20 August 1996
Supreme Court


Case number: C.A. No.-010774-010774 / 1996
Diary number: 254 / 1996






DATE OF JUDGMENT:       20/08/1996


CITATION:  JT 1996 (7)   395        1996 SCALE  (6)168



JUDGMENT:                 THE 20TH DAY OF AUGUST, 1996 Present:           Hon’ble Mr.Justice B.P. Jeeven Reddy           Hon’ble Mr.Justice K.S.Paripoornan Rakesh Dwivedi, Additional Advocate General for the State of U.P., R.B.Misra,  Sudhanshu and  Kamlendra Mishra, Advs. for the appellants. A.K.Ganguli,  Sr.Adv.,  Sudhir  Chandra,  Arvind  Varma  and Ms.Suruchi Aggarwal, Advs. with him for the Respondent                       J U D G M E N T The following Judgment of the Court was delivered: STATE OF U.P. & ORS. V. BRIDGE & ROOF COMPANY (INDIA) LIMITED                       J U D G M E N T B.P.JEEVAN REDDY.J,      Leave granted.      This Appeal  is directed  against  the  judgment  of  a Division Bench  of the  Allahabad High Court disposing of he writ  petition   filed  by   the  respondent   with  certain directions. The  arguments before us ranged far and wide and several questions  have been  raised though none of them are reflected in  the judgment  under appeal. It is averred that all these  contentions were  indeed urged  before  the  High Court. Be that as it may, having regard to the importance of the questions  raised herein, which is said to be arising in that Court  frequently, it  has become necessary to refer to the contentions urged.      The respondent  - Bridge & Roof Company (India) Limited - is  a public  sector corporation.  It entered into a works contract  with   the  Government   of  Uttar   Pradesh   for rehabilitation and  improvement of a certain stretch of road in Uttar  Pradesh. The tender notice was issued on September 1, 1990.  The date  of opening  the tenders was specified as December  17,   1990.  The   tenders  were  opened  and  the respondent’s tender  was accepted  on May  1, 1991. The work



has since  been completed. The dispute is only about certain payments which  the respondent  claims are due to it whereas the appellant  Government of Uttar Pradesh - says that it is entitled t? retain.      According to  the terms  of  the  contract,  the  rates quoted by  the contractor were deemed to be inclusive of the sales tax, if any, on the constructional plant, material and supplies required  for the  purposes of  the  contract.  The relevant  clause  Sub-clause  (4-a)  of  Clause  ?8  of  the Contract, quoted  at Pages  25 and  26  of  the  Paper-book] stated in  the; alia  that "4(a):  Nothing in  the  contract shall relieve  the contractor from the responsibility to pay any Trade  Tax that  may be  levied under the U.P. Trade Tax Act, 1948  as amended  from time  to time  in performance of this contract; During pursuance of the contract the engineer in charge or any other person responsible for making payment to the  contractor shall,  at the time of making the payment to the  contractor either  in cash  or in  say other manner, deduct an amount equal to the amount specified in section 8- D of  the aforesaid  Act as in force, for the. time being to wards part,  or as the case may be, full satisfaction of the tax payable  under the  said Act on account of the contract; the amount  presently specified  in the  said section  is 4% (four per  cent) of  the amount  payable to the contractor." Another clause  [sub-clause (2)  of Clause 78 quoted at page 24 of the Paperbook] stated that "(2) The tendered amount by the contractor  shall include,  all  excise  duties,  custom duties, import  duties, sales  tax, and other taxes that may be levied  according to  the laws  said regulations  for the time being  in force  as on  the date  30 days  prior to the closing date  for  submission  of  bids  in  the  Employer’s country  on   the  constructional   plants,  materials   and supplies(both permanent,  temporary and consumable) acquired for the  purpose   of the  contract.Nothing in  the contract shall relieve the contractor his responsibilities to pay any tax that  may be levied in the Employer’s country on profits made by  him in  respect of  the contract."Clause  70 of the contract  provided   for  process   adjustment.It  would  be sufficient if we notice sub-clause (4)of said clause (quoted at Page  47 of  the Paperbook)-  It reads:(4)  If ,after the date thirty day priors to the date of Opening Of tenders for the work,  there in  India,changes to  any National or state state ordinance Decree or their Law or any regulation or bye law of  any local or other duly constituted authority or the introduction of  any such  state other  than under subclause (1a),(2) and  (3)of this  clause, in  the executing  of  the works such  additional or reduced cost shall be certified by the Engineer  after examining  the records   provided by the claimant and  shall be  paid by  or credited to the employer and   the    contract    process    adjusted    accordingly. notwithstanding  the   foreign  input,  such  additional  or reduced cost shall not be separately paid or credited of the same shall  already have been taken into an accounted in the indexing of  any input  to the  price adjustment  Formula in accordance with sub-clause (1),(2) and (3) of this clause."      Section  3   of  the   U.P.Sales  Tax   Act,1948   [the Act]creates the  liability to  tax at the specified rates on the turn-over  of  sales  of  Purchases,  of  both,of  every dealer.Section 3-F introduced by U.P.Act 25 of 1985 pursuant to the constitution 46th Amendement Act provides for rate of tax on  the goods  used or  involved in  the execution  of a works contract.It reads:           "[3-F Rate of tax on the right      to use  any goods or goods involved      in  the   execution  of   a   works



