ivil Appeal No 506 of 1989 Etc
From the Judgment and Order dated 5121986 of the Allahabad High Court in CMWP No 207 of 1980
Dr LM Singhvi and R B Mehrotra for the Appellants
Anil Dev Singh and Mrs section Dikshit for the Respondents
The Judgment of the Court was delivered by SINGH J
Special leave granted
The appellants are engaged in the business of manufac ture and sale of Indian made foreign liquor and country liquor under licence granted to them under the Provisions of UP Excise Act
The appellants have installed vats in their Breweries  premises for the storage of liquor
The liquor stored in vats is bottled and sold under the supervi sion of officers of the Excise Department
The Inspector of Weights and Measures issued notices to the appellants call ing upon them to get their vats verified calibrated and stamped in accordance with the provisions of the UP Weights and Measures Enforcement Act 1959 hereinafter referred to as the Act
The appellants preferred appeals against the notice issued by the Inspector on the ground that the provision of the Act were not applicable to the appellants  undertaking manufacturing alcohol but the appeal was dismissed by the Controller of Weights and Meas ures
The appellants made petitions under Article 226 of the Constitution before the High Court of Allahabad challenging the orders of the respondents
Before the High Court the appellants contended that the provisions of the Act were attracted to the appellants  undertaking only at the stage of sale and anything done in the process of manufacture and storage of liquor could not be 378 subjected to the provisions of the Act and the notice issued by the Inspector of Weights and Measures was without any authority of law
It was further urged that the calibration of vats storing liquor was not necessary and the direction issued by the respondents was without any authority of law
Similar petitions were filed by the manufacturers of Syn thetic Rubber and Campher
All the three sets of petitions were disposed of by a Division Bench of the High Court by a common judgment and order dated December 5 1985
The Divi sion Bench allowed the petitions filed by the Manufacturers of Synthetic Rubber and Campher but it dismissed the peti tions filed by the manufacturers of liquor on the finding that the provisions of the Act and the Notification issued thereunder are applicable to the manufacturers of liquor in the distillery and the notices issued by the respondents for the calibration of the storage vats were legal and valid
Aggrieved the appellants have preferred the present peti tions for special leave to appeal
Dr LM Singhvi learned counsel for the appellants urged that the High Court committed error in holding that the storage vats are required to be calibrated under the provisions of the Act
He added that the provisions of the Act would apply if measures are used for transaction in trade and commerce but keeping alcohol in storage vats does not amount to transactions in trade or commerce
Learned counsel emphasised that unless the storage vats are used in transaction for trade and commerce the provisions of the Act would not be attracted
In order to appreciate the conten tion we would briefly refer to the relevant provisions of the Act
Section 7 of the Act imposes prohibition on use of weights and measures other than standard weights and meas ures
It provides that no unit of mass or measure other than the standard weights or measures shall be used in any transaction for trade or commerce or any dealing or contract or for any work to be done or goods to be sold or delivered
Section 10 further imposes prohibition on the sale or use of unstamped commercial or measuring instrument in trade or commerce unless it has been verified or reverified and stamped in the prescribed manner by an Inspector with stamp of verification
These provisions impose legislative prohi bition that no weight or measure or weighing or measuring instrument shall be used or be kept for use in any transac tion for trade or commerce or for being sold unless it has been verified by the Inspector of the Department in the prescribed manner
Section 2jj defines the expression use in transaction for trade or commerce  which is as follows 379 2jj use in transaction for trade or com merce with its grammatical variation and cognate expressions means use for the pur poses of determining or declaring the quantity of anything in terms of measurement of length area volume capacity or weight in or in connection with a any contract whether by way of sale purchase exchange or otherwise or b any assessment of royalty toll duty or other dues  or c the assessment of any work done or serv ices rendered otherwise than in relation to research or scientific studies or in individu al households for house holds purposes Under the aforesaid definition clause the legislature has given an artificial extended meaning to the expression use in transaction for trade or commerce
According to the definition it means use for the purposes of determining or declaring the quantity of anything in terms of measurement of length or capacity or weight in or in connection with the clauses a and b mentioned therein
Clause b refers to any assessment of royalty toil duty or other dues
Accord ing to the extended meaning given by the legislature the provisions of the Act would be attracted if the assessment of royalty toll duty or dues is to be determined on the basis of the quantity of anything in terms of measurement of length area volium or weight
there is no dispute that for the purposes of determining excise duty on the liquor pro duced by a manufacturer the assessment is made on the basis of the volume of the liquor produced and sold by the appel lants
Since volume of the liquor produced and stored in vats is connected with the assessment of excise duty it is covered by the expression use in transaction for trade or commerce
