vs. Govt.
    of Kera/a 1989 (2) SCC 38: 1989 (1) SCR 665; Gujarat
B
    Ambuja Cements Ltd. vs. Union of India 2005 (4) SCC 214:
    2000 (2) SCR 594 - referred to.

                        Case Law Reference:

        1999 (2) SCR 643         Referred to.         Para 16
c
        1989 (1) SCR 665         Referred to.         Para 17

        2000 (2) SCR 594         Referred to.         Para 18
        1999 (3) SCR 1199        Relied on.           Para 26
D
        2009 (5) SCR 118         Distinguished.       Para 27

        2007 (9) SCR 724         Relied on.           Para 28

        2009 (14) SCR 253        Relied on.           Para 29
E       2010 (11) sec 296        Relied on.           Para 29

        CIVIL APPELLATE JURISDICTION : Civil Appeal No.
    3905 of 2012.

        From the Judgment & Order dated 25.02.2008 of the High
F   Court of Judicature at Bombay in Appeal No. 188 of 2006.

        S. Ganesh, Pratap Venugopal, Surekha Raman, Namrata
    Sood, Gaurav Nair, Varun Singh (for K.J. John & Co.) for the
    Appellant.
G
        K.K. Rai, S.K. Pandey, Awanish Kumar, Krishnanand
    Pandeya for the Respondent.

        The Judgment of the Court was delivered by

H       H.L. GOKHALE J. 1. Leave granted.
 RASHTRIYA ISPAT NIGAM LTD. v. DEWAN CHAND                       7
        RAM SARAN [H.L. GOKHALE, J.]
     2. This appeal is directed against the judgment and order        A
dated 25.2.2008 rendered by a Division Bench of the Bombay
High Court in Appeal No.188/2006 confirming the decision of
a single Judge of that court dated 4. 7.2005 in Arbitration
Petition No.364/2004, whereby the High Court has set aside
the award dated 25.5.2004 passed by a sole arbitrator which           B
award had dismissed the Claim Petition of the respondent
against the appellant herein.

       3. The questions involved in this appeal are two-fold, (i)
firstly, whether under the relevant clause 9.3 of the terms and
conditions of the contract between the parties, the appellant was     C
right in deducting the service tax from the bills of the respondent
and, (ii) secondly, whether the interpretation of this clause and
the consequent award rendered by the arbitrator was against
the terms of the contract and therefore illegal as held by the
High Court, or whether the view taken by the arbitrator was a         D
possible, if not a plausible view.

     The contract and the relevant clause:

      4. The appellant - a Govt. of India undertaking is engaged
in the manufacture of steel products and pig-iron for sale in the     E
domestic and export markets. The respondent is a partnership
firm carrying on the business of transportation of goods. In the
year 1997, the appellant appointed the respondent as the
handling contractor in respect of appellant's iron and steel
materials from their stockyard at Kalamboli, Navi Mumbai. A           F
formal contract was entered into between the two of them on
17 .6.1998. 'Terms and conditions for handling of iron and steel
materials' though recorded in a separate document, formed a
part of this contract. Clause 9.0 of these terms and conditions
was concerning the payment of bills. Clause 9.3 thereof read          G
as follows:-

    "9.3. The Contractor shall bear and pay all taxes, duties
    and other liabilities in connection with discharge of his
    obligations under this order. Any income tax or any other         H
    8        SUPREME COURT REPORTS                (2012] 4 S.C.R.


A       taxes or duties which the company may be required by law
        to deduct shall be deducted at source and the same shall
        be paid to the Tax Authorities for the account of the
        Contractor and the Company shall provide the Contractor
        with required Tax Deduction Certificate."
B
        Evolution of service tax:

       5. Service Tax was introduced for the first time under
  Chapter V of the Finance Act, 1994. Section 66 of the Act was
  the charging section and it provided for the levy of service tax
C at the rate of five per cent of the value of the taxable services.
  "Taxable service" was defined in Section 65 to include only
  three services namely any service provided to an investor by a
  stockbroker, to a subscriber by the telegraph authority, and to
  a policy-holder by an insurer carrying on general insurance
D business. Section 68 required every person providing taxable
  service to collect the service tax at specified rates. Section 69
  of the Finance Act, 1994 provided for registration of the
  persons responsible for collecting service tax. Sub-sections (2)
  and (5) indicated that it was the provider of the service who was
E responsible for collecting the tax and obliged to get registered.