    contract--Notwithstanding  anything      contained  in   Section   3-A,   or      Section  3-AAA,   or  Section  3-D,      15a.[Words   "or    Section   3-G",      omitted  by  U.P.Act  28  of  1991,      S.6(w.e.f. 19.2.1991) and deemed to      have    been     omitted    (w.e.f.      13.9.1985).] the  turnover relating      to the  business of transfer of the      right to  use  any  goods  for  any      purpose or of transfer the property      in the  goods [whether  as goods or      in some  other form]15b involved in      the execution  of a  works contract      shall be  determined in  the manner      prescribed and  shall be  liable to      tax at  such  rate,  not  exceeding      fifteen  per  cent,  as  the  State      Government  may,  by  notification,      declare, and different rates may be      declared  for  different  goods  or      different classes of dealers ]"      Section 7-D  provides for composition of tax liability. Subject to  the directions  issued by  the State Government, the Commissioner  of Sales  Tax is  empowered  to  agree  to accept a lumpsum in lieu of the amount of tax payable by the dealer under the Act. It reads:           "[7-D   Composition   of   tax      liability. Notwithstanding anything      contained in  other  provisions  of      this  Act,   but  subject  to  such      directions as the State  Government      may from time to time issue in that      behalf,   the    Commissioner    of      SalesTax may agree to accept a lump      sum in  lieu of  the amount  of tax      that may  be payable by a dealer in      respect of  each goods  or class of      goods and for such period as may be      agreed upon:           Provided that  any  change  in      the rate of tax which may come into      force  after    the  date  of  such      agreement shall  have the effect of      making a  proportionate  change  in      the  lump   sum    agreed  upon  in      relation to that part of the period      of  agreement   during  which   the      changed rate remains in force.]"      Section 8-D  provides for  deduction of  tax  from  the amount  payable   to  works   contractors.  Sub-section  (1) provides that every person responsible for making payment to any dealer/contractor  shall deduct,  at the  time of making payment to  the contractor,  a sum  equal to  4% of  the sum mentioned therein.  The Proviso  to sub-section (1) inserted by U.P.  Amendment Act 28 of 1991, with effect from February 19 1991,  empowers  the  Commissioner  to  direct  that  the deduction provided  by sub-section (1) shall be made at Such lesser rate  as may be specified in the order made by him or that no  such deduction  shall be  made. Section 8-D further provides that  the amount  so deducted  shall be remitted to the Government  and shall  be treated  as tax  paid  by  the contractor/dealer. Any  failure  to  deduct  the  amount  as provided by  sub-section (1)  makes the  person [responsible for deducting]  liable to  pay the  said amount.  He is also



