The Security Printing And Minting ... vs M/S. Gandhi Industrial Corporation

3. Brief facts which are necessary for disposal of this appeal are that the appellant No.2 is the General Manager of India Security Press which is a Government of India Undertaking functioning under the Ministry of Finance. M/s.Gandhi Industrial Corporation (hereinafter to be referred to as the claimant) is a partnership firm. Prior to 1966, the appellant No.2 before us (hereinafter to be referred to as the security press) was importing its entire requirement of gummed stamp paper from foreign countries. From 1967 onwards the security press commenced purchasing of Ashoka Pillar water mark stamp base paper from Paper manufacturing mills. The base paper was thereafter gummed and super-calendared by the contractor on a job work. In 1967 the claimant established a pilot plant for purpose of manufacturing gummed stamp paper at the instance of appellant- security press. The claimant set up the factory at Umbergaon in Thane district and the plant was commissioned in 1969. The claimant received orders for gumming and super- calendaring of stamp based papers. In the year 1976 the appellant for the first time floated tender for gumming and super-calendaring work. Again in 1989 the Security press floated tender and the claimant questioned the action of the security press by filing writ petition before the High Court but did not succeed. The tender was again floated in 1996 and the grievance of the claimant was that though the offer made by it was the lowest and the claimant further reduced the rates in view of the agreement reached between the parties, which agreement has been described as memorandum of understanding, for offering the work exclusively to the claimant for a period of 10 years so as to enable the claimant to optimally utilize the capacity of its plant. Then certain orders were given to other persons which was protested by the claimant and it filed a writ petition on the original side of the High Court of Bombay. The claimant also filed arbitration application under Section 11 of the Arbitration and Conciliation Act, 1996 (hereinafter to be referred to as the Act). The High Court of Bombay with the consent of parties nominated Justice Shri M.L.Pendse (retired) as the sole arbitrator to adjudicate the disputes and differences between the parties by its order dated 7.12.2001. The claimant thereafter informed the High Court that Writ Petition No.3980 of 1996 be withdrawn and the issues raised therein may also be referred to arbitration. We are not concerned with other issues. We are only concerned with one issue which has been raised before us for our consideration i.e. point No.4 and the order of the Arbitrator pertaining to claim No.3. It related to the value of modvat. The claimant sought a sum of Rs.2,95, 99,673/- on the basis that the value of the modvat was to the extent of Rs.51,48,468/- to which compound interest at the rate of 25.50 per cent per annum was payable by the security press to the claimant. The claimant submitted that in March, 1994 the claimants unit was covered by Rule 57A of the Central Excise Rules, 1994 (hereinafter to be referred to as the Rules) and thereby the Modvat scheme became applicable. The claim for modvat credit can be made only by the manufacture. After the claimant was covered under the Modvat scheme the security press issued necessary gate passes to enable the claimant to avail of the modvat credit. The security press floated tenders on 2.5.1994 and the tender documents nowhere suggested that the modvat credit will not be available to the manufacturer for the work of gumming and super-calendaring of stamp paper and the same shall be available to the security press. As against this,it was alleged by the Security Press that the offer document specifically recited that the claimant would be entitled to receive the modvat credit and the security press shall issue necessary documents including the gate passes to enable the claimant availing modvat credit. The security press while placing the orders on 31.5.1994 added a term that the modvat credit if any, availed by the claimant will have to be passed on to the security press. The claimant by its letter dated 5.6.1995 agreed to accept the order subject to withdrawal of the term relating to passing of modvat credit to the security press. The claimant stated that only on confirmation/ modification of this condition that it would proceed with the execution of the contract. The security press did not respond but forwarded base paper to the claimant to carry out the work of gumming 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 security press. The claimant used to remind them from time to time that the modvat credit is only available to the manufacturer i.e. the claimant. It appears that no positive response was given to the claimant. On 16.10.1995 the appellant- security press for the first time informed that the matter would be examined and the decision would be communicated. By letter dated 30.12.1995 the appellant security press informed that the modvat credit availed by the claimant would have to be transferred to the security press. Though the claimant did not accept the same but the view of the security press remained unchanged. Though a lot of negotiation took place on this issue but without any result. Finally on 25.7.1996 the security press informed the claimant that the modvat credit availed by the claimant after 1996 will be adjusted by deduction of the amounts payable to the claimant. Accordingly, the modvat credit availed by the claimant was deducted by the security press. Therefore, this issue was raised in arbitration that the modvat credit cannot be claimed by the security press and the same was only available to the manufacturer i.e. the claimant. The Arbitrator after considering the matter came to the conclusion that this claim of the security press cannot be accepted and the arbitrator decided the issue in favour of the claimant and answered the point No.4 that the claimant was entitled to a sum of Rs.50,64,155/-. Other issues were also decided by the Arbitrator by his award dated 4.10.2004. Thereafter, application under Section 34 of the Act was filed before the learned Single Judge and learned Single Judge affirmed the finding of the arbitrator by its order dated 13.3.2006 and aggrieved against that order, an appeal was preferred before the Division Bench of the High Court. The Division Bench affirmed the view taken by learned Single Judge and hence the appellants are before this Court in the present appeal.

9. Secondly, learned counsel has submitted that the principle of sub silentio applies in the present case. There is no question of principle of sub silentio involved in the present case. The terms and conditions of the 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. There was no question of applying the principle of sub 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 appellant- security press after paying the excise duty and therefore, the claimant claimed the benefit of excuse 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 of opinion that the view taken by the Arbitrator, as well as learned Single Judge and the Division Bench of the High Court cannot be sustained and we accordingly, allow this appeal and set aside the order of the Arbitrator with regard to the modvat credit and also the view taken by learned Single Judge and the Division Bench of the High Court of Bombay 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.