       6. By the Finance Act, 1997 the first amendment to
  Section 65 of the Finance Act, 1994 was made, inter alia, by
  extending the meaning of "taxable service" from three services
  to 18 different services categorised in Section 65(41 ), sub-
F clauses (a) to (r). Sub-clause 0) made service to a client by
  clearing and forwarding agents in relation to clearing and
  forwarding operations, a taxable service. Similarly, service to
  a customer of a goods transport operator in relation to carriage
  of goods by road in a goods carriage was, by sub-clause (m),
G also included within the umbrella of taxable service. The phrases
  "clearing and forwarding agent" and "goods transport operator"
  were defined as follows:

             "65. (10) 'clearing and forwarding agent' means any
H       person who is engaged in providing any service, either
  RASHTRIYA !SPAT NIGAM LTD. v. DEWAN CHAND                      9
         RAM SARAN [H.L. GOKHALE, J.]

     directly or indirectly, connected with clearing and forwarding   A
     operations in any manner to any other person and includes
     a consignment agent;

     ***

     (17) 'goods transport operator' means any commercial             B
     concern engaged in the transportation of goods but does
     not include a courier agency;"

      7. The service tax was brought into force on 5.11.1997
vide Notification No.44/77 with effect from 16.11.1997.               c
Consequent thereupon, the appellant deducted 5% tax on the
bills of the respondent for the period 30.11.1997 to 6.8.1999.
The respondent, however, refused to accept the deductions,
and raised a dispute for arbitration under clause 15 of the terms
and conditions mentioned above. This dispute was referred for         D
the arbitration of a sole arbitrator, a retired Judge of the Delhi
High Court.

     8. Rules 2 (xii) and 2 (xvii) of the Service Tax Rules, 1994
as amended in 1997 made the customers or clients of clearing
and forwarding agents and of goods transport operators as             E
assesses. These amended rules were challenged and were
held ultra vires the Act by this Court in Laghu Udyog Bharati
vs. Union of India reported in 1999 (6) SCC 418. The Court
examined the provisions of the Act and particularly Section 68
and the definition of "person responsible for collecting the          F
service tax" in Section 65(28) and in terms held in paragraph
9 that '~he service tax is levied by reason of the services which
are offered. The imposition is on the person rendering service."

     9. To overcome the law laid down in Laghu Udyog Bharati          G
(supra), the Finance Act 2000 brought in an amendment on
12.5.2000 (effective from 16.7.1997) in the manner indicated
in Section 116 which reads as follows:

    "116. Amendment of Act 32 of 1994. - During the period
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    10        SUPREME COURT REPORTS                  (2012) 4 S.C.R.


A        commencing on and from the 16th day of July, 1997 and
         ending with the 16th day of October, 1998, the provisions
         of Chapter V of the Finance Act, 1994 shall be deemed
         to have had effect subject to the following modifications,
         namely-
B
         (a) in Section- 65,-

         (i) for clause (6), the following clause had been substituted,
         namely-

C              '(6) "assessee" means a person liable for collecting
         the service tax and includes-

               (i) his agent; or

               (ii) in relation to services provided by a clearing and
D        forwarding agent, every person who engages a clearing
         and forwarding agent and by whom remuneration or
         commission (by whatever name called) is paid for such
         services to the said agent; or

E              (iii) in relation to services provided by a goods
         transport operator, every person who pays or is liable to
         pay the freight either himself or through his agent for the
         transportation of goods by road in a goods carriage;'

               (ii) after clause (18), the following clauses had been
F        substituted, namely-