liable to  pay such  penalties as  may be  imposed  for  his failure to  deduct and/or  remit. It would be appropriate to read sub-section (1) of Section 8-D alongwith its proviso.           "[8-D, Tax  deduction from the      amount payable  to works contractor      -(1)    Notwithstanding    anything      contained  in  sub-section  (2)  of      Section    8-A,     every    person      responsible for  making payment  to      any  dealer  (hereinafter  in  this      Section   referred    to   as   the      contractor) for  discharge  of  any      liability on  account  of  valuable      consideration   payable   for   the      transfer  of   property  in   goods      (whether as  goods or  in any other      form)  in   pursuance  of  a  works      contract,  not   being  a  building      contract of  such class or value as      may  be   notified  by   the  State      Government in  public  interest  in      this behalf,  shall, at the time of      making   such    payment   to   the      contractor, either  in cash  or  in      any other  manner, deduct an amount      equal to  four per  centum of  such      sum towards part or as the case may      be, full  satisfaction of  the  tax      payable under  this Act  on account      of such works contract:           Provided that the Commissioner      of Sales Tax may, if satisfied that      it  is   expedient  in  the  public      interest so  to do  and for reasons      to be  recorded in  writings  order      that in  any case or class of cases      no such deduction shall be made or,      as the  case may be, such deduction      shall be made at a lesser rate."      It is  stated before us that pursuant to Section 7-D of the Act the Government devised a composition scheme on April 5, 1991. It was amended late on November 20, 1991 .      The  respondent   appears  to   have  applied   to  the Commissioner of  Sales Tax,  U.P. for composition of his tax liability under  the said contract and for reducing the rate of deduction  of tax at source. This application was made in terms of  section 7-D  and the  Proviso to  Section 8-D (1). Upon  this   application,  it   is  averred,   an  order  of composition was  passed. What is relevant is that the Deputy Commissioner (in  exercise of the powers delegated to him by the Commissioner)  ordered [vide  his order  dated  May  27, 1992] that  "at the  time of  payment of balance amount from the above  contract price,  the sales tax should be deducted at the  rate of one per cent". A copy of this order was also communicated to the concerned Superintending Engineer of the P.W.D. It  is admitted  case of  both the  parties that  the composition scheme  devised by  the Government on 5.4.91 [as amended on  20.11.91] is  valid and  effective only till and inclusive of 31st March, 1995 but not thereafter.      In September  1995, the  respondent filed  C.M.W.P.C  9 No.24837 of  1995 in  the  Allahabad  High  Court  with  the following prayer:      "(a) to  issue a writ in the nature      of    Mandamus    commanding    the      respondent   No.2   (Superintending



    Engineer) restraining    them  from      deducting a  sum of  Rs.82,24,969/-      from the  Bill No.44-RA  Bill dated      20.5.95/31.7.95 (Annexure-4) of the      petitioner company."      After setting  out the  relevant facts,  the respondent contended in  the  said  writ  petition  that  the  proposed deduction of the sum of Rs.82,24,969/- from the petitioner’s bills, purporting  to act under Clause 70(4) of the contract is misconceived  and untenable because the rate of sales tax has not  been reduced in the present case as contemplated by Clause 70(4)  but that  only the rate of deduction at source has been  reduced. The respondent’s case was that the change in the rate of deduction at source or the composition of the respondent’s liability to pay tax under Section 7-D is of no concern to  the Government.  The Government must deduct only one per  cent upto  31.3.1995 as directed in the order dated May 27,-1992  and leave  the rest  to the respondent and the Sales Tax  authorities. The respondents in the writ petition (appellants herein)  filed a counter disputing the several - contentions raised  in the  writ petition and justifying the retention  of   the  sum  of  Rs.82,24,969/-.  According  to appellants,the said amount need not be paid to the sales Tax Department also.  By virtue  of  the  composition  agreement between the  respondent and  the sales  Tax department under section7-D,read with  the order  of the  Deputy Commissioner under the  proviso to  section 8-D  (1),the tax liability of the respondent  has been  reduced with  respect to the works contract between  them,within the meaning of clause 70(4) of the contract  and, therefore,they  submitted, the benefit of said reduction  should go  to the  Government as provided by the contract.      The  High   court  did   not  deal   with  the  several contentions aforesaid.  It disposed  of  the  writ  petition observing that  inasmuch as  "the commissioner  in his order has accepted  the paper  for composition as requested by the petitioner and  has directed the deduction of one in lieu of four per cent, (and) only that amount is to be deducted from the amount  required to  be paid to the petitioner under the bill in  question and  the same  will cover  the period upto 31st March,1995 and not thereafter and the payment under the bill  shall  be  made  accordingly."  The  High  court  then observed that  inasmuch as  the order  of  the  commissioner under the Proviso to section 8-D (1) has not been challenged by the  Government,  the  writ  petition  is  liable  to  be disposed  of  with  the  direction  aforesaid,viz.,that  the Government shall  deduct only  one per  cent of  the bill in question upto 31st March, 1995.      Mr. Rakesh Dwivedi ,learned Additional Advocate General for the State of U.P.,urged the following contentions:- (1) Under  the terms  of the  contract the  tendered  amount quoted by  the respondent  included sales  Tax  at  4%.  The Government was under a statutory obligation to deduct this 4 per cent  and remit the same to the sales Tax Department.The contractor was entitled only to the remaining 96 per cent of the contact  amount since  the rate  of tax  payable by  the respondent-contractor has  been reduced to one per cent from 4 per  cent under  an  order  of  composition  passed  under section 7-D,  it is a situation attracting sub-clause (4) of clause 70 of the contract.According to it the benefit of any reduction in  the rate  of sales  tax shall  operate to  the benefit of  the Government  just as  any enhancement  in the rate of  sales tax would be a liability upon the Government. The Government  was,therefore, justified  in  retaining  the said amount of Rs.82,24,969/-.



