Utkal Galvanizers Ltd. vs GRIDCO and Others

L. Mohapatra, J.—This Writ Application is directed against the Judgment and Order dated 8.10.2004 passed by the Learned District Judge, Cuttack in Misc. Appeal No. 121 of 2004 modifying the Order dated 3.8.2004 passed by the Learned Civil Judge (Senior Division), First Court, Cuttack in C.M.A. No. 168 of 2003 in the matter of an application under Order 39, Rules 1 and 2 of the Code of Civil Procedure.

The petitioner has filed C.S. No. 170 of 2003 in the Court of the Learned Civil Judge (Senior Division), First Court, Cuttack for declaration that the plaintiff-petitioner is not liable to pay sales tax as claimed by the defendant No. 4 i.e., the Commissioner of Commercial Tax, Orissa, Cuttack and that the Defendants 1 to 3 are liable to pay sales tax and for further declaration that in the event the tax is collected from the plaintiff-petitioner, the same be reimbursed by the Defendants 1 and 2 to the plaintiff-petitioner. One more prayer, which is relevant, is for declaration that the Clause 3 contained in purchase order with regard to sales tax be amended.

The facts leading to filing of the suit are that the Defendant No. 3 who is Opposite Party No. 3 before this Court had been awarded with a contract by the Defendants 1 and 2. The plaintiff-petitioner was engaged as sub-contractor by Defendant No. 3 for supply of materials to Defendants 1 and 2. At the relevant time the plaintiff-petitioner was exempted from payment of sales tax under the industrial Policy Resolution. When the matter stood thus, Government of Orissa by Gazette Notification No. 1094 dated 31.7.1999 lifted the said facility of exemption from payment of sales tax as a result of which the plaintiff-petitioner became liable to pay sales tax on the bills submitted by it. The Clause pertaining to Sales Tax was sought to be amended and in this regard correspondences were made between the parties. The defendants having not reimbursed the tax paid by the plaintiff-petitioner, the suit was filed. Along with the suit an application under Order 39, Rules 1 and 2, CPC was filed for restraining the Defendants 1 and 2 from payment of any amount on the purchase Order dated 15.4.1999. The Learned Civil Judge restrained the Opposite Parties 1 and 2 from disbursing any amount due to the Defendant-Opposite Party No. 3 against the purchase Order dated 15.4.1999 till disposal of the suit. Challenging the said order, the Defendant-Opposite Party No. 3 filed an appeal before the Learned District Judge, Cuttack and the Learned District Judge set aside the order of the Learned Civil Judge and confined the restraint order to the tune of Rs. 20,00,000/- (twenty lakhs).

Shri Manoj Mishra, the Learned Counsel appearing for the petitioner submitted that as per the terms of the agreement the petitioner is not liable to pay any sales tax and more over the petitioner had been exempted from payment of sales tax under the provisions of Industrial Policy Resolution. The exemption from payment of sales tax having been lifted by the State Government, the petitioner had to pay the tax to the Government. The petitioner paid the tax under the assurance that the same shall be reimbursed to it, but the said tax having not been reimbursed by Opposite Party No. 3, the suit had been filed. It was further contended that the agreement being silent about liability of the plaintiff for payment of sales tax, the Defendant-Opposite Party No. 3 is liable to reimburse the sales tax to the plaintiff-petitioner and, therefore, the Trial Court was justified in directing the defendants 1 and 2 from making any payment due to the Defendant-Opposite Party No. 3.

Shri R.K. Mohanty, the Learned Counsel appearing for the Defendant-Opposite Party No. 3, on the other hand, submitted that even accepting the plaintiff''s case the total amount due towards sales tax is Rs. 20,00,000/- (Rupees Twenty lakhs) as admitted by the plaintiff itself. The Defendant No. 3 is due to get huge amount of money from the Defendants 1 and 2 and there was no reason on the part of the Learned Civil Judge to withhold payment of the entire amount. The Learned Counsel supported the order of the Appellate Authority saying that the demand made by the plaintiff-petitioner has been secured by the Lower Appellate Court by directing the Defendants 1 and 2 to withhold Rs. 20,00,000/- from the bills of Defendant-Opposite Party No. 3. Though Shri Mohanty, the Learned Counsel appearing for the Defendant-Opposite Party No. 3 pointed out some defect in the plaint, I am not inclined to enter into the same as those questions can also be raised in the suit.

The specific case of the plaintiff-petitioner in Paragraph-7 of the plaint is that on account of unexpected withdrawal of the sales tax exemption facility, it was hard pressed with the unexpected burden of statutory levy of sales tax. At the relevant point of time when the quotation was given and the purchase order was placed with the plaintiff-petitioner the sales tax exemption certificate was very much in force. It is the specific case of the plaintiff-petitioner that the total sales tax levied on account of the entire purchase orders comes to Rs. 18,28,204/- at the rate of 4% and the plaintiff apprehends that if the Defendant No. 3 does not furnish Form No. IV under the Sales Tax Act, the plaintiff-petitioner will have to pay sales tax at the rate of 12% instead of 4% and shall incur loss of near about Rs. 55,00,000/- (fifty five lakhs). From the averments made by both the Courts below, it appears that the defendant-Opposite Party No. 3 is due to get about Rs. 6,28,12,769/- from the Defendant No. 2. If that be so, there was no reason for the Trial Court to direct withholding of payment of entire amount whereas the case of the plaintiff is that even at the rate of 12% it has to pay sales tax to the tune of about Rs. 55,00,000/- (Rupees fifty five lakhs). I am, therefore, of the view that the Lower Appellate Court was justified in modifying the said order. Now the question that arises for consideration is as to whether withholding Rs. 20,00,000/- is justified or it should be enhanced to Rs. 55,00,000/-. There is no material on record to show that Form No. IV has been submitted by the Defendant-Opposite Party No. 3 till today. Under the circumstances, the plaintiff-petitioner may have to pay tax at the rate of 12% and if such tax is paid at the rate of 12% according to the plaintiff-petitioner, it may have to pay about Rs. 55,00,000/- (Rupees fifty five lakhs). In my view, the Lower Appellate Court should have secured the said amount instead of Rs. 20,00,000/- (Rupees twenty lakhs).

I, therefore, modified the Order dated 8.10.2004 passed by the Lower Appellate Court and direct that the Defendant No. 1 shall retain Rs. 20,00,000/- (Rupees twenty lakhs) out of the total amount due to the Defendant-Opposite Party No. 3 and the Defendant-Opposite Party No. 3 shall furnish indemnity bond of Rs. 35,00,000/-(Rupees thirty five lakhs) before the Trial Court in order to secure the entire Rs. 55,00,000/- (Rupees fifty five lakhs). This interim order shall continue till disposal of the suit. The Learned Civil Judge (Senior Division), First Court, Cuttack is also directed to dispose of the suit as early as possible.