                 '(18-A) "goods carriage" has the meaning assigned
         to it in clause (14) of Section 2 of the Motor Vehicles Act,
         1988;
G
              (18-B) "goods transport operator" means any
         commercial concern engaged in the transportation of
         goods but does not include a courier agency;';

               (iii) in clause (48), after sub-clause (m), the following
H        sub-clause had been inserted, namely-
 RASHTRIYA !SPAT NIGAM LTD. v. DEWAN CHAND                       11
        RAM SARAN [H.L. GOKHALE, J.]
           '(m-a) to a customer, by a goods transport operator         A
     in relation to carriage of goods by road in a goods
     carriage;';

          (b) in Section 66, for sub-section (3), the following
     sub-section had been substituted, namely-
                                                                       B
            '(3) On and from the 16th day of July, 1997, there
     shall be levied a tax at the rate of five per cent of the value
     of taxable services referred to in sub-clauses (g), (h), (i),
     0), (k), (I}, (m}, (m-a}, (n) and (o) of clause (48) of Section
     65 and collected in such manner as may be prescribed.';           C

     (c) in Section 67, after clause (k}, the following clause had
     been inserted, namely-

     '(k-a) in relation to service provided by goods transport
     operator to a customer, shall be the gross amount charged         D
     by such operator for services in relation to carrying goods
     by road in a goods carriage and includes the freight
     charges but does not include any insurance charges'."

     Proceedings prior to this appeal:                                 E

      10. The respondent contended before the learned
arbitrator that its dominant work was of transporting and
forwarding of goods by road, and not of a handling contractor,
and that the mere fact that it may be required to handle the
                                                                       F
goods in a manner and to the extent provided in the contract
between the parties, was merely incidental. The learned
arbitrator, however, noted that the contract between the parties
dated 17 .6.1998 referred the respondent as the 'handling
contractor', who shall undertake the job of handling iron and
steel materials at the yard -of the company on the terms and           G
conditions stipulated therein as also in the manner and in all
respects as mentioned in the contract. He referred to the notice
inviting tender, the declaration of particulars relating to the
tender, the schedule of rates, the provision relating to scope
of work and the obligations of the contractor detailed in clause       H
    12       SUPREME COURT REPORTS                  [2012] 4 S.C.R.


A 6. In that connection, he referred to the letter dated 27.11.1997
  received from the office of Commissioner of Central Excise,
  Chennai wherein he had also held the work of the handling
  contractor as that of the clearing and forwarding agent liable
  to pay service tax. The arbitrator therefore held that the
B respondent was forwarding and clearing contractor.

       11. Thereafter, he dealt with the question of liability to pay
  the service tax, and by a detailed award dated 25.5.2004
  rejected the contentions of the respondent and dismissed the
C Claim Petition. In the penultimate paragraph, the learned
  arbitrator held as follows:-

         "Clause 9.3 of the Tender Terms and Conditions of the
         Contract, to my mind is clear & unambiguous. Thus it is
         the Respondent who is the assessee. It is also true that
D        liability is of the Respondent to pay the tax. But then, under
         the contract, under clause 9.3 to be more precise, it was
         agreed that it would be the claimant who shall bear "all
         taxes, duties and other liabilities" which accrue or become
         payable "In connection with the discharge of his
E        obligation." Service tax was one such tax/duty or a liability
         which was directly connected with "the discharge of his
         obligation" as the clearing & forwarding agent. It is this
         contractual obligation which binds the claimant and though
         under the law it is the respondent who is the assessee, it
F        can & rightly did deduct the service tax from the bills of the
         claimant in terms of the said contractual obligation, the
         validity and legality of which has not been challenged
         before me."