Ordinarily the storage of alcohol in vats by itself may not amount to transaction for trade or commerce but under the extended meaning of the expression under Section 2jj even the storage of liquor in vats would be covered by the expression use in transaction for trade or commerce as volume of the liquor is necessary to be deter mined in connection with the assessment of excise duty
We are therefore in agreement with the view taken by the High Court
The learned counsel for the appellants urged that the High Court failed to consider the effect of Notification dated 2881961 which made the provisions of the Act ap plicable to an undertaking engaged in the manufacture of alcohol at the stage of sale only
The Notification is as under 380 NOTIFICATION KHADYA TATHA RASAD VIBHAG NOTIFICATION NO
UPWM 13 28 2401XXIX D 524 58 dated August 19 1961 published in UP Gazette Part I dated 25th August 1961 page 1537
In exercise of the powers conferred by sub section 3 of Section 1 of the Uttar Pradesh Weights and Measures Enforcement Act 1959 UP Act No V of 1959 the Governor of Uttar Pradesh is pleased to appoint the first day of October 1961 as the date on which the provisions of the said Act shall come into force in the whole of Uttar Pradesh in respect of a Undertaking engaged in the manufacture of alcohol in so far as they undertake the sale of alcohol and b Departments of Government in so far as they undertake the levy of duties of excise on alcohol
 By the aforesaid Notification the provisions of the Act were made applicable to an undertaking engaged in the manu facture and sale of alcohol with effect from October 1 1961
Emphasis was laid by the learned counsel for the appellants on the expression in so far as they undertake the sale of alcohol
He urged that provisions of the Act occurring in the aforesaid Notification have been made applicable to the appellants  undertaking at the point of sale of alcohol
Before the sale of alcohol the provisions of the Act are not attracted and as such the storage vats cannot be required to be calibrated under the law
Having given our anxious consideration to the question we do not find any merit in the submission
The alcohol stored in the storage vats is essentially for the purpose of sale and there is no dispute that the appellants manufacture and store alcohol in storage vats for the purposes of sale
There is further no dispute that the officers of the Excise Department measure storage vats as prescribed by Rule 75 1 of the Excise Mannual Volume 1
Since the volume of the storage vats is measured by the officers of the Excise Department the provisions of the Act for the purpose of sale would be applicable to the storage vats also
But if there be any doubt about the applicability of the provisions of the Act the same stood removed by the subsequent Notifi cations dated May 17 1962 and July 18 1967
Under these Notifications the provisions of the Act have been made applicable to all the under 381 takings in so far as they relate to units of capacity in respect of those clauses of undertakings to which the Act has been made applicable
Having regard to these facts the High Court in our opinion was fight in holding that the storage vats are covered by the provisions of the Act
Learned counsel for the appellants then urged that excise duty is assessed at the point of sale as held by the High Court of Allahabad in Ms Mohan Meakins Breweries vs State of UP 1979 UP Tax Cases 1048 therefore provi sions of the Act are applicable to the issue vats only and no calibration is necessary for the storage vats
We find no merit in the submission
In the aforesaid decision the High Court held that under the provisions of the U P
Excise Act excise duty is a charge essentially on the production or manufacture of an excisable article but for administrative convenience it is imposed at a stage subsequent to the stage of manufacture
This itself would make it clear that pro duced material is the subject matter of excise duty even though the assessment of duty is done at the point of sale for convenience sake
The storage of alcohol is required to be measured by the officers of the Excise Department under the provisions of the Excise Manual to ensure that there is no pilferage or unauthorised removal of alcohol as that would adversely affect the assessment of duty
Storage vats are intimately connected with the assessment of excise duty therefore provisions of the Act are applicable to storage vats also
We are therefore of the opinion that no exception can be taken to the view taken by the High Court
The appeals fail and the same are accordingly dismissed
There will be no order as to costs
NPV Appeals dis missed


Summary:
The appellant undertook the construction of a Farmers  Community Centre Building by an agreement entered into with the Union of India and the State of Himachal Pradesh the respondents in the appeal
The agreement dated June 20 1968 provided by Clause 2 for the payment of compensation for delay if the contractor should have been guilty of delay in commencing the work or in completing it the quantum of compensation to be deter mined by the Superintending Engineer and that his decision was final
Clause 25 provided for settlement of disputes by arbitration
It excluded from arbitration matters or dis putes in respect of which provision had been made elsewhere or otherwise in the contract
Certain disputes arose between the parties and in terms of clause 25 of the agreement they were referred to a sole arbitrator
The Contractor submitted a claim in respect of 9 items and the department filed a counter claim to the effect that they were entitled to receive from the Contractor a sum of Rs24000 on account of payment of 10 per cent compensation for not executing the work in accordance with the terms and conditions of the agreement
The arbitrator gave his award and the same was filed in the Court