(2) The  direction of  the high court to deduct only one per cent is  a case  of stating  the obvious.But  that order  is being construed by the respondent an order allowing the writ petition as  prayed for.  If so understood, the order of the High court results in unjust enrichment of the respondent at the cost  of public  exchequer besides being contrary to the provisions of  the statute and terms of the contract between the parties.      Shri   A.K.Ganguli    and   Mr.Sudhir   Chandra,learned advocates of  the respondent,  on the  other  hand,submitted that the  Government is  nit concerned  with the  sales  tax liability of  the respondent.That  is a  matter between  the respondent and  the sales  tax Department.The  obligation of the Government  under the  contract was only to deduct 4 per cent from  the amount  payable to  the respondent  under the contract.But since  the said  obligation to  deduct has been reduced from  4 per  cent to  one per  cent by an order made under the  proviso to  section 8-D (1) the Government should deduct only  at the  rate of  one per  cent and pay over the balance of  the contract  amount rest  to the respondent.The Government is  not concerned  with the  order of composition made under  section 7-D  (1).What all has happened under the composition order  is that instead of ascertaining the value of the  goods transferred  in  the  execution  of  the  work contract.Counsel say that this has been done in the interest of simplication  of assessment procedure and as a measure of government policy.  This does not result in reduction in the rate of  tax; it is only a convenient and simplified formula for  quantifying   the  tax.Hence,they   submit,thereis   no question of  the  Government  getting  the  benefit  of  any reduction in the rate of tax.      In  our   opinion,the  very   remedy  adopted   by  the respondent is misconceived. It is not entitled to any relief in these  proceedings,i.e,in  the  writ  petition  filed  by it.The High  court appears  to be  right in  not pronouncing upon any  of the  several contentions  raised  in  the  writ petition by  both the  parties and in merely reiteration the effect of  the order  of the  Deputy commissioner made under the proviso to section 8-D (1).      Firstly, the contract between the parties is a contract in  the  realm  of  private  law.  It  is  governed  by  the provisions of  the contract  Act or  may be,also  by certain provisions of  the sale of Goods Act.Any dispute relating to interpretation  of  the  terms  and  conditions  of  such  a contract  cannot  be  agitated,  and  could  not  have  been agitated,in a  writ petition.  That is  a matter  either for arbitration as  provided by  the contract of for Civil court as the  case may  be. whether  any  amount  is  due  to  the respondent from  the appellant-Government under the contract and,if  so,how   much  and   the  further  question  whether retention or  refusal to pay any amount by the Government is justified, or  not are  all matters which cannot be agitated in or adjudicated upon in a writ petition. The prayer in the writ petition,viz.,to restrain the Government from deducting particular amount from the writ petitioner’s bill(s) was not a prayer  which could  be granted  by the  High court  under Article  226.Indeed, the High Court has not granted the said prayer.      Secondly, whether  there has  been a  reduction in  the statutory liability on account of a change in law within the meaning of  sub-clause (4)  of clause  70 of the contract is again not a matter to be agitated in the writ petition. That is again  a matter  relating to  interpretition of a term of the contract and should be agitated before the arbitrator in the civil  court,as the case maybe. If any amount is wrongly