       12. This award led the respondent to file a petition under
G Section 34 of the Arbitration and Conciliation Act, 1996 being
  Arbitration Petition No.364/2004 before the High Court of
  Judicature at Bombay. A Learned Single Judge of the High
  Court allowed that petition, and set aside the award with costs
  by judgment and order dated 4.7.2005. The learned Judge
H while arriving at that conclusion referred to the definition of the
 RASHTRIYA ISPAT NIGAM LTD. v. DEWAN CHAND                           13
        RAM SARAN [H.L. GOKHALE, J.]

term "assessee" and held that insofar as service tax under the             A
Finance Act, 1994 is concerned, the appellant as the assessee
was liable to pay the tax. The learned Judge observed as
follows:-

     "The purpose of clause 9.3 is not to shift the burden of              B
     taxes from the assessee who is liable under the law to pay
     the taxes to a person who is not liable to pay the taxes
     under the law. In my opinion, the award therefore suffers
     from total non-application of mind and therefore, it is
     required to be set aside."
                                                                           c
     13. The appellant preferred an appeal to a Division Bench
of Bombay High Court against the said judgment and order.
The appeal was numbered as Appeal No. 188/2006. The
Division Bench dismissed the appeal by holding as follows:
                                                                           D
       "16 ......... As noted, the Respondents are not "Assessee"
       under the Service Tax Act. The Appellants are, being
       recipients, resisted and have filed the return. It is, therefore,
       the appellant's obligation to pay the Service Tax and not
  .. . that of the Respondents, there is no specific clause that           E
       such service tax, liability would be deductible from the
       amount payable by the Appellants to the Respondent
       pursuant to the contract in question. The deduction as
       claimed and as directed by the award in absence of any
       agreement or clause, therefore, is not correct."
                                                                           F
     14. Being aggrieved by the said judgment and order, the
present appeal has been filed. Mr. S. Ganesh, learned Senior
Counsel has appeared for the appellant, and Mr. K.K. Rai,
learned Senior Counsel has appeared for the respondent.
                                                                           G
     Submissions on behalf of the appellant:

     15. As stated at the outset, the question involved before
the arbitrator and in the offshoots therefrom, is with respect to
interpretation of the above referred clause No.9.3. Mr. Ganesh,
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    14        SUPREME COURT REPORTS                  [2012] 4 S.C.R.


A learned counsel for the appellant submitted that the entire
  purpose in providing this clause was to provide that the
  contractor will be responsible for the taxes, duties and the
  liabilities which would arise in connection with discharge of the
  obligations of the contractor. The obligations of the contractor
B were laid down in clause 6.0 of the terms and conditions,
  referred to above. This clause provides the details of
  contractor's responsibility for clearance of the consignments of
  the appellant. The liability to pay the service tax arises out of
  the service provided by the respondent. There is no dispute that
c in view of the above referred amendment of 2000, the appellant
  as the recipient of the service is the assessee under the service
  tax law. However, there is no prohibition in the law against
  shifting the burden of the tax liability. In the instant case, the tax
  liability will depend upon the value of the taxable service
  provided by the respondent, and therefore clause 9.3 required
0
  the respondent to take the burden. Mr. Ganesh cited the
  example of sales tax which the assessee can shift to the
  customer. In his submission, the phrase, "liabilities in
  connection with the discharge of his obligations" under this
  clause will have to be construed in that context.
E
       16. The learned counsel submitted that interpretation of
  clause 9.3 by the arbitrator was the correct one, and in any
  case, was a possible if not a plausible one. The Courts were,
  therefore, not expected to interfere therein. He submitted that
F the dispute in the present case was concerning the
  interpretation of a term of the contract. It has been laid down
  by this Court that in such situations, even if one is of the view
  that the interpretation rendered by the arbitrator is erroneous,
  one is not expected to interfere therein if two views were
G possible. Mr. Ganesh referred to the following observations of
  this Court in H.P. State Electricity Board vs. R.J. Shah
  reported in [1999 (4) sec 214] at the end of paragraph 27,
  which are to the following effect:-

H
               "27 ......... The dispute before the arbitrators,
                                                                  .
 RASHTRIYA ISPAT NIGAM LTD. v. DEWAN CHAND                       15
        RAM SARAN [H.L. GOKHALE, J.]
     therefore, clearly related to the interpretation of the terms     A
     of the contract. The said contract was being read by the
     parties differently. The arbitrators were, therefore, clearly
     called upon to construe or interpret the terms of the
     contract. The decision thereon, even if it be erroneous,
     cannot be said to be without jurisdiction. It cannot be said      B
     that the award showed that there was an error of
     jurisdiction even though there may have been an error in
     the exercise of jurisdiction by the arbitrators."

