Dwarkadas Himatlal Shah v. LHS of Decd. Girishbhai Himatlal Shah

Background facts

  • Dwarkadas Himatlal Shah (Petitioner) initiated legal proceedings against Respondent No. 1 and 2 i.e., LHS of Deceased Girishbhai Himatlal Shah, seeking partition of the property located at Ahmedabad. Respondent No. 1, who was the original Defendant No. 1.1 and 1.2, appeared in the said suit proceedings and filed their written statement along with an Injunction Application.
  • Respondent No. 1 then filed an application under Order 7 Rule 11 of the Code of Civil Procedure, 1908 seeking dismissal of the suit in light of the arbitration clause mentioned in the Memorandum of Understanding (MOU) dated August 25, 2016, executed between the father of the Petitioner, father of Respondent No. 1 and Respondent No. 2 himself. The Petitioner did not submit a reply to the said application under Order 7 Rule 11. However, the Petitioner orally argued that the MOU was only meant for the superstructure and its division, and it did not pertain to the undivided share in the land on which the superstructure is constructed.
  • On the same day of filing the Order 7 Rule 11 application, Respondent No. 1 filed an application under Section 8 of the Arbitration and Conciliation Act, 1996 (Act), urging the City Civil Court, Ahmedabad to refer the suit to an Arbitrator. During the arguments, the Petitioner argued that Respondent No. 1 had submitted to the jurisdiction of the City Civil Court by filing the written statement, thereby making the application under Section 8 of the Act non-maintainable.
  • Vide Order dated December 16, 2022 (Impugned Order), the City Civil