wrongly  withheld   by  the  Government,the  remedy  of  the respondent is to raise a dispute as provided by the contract or to approach the civil court, as the case may be according to law.  Similarly if  the Government  says that  any  over- payment has  been made to the respondent, its remedy also is the same.      Accordingly, it  must be  held that  the writ  petition filed by  the respondent  for the  issuance  of  a  writ  on Mandamus  restraining   the  Government  from  deducting  or withholding  a   particular  sum,  which  according  to  the respondent is  payable to  it under the contract, was wholly misconceived and  was  not  maintainable  in  law  [See  the decision of  this Court  in Assistant  Excise   Commissioner v.Isaac Peter  (1994 (4)  S.C.C.104), where  the law  on the subject has  been discussed  fully.] The writ petition ought to have been dismissed on this ground alone.      We must  mention in  this  behalf  that  the  order  of composition of  tax liability,  if any, under Section 7-D of the Act  has not  been placed before us. [We presume that it is an  order separate from the order dated May 27 1992. But, even if  it is  not, it  makes no difference to what we were saying  hereafter.]   Whether  such   composition  agreement results in  reduction of tax liability within the meaning of Clause 70(4)  of the  Contract is  again a matter concerning the interpretation  of a  term of the Contract. Accordingly, the question  to whom the benefit of reduction in tax should go’ is  not a  matter for a writ petition, for the very same reasons as  are mentioned  hereinbefore. Now  coming to  the order made  by the  Deputy Commissioner under the proviso to Section 8-D  (1) cf  the Act,  all that  it says is that the Government shall  deduct tax  at source  only at the rate of one per  cent instead of at the rate of 4 per cent. The said order-, having  been made  under the  statute, relieves  the government of its obligation to deduct at source at the rate of 4  per cent. In other words, by virtue of the said order, no action  can be  taken against the government [Appellants] for not deducting at the rate of 4 per cent under Section 8- D. Learned counsel for the respondent contend that the order under the  proviso to  Section 8-D(1) does not determine the tax liability  of the respondent, which liability, they say, will be  determined only  in the assessment proceedings. May be they  are right  or may  be, not. We need not express any opinion on these submissions because, as already pointed out hereinabove,   the    said   question   depends   upon   the interpretation of  the terms  of the  contract  between  the parties. Just  because the  interpretation  of  orders  made under Section  7-D or  Section  8-D(1)  may  also  fall  for consideration while  construing the  terms of  the  contract does not convert the controversy into a public law issue. It is yet  a matter  within  the  realm  of  private  law  and, therefore, outside  the purview  of the  writ petition.  The Arbitrator under  the contract  or the  civil court,  as the case may  be - can go into and decide both questions of fact as well as questions of law.      There  is   yet  another  substantial  reason  for  not entertaining the  writ petition.  The contract  in  question contains a  clause providing  inter a1ia  for settlement  of disputes by  reference to  arbitration  [Clause  67  of  the Contract]. The Arbitrators can decide both questions of fact as well  as questions  of  law.  When  the  contract  itself provides for  a  mode of settlement of disputes arising from the contract,  there is no reason why the parties should not follow and  adopt that  remedy and invoke the extra-ordinary jurisdiction of  the High  Court  under  Article  226.  Tree existence of an effective alternative remedy - in this case,



provided in  the contract  itself - is a good ground for the court to decline to exercise its extra-ordinary jurisdiction under Article  226.  The  said  Article  wag  not  meant  to supplant the existing remedies at law but only to supplement them in  certain well-recognised  situations. As pointed out above, the  prayer for issuance of a writ of mandamus wastes wholly misconceived  in this  case since  the respondent was not seeking to enforce any statutory right of theirs nor was it seeking to enforce any statutory obligation cast upon the appellants. Indeed, the very resort to Article 226 - whether for issuance  of  mandamus  or  any  other  writ,  order  or direction -  was  misconceived  for  the  reasons  mentioned supra.      So far  as the  High Court’s direction to deduct at the rate of  one percent is concerned, it may be case of stating the obvious,  as contended  by the  appellants. But  it must also be  realised that  more than  that could  not have been legitimately granted  in a  writ petition.  It must  also be noticed that the declaration granted is effective only for a limited period,  i.e., March  31, 1995. It does not apply to payments made  on or  after April 1, 1995, What does it mean in the  facts and circumstances of the case, we do not know. Whatever it  means, it  cannot certainly  be construed  as a direction to  the appellants  to pay  over the  said sum  of Rs.82,24,969/- to  the respondent  as claimed  by it  or  as upholding the basis of the respondent’s claim put forward in the writ petition.      Before parting  with this  appeal, we must mention that counsel for  both  the  parties  have  urged  several  other contentions of  fact and  law and  relied upon several other clauses of the Contract apart from those mentioned supra. We have not  set them  out herein because, in our opinion, they are outside  the ken of a writ petition. It shall be open to the parties  to urge  and rely upon them at the proper stage and before the appropriate forum.      For the  reasons mentioned  hereinabove, the  appeal is dismissed subject  to the  observations  and  clarifications aforementioned. It  shall be open to he respondent, if it so chooses, to  either raise a dispute and ask for reference of the dispute  to arbitration as provide by the contract or to approcah the  civil court  according to law, as the case may be,in the  circumstances of the case there shall be no order as to costs.