     17. It was also submitted by the learned counsel that the
court is not expected to substitute its evaluation of the              C
conclusion of law or fact arrived at by the arbitrator and referred
to the following observation in paragraph 31 in Mis Sudarsan
Trading Co. vs. Govt. of Kera/a reported in [1989 (2) SCC 38].

           " ............ in the instant case the court had examined   D
     the different claims not to find out whether these claims
     were within the disputes referable to the arbitrator, but to
     find out whether in arriving at the decision, the arbitrator
     had acted correctly or incorrectly. This, in our opinion, the
     court had no jurisdiction to do, namely, substitution of its      E
     own evaluation of the conclusion of law or fact to come to
     the conclusion that the arbitrator had acted contrary to the
     bargain between the parties ........... "

     Submissions on behalf of the respondent
                                                                       F
      18. Learned senior counsel for the respondent Mr. Rai, on
the other hand, submitted that the concerned clause cannot be
read to imply a right to shift the tax liability. He submitted that
the appellant was the assessee for the payment of service tax,
and the concerned clause merely laid down that the contractor          G
will have to pay all taxes, duties and other liabilities which he
was otherwise required to pay if they arise in connection with
discharge of his obligations under the contract. The appellant
was entitled to deduct only the income tax and other taxes or
duties which it was so required by law to deduct. The disputed         H
    16       SUPREME COURT REPORTS                   (2012] 4 S.C.R.


A deductions would mean that the contractor had taken over the
  tax liability of the appellant as if the liability was on the
  contractor. He referred to the judgment of this Court in Gujarat
  Ambuja Cements Ltd. vs. Union of India reported in (2005 (4)
  SCC 214]. This judgment discusses the evolution of the service
B tax as to how service tax was introduced by the Finance Act,
  1994, how the meaning of taxable service was extended in
  1997, and how the definition of assessee subsequently included
  the person who engages a clearing and forwarding agent, or
  a goods transport operator.
c         19. He drew our attention to paragraph 21 of Gujarat
    Ambuja Cement Ltd. (supra) wherein this Court observed as
    follows:

               "21. As is apparent from Section 116 of the Finance
D        Act, 2000, all the material portions of the two sections
         which were found to be incompatible with the Service Tax
         Rules were themselves amended so that now in the body
         of the Act by virtue of the amendment to the word
         "assessee" in Section 65(5) and the amendment to
E        Section 66(3), the liability to pay the tax is not on the person
         providing the taxable service but, as far as the services
         provided by clearing and forwarding agents and goods
         transport operators are concerned, on the person who
         pays for the services. As far as Section 68(1-A) is
         concerned by virtue of the proviso added in 2003, the
F
         persons availing of the services of goods transport
         operators or clearing and forwarding agents have explicitly
         been made liable to pay the service tax."

       20. The respondent relied upon the judgment of this Court
G in Bank of India vs. K. Mohan Das reported in [2009 (5) SCC
  313] by one of us (Lodha, J.). The issue in that matter was with
  respect to the interpretation of some of the provisions of the
  voluntary retirement scheme of 2000 of the appellant bank. In
  paragraph 32 thereof this Court has observed as follows:-
H
  RASHTRIYA !SPAT NIGAM LTD. v. DEWAN CHAND                       17
         RAM SARAN [H.L. GOKHALE, J.]
     " .... 32. The fundamental position is that it is the banks who    A
     were responsible for formulation of the terms in the
     contractual Scheme that the optees of voluntary retirement
     under that Scheme will be eligible to pension under the
     Pension Regulation, 1995, and, therefore, they bear the
     risk of lack of clarity, if any. It is a well-known principle of   B
     construction of a contract that if the terms applied by one
     party are unclear, an interpretation against that party is
     preferred (verba chartarum fortius accipiuntur contra
     proferentem)."

      Based on this paragraph, it was submitted that the
                                                                        c
arbitrator was bound to follow the principle of contra
proferentem in the present case. It was contended that since
the propounder of the contract was the petitioner in case of
vagueness, the rule of contra proferentem will have to be
applied in interpreting the present contract. Therefore, the            D
liability to pay service tax was on the appellant as the
assessee, and it could not be contended that under Clause 9.3
that liability was accepted by the respondent. The judgment in
Bank of India (supra) was also pressed into service to submit
that clause 9.3 and the contract must be read as a whole, and           E
an attempt should be made to harmqnise the provisions.

     21. It was submitted by the respondent that this Hon'ble
Court very succinctly summarised the legal principles for setting
aside an award in SAIL vs. Gupta Brother Steel Tubes Ltd.               F
(by one of us - Lodha J.) reported in [2009 (10) SCC 63] in
paragraph 18 wherefrom principles (i) and (iv) would be
attracted. As against that, the appellant stressed sub-paras (ii)
& (vi) of the same paragraph 18. We may therefore quote the
entire paragraph which reads as follows:-                               G

    " .... 18. It is not necessary to multiply the references.
    Suffice it to say that the legal position that emerges from
    the decisions o this Court can be summarised thus:

      (i)   In a case where an arbitrator travels beyond the            H
    18           SUPREME COURT REPORTS                 [2012] 4 S.C.R.


A                 contract, the award would be without jurisdiction and
                  would amount to legal misconduct and because of
                  which the award would become amenable for being
                  set aside by a court.

B        (ii)     An error relatable to interpretation of the contract
                  by an arbitrator is an error within his jurisdiction and
                  such error is not amenable to correction by courts
                  as such error is not an error on the face of the
                  award.
c        (iii)    If a specific question of law is submitted to the
                  arbitrator and he answers it, the fact that the answer
                  involves an erroneous decision in point of law does
                  not make the award bad on its face.

D         (iv)    An award contrary to substantive provision of law
                  or against the terms of contract would be patently
                  illegal."

          (v)     Where the parties have deliberately specified the
E                 amount of compensation in express terms, the party
                  who has suffered by such breach can only claim the
                  sum specified in the contract and not in excess
                  thereof. In other words, no award of compensation
                  in case of breach of contract, if named or specified
                  in the contract, could be awarded in excess thereof.
F
          (vi)    If the conclusion of the arbitrator is based on a
                  possible view of the matter, the court should not
                  interfere with the award."

G        Consideration of the rival submissions:

        22. We have noted the submissions of both the learned
  counsel. If we see the evolution of the service tax law, initially
  the liability to pay the service tax was on the service provider,
  though it is now provided by the amendment of 2000 that the
H same is on the person who avails of the service. It is relevant
 RASHTRIYA !SPAT NIGAM LTD. v. DEWAN CHAND                      19
        RAM SARAN [H.L. GOKHALE, J.]
to note that the agreement between the parties was entered            A
into on 7.6.1998. The appellant had deducted 5% service tax
on the bills of the respondent for the period 30.11.1997 to
6.8.1999 which in fact it was required to deduct under the
service tax law as it then stood. Subsequently, by the
amendment of the definition of assessee effected on 12.5.2000         B
(though retrospectively effective from 16. 7.1997) the liability to
pay the service tax was shifted to the person who was availing
the service as the assessee. We must note that it is thereafter
that the parties have gone for arbitration, and the respondent
has relied upon the changed definition of assessee to contend         c
that the tax liability was that of the appellant.