The Contractor filed objections for modification in respect of items 1 8 and 9 of his claim and item No 1 of the respondents  counter claim
The department also filed its objections
The Single Judge dismissed the objections of the respondents and 289 allowed the appellants  claim only in respect of item No 1 of the respondents  counter claim
The single Judge took the view that a reading of clause 2 with clause 25 made it clear that any compensation under clause 2 could be adjudicated upon only by the Superintending Engineer or the Development Commissioner and that it was not open to the arbitrator to have entered upon a reference in regard to this claim at all
Both parties filed appeals to the Division Bench
The Bench reversed the order of the Single Judge and restored the award to its original terms
It held that inasmuch as a bonafide dispute can be raised by the contractor in regard to his liability to compensation under clause 2 and as no machinery was provided in clause 2 for the resolution of such dispute there is ample justification for holding that resort can be had to arbitration under clause 25
On this view of the matter the Bench did not agree with the Single Judge that the arbitrator had traveled outside his jurisdic tion in awarding compensation to the Government against the contractor for the delay in executing the work
In the appeal to this Court it was contended on behalf of the appellants that the terms of Clause 2 clearly envis age the determination of the amount of compensation for the delay in the execution of the work only by the Superintend ing Engineer and specifically mentions that the decision of the Superintending Engineer in writing shall be final
The opening words of Clause 25 Except otherwise provided in the contract clearly take out of the purview of Clause 25 any dispute in respect of a claim under Clause 2
Even if Clause 25 be held applicable the question of submitting a dispute in this regard to the arbitrator could only arise if there had been a determination and a dispute under Clause 2
It was further submitted that there was no dispute at all between the parties on the question of compensation and that a dispute cannot be said to arise merely because a counter claim was for the first time put forward by the Department before the arbitrator
On behalf of the respondent Department the appeal was contested by contending that Clause 2 was in the natore of a penal clause which automatically takes effect irrespective of any default
The clause made the contractor liable for the penalty prescribed therein whenever there was a delay in the completion of the contract whatsoever might have been the reason therefore the question as to whether the con tractor was at default or not being totally immaterial
The Department was therefore entitled to automatically deduct from the bills payable to the contractor the compensation or penalty at the rate mentioned in Clause 2 290 or such reduced amount as may be determined in a particular case by the Superintending Engineer and that if the contrac tor objected to the deduction that would give risc to a dispute which can be the subject matter of arbitration under Clause 25
Allowing the appeal HELD 1
Clause 2 of the contract makes the time speci fied for the performance of the contract a matter of essence and emphasises the need on the part of the contractor to scrupulously adhere to the time schedule approved by the Engineer in charge
With a view to compel the contractor to adhere to this time schedule this clause provides a kind of penalty in the form of a compensation to the Department for default in adhering to the time schedule
297E F 2
Clause 2 contains a complete machinery for determina tion of the compensation which can be claimed by the Govern ment on the ground of delay on the part of contractor in completing the contract as per the time schedule agreed to between the parties
The decision of the Superintending Engineer is in the nature of a considered decision which has to arrive at after considering the various mitigat ing circumstances that may be pleaded by the contractor or his plea that he is not liable to pay compensation at all under this clause
298E F 3
The question regarding the amount of compensation leviable under Clause 2 has to be decided only by the Super intending Engineer and no one else
298G 4
The opening part of Clause 25 clearly excludes mat ters like those mentioned in Clause 2 in respect of which any dispute is left to be decided by a higher official of the Department
299C 5
The question of awarding compensation under Clause 2 is outside the purview of the arbitrator and the compensa tion determined under Clause 2 either by the Engineer in Charge or on further reference by the Superintending Engi neer will not be capable of being called in question before the arbitrator
299D 6
Clause 25 which is the arbitration clause starts with an opening phrase excluding certain matters and disputes from arbitration and these are matters or disputes in re spect of which provision has been made elsewhere or other wise in the contract
These words can have reference only to provisions such as the one in paranthesis in Clause 2 291 by which certain types of determination are left to the administrative authorities concerned
299B C 7
The question of any negligence or default on the part of the contractor has many facets and to say that such an important aspect of the contract cannot be settled by arbi tration but should be left to one of the contracting parties might appear to have far reaching effects
In the instant case it is made clear that the decision regarding non arbitrability is only on the question of any compensation which the government might claim in terms of Clause 2 of the contract
This is not an undefined power
The amount of compensation is strictly limited to a maximum of 10 percent and with a wide margin of discretion to the Superintending Engineer
It is this power that is kept outside the scope of arbitration
299E F H 300A