      23. We are concerned with the question as to what was
the intention of the parties when they entered into the contract
on 7.6.1998, and how the particular clause 9.3 is to be read.
Since clause 9.3 of the contract refers to the liabilities of the     D
contractor in connection with discharge of his obligations, one
will have to refer to clause 6 of the "Terms and Conditions for
Handling of Iron and Steel Materials of RINL, VSP" which was
an integral part of the contract between the petitioner and the
respondent, and which was titled "Obligations of the                  E
Contractor". The said paragraph 6 deals in great details with
the work which was required to be done by the respondent as
clearing and forwarding agent. It is therefore absolutely clear
that the term "his obligations under this order" in clause 9.3 of
the contract denoted the contractor's responsibilities under          F
clause 6 in relation to the work which he was required to carry
out as handling contractor.

     24. If we look into this clause 6.0, we find that the
obligations of the contractor are defined and spelt out in minute     G
details. Clause 6.0 is split into 33 sub-clauses, and it provides
for obligations of the contractor in various situations concerning
the clearance of consignments, and the services to be provided
by the respondent as the handling contractor wherefrom the tax
liability arises. The contractor is made responsible for
                                                                      H
    20       SUPREME COURT REPORTS                 [2012] 4 S.C.R.


A pilferage, any loss or misplacement of the consignments also.
  Clause 9.0 which deals with payment of bills, provides in
  clauses 9.1 and 9.2 that the bills will be prepared on the basis
  of the actual operations performed and the materials accounted
  on the basis of weight carried and received. Clause 9.3 has to
B be seen on this background. The tax liability will depend upon
  the value of the taxable service provided, which will vary
  depending upon the volume of the goods handled.

        25. It was submitted on behalf of the respondent that clause
C 9.3 and the contract must be read as a whole and one must
  harmonise various provisions thereof. However, in fact when
  that is done as above, clause 9.3 will have to be held as
  containing the stipulation of the contractor accepting the liability
  to pay the service tax, since the liability did arise out of the
  discharge of his obligations under the contract. It appears that
D the rationale behind clause 9.3 was that the petitioner as a
  Public Sector Undertaking should be thereby exposed only to
  a known and determined liability under the contract, and all
  other risks regarding taxes arising out of the obligations of the
  contractor are assumed by the contractor.
E
        26. As far as the submission of shifting of tax liability is
  concerned, as observed in paragraph 9 of Laghu Udyog
  Bharati (Supra), service tax is an indirect tax, and it is possible
  that it may be passed on. Therefore, an assessee can certainly
F enter into a contract to shift its liability of service tax. Though
  the appellant became the assessee due to amendment of 2000,
  his position is exactly the same as in respect of Sales Tax,
  where the seller is the assessee, and is liable to pay Sales Tax
  to the tax authorities, but it is open to the seller, under his
G contract with the buyer, to recover the Sales Tax from the buyer,
  and to pass on the tax burden to him. Therefore, though there
  is no difficulty in accepting that after the amendment of 2000
  the liability to pay the service tax is on the appellant as the
  assessee, the liability arose out of the services rendered by the
H respondent to the appellant, and that too prior to this
  RASHTRIYA ISPAT NIGAM LTD. v. DEWAN CHAND                    21
         RAM SARAN [H.L. GOKHALE, J.]
amendment when the liability was on the service provider. The        A
provisions concerning service tax are relevant only as between
the appellant as an assessee under the statute and the tax
authorities. This statutory provision can be of no relevance to
determine the rights and liabilities between the appellant and
the respondent as agreed in the contract between two of them.        B
There was nothing in law to prevent the appellant from entering
into an agreement with the respondent handling contractor that
the burden of any tax arising out of obligations of the respondent
under the contract would be borne by the respondent.

       27. If this clause was to be read as meaning that the         C
respondent would be liable only to honour his own tax liabilities,
and not the liabilities arising out of the obligations under the
contract, there was no need to make such a provision in a
bilateral commercial document executed by the parties, since
the respondent would be otherwise also liable for the same. In       D
Bank of India (supra) one party viz. the bank was responsible
for the formulation of the Voluntary Retirement Scheme, and the
employees had only to decide whether to opt for it or not, and
the principle of contra proferentem was applied. Unlike the VRS
scheme, in the present case we are concerned with a clause           E
in a commercial contract which is a bilateral document mutually
agreed upon, and hence this principle can have no application.
Therefore, clause 9.3 will have to be read as incorporated only
with a view to provide for contractor's acceptance of the tax
liability arising out of his obligations under the contract.         F

      28. It was pointed out on behalf of the appellant that it is
conventional and accepted commercial practice to shift such
liability to the contractor. A similar clause was considered by
this Court in the case of Numaligarh Refinery Ltd. vs. Daelim        G
Industrial Co. Ltd., reported in [2007 (8) SCC 466]. In that
matter, the question was as to whether the contractor was liable
to pay and bear the countervailing duty on the imports though
this duty came into force subsequent to the relevant contract.
The relevant clause 2(b) read as follows:
                                                                     H
    22        SUPREME COURT REPORTS                (2012] 4 S.C.R.


A        "2(b) All taxes and duties in respect of job mentioned in
         the aforesaid contracts shall be the entire responsibility of
         the contractor ... "

         Reading this clause and the connected documents, this
         Court held that they leave no manner of doubt that all the
B
         taxes and levies shall be borne by the contractor including
         this countervailing duty.

       29. In any case, assuming that clause 9.3 was capable of
  two interpretations, the view taken by the arbitrator was clearly
C a possible if not a plausible one. It is not possible to say that
  the arbitrator had travelled outside his jurisdiction, or that the
  view taken by him was against the terms of contract. That being
  the position, the High Court had no reason to interfere with the
  award and substitute its view in place of the interpretation
D accepted by the arbitrator. The legal position in this behalf has
  been summarized in paragaph 18 of the judgment of this court
  in SAIL vs. Gupta Brother Steel Tubes Ltd. (supra) and which
  has been referred to above. Similar view has been taken later
  in Sumitomo Heavy Industries Ltd. vs. ONGC Ltd. reported
E in [201 O (11) sec 296] to which one of us (Gokhale J.) was a
  party. The observations in paragraph 43 thereof are instructive
  in this behalf. This paragraph 43 reads as follows:

         "43 .......... The umpire has considered the fact situation
         and placed a construction on the clauses of the agreement
F        which according to him was the correct one. One may at
         the highest say that one would have preferred another
         construction of Clause 17.3 but that cannot make the
         award in any way perverse. Nor can one substitute one's
         own view in such a situation, in place of the one taken by
G        the umpire, which would amount to sitting in appeal. As
         held by this Court in Kwality Mfg. Corpn. v. Central
         Warehousing Corpn*. The Court while considering
         challenge to arbitral award does not sit in appeal over the
         findings and decision of the arbitrator, which is what the
H        High Court has practically done in this matter. The umpire
 RASHTRIYA !SPAT NIGAM LTD. v. DEWAN CHAND                      23
        RAM SARAN [H.L. GOKHALE, J.]
     is legitimately entitled to take the view which he holds to      A
     be the correct one after considering the material before
     him and after interpreting the provisions of the agreement.
     If he does so, the decision of the umpire has to be
     accepted as final and binding."
                                                                      B
                                            *[2009 (5) sec 1421

       30. In view of what is stated above, the respondent as the
contractor had to bear the service tax under clause 9.3 as the
liability in connection with the discharge of his obligations under
the contract. The appellant could not be faulted for deducting        C
the service tax from the bills of the respondent under clause 9.3,
and there was no reason for the High Court to interfere in the
view taken by the arbitrator which was based, in any case on
a possible interpretation of clause 9.3. The learned single
Judge as well as the Division Bench clearly erred in interfering      D
with the award rendered by the arbitrator. Both those judgments
will, therefore, have to be set-aside.

     31. Accordingly, the appeal is allowed and the impugned
judgments of the learned Single Judge as well as of the Division      E
Bench, are hereby set aside. The award made by the arbitrator
is upheld. The parties will bear their own costs.

K.K.T.                                          Appeal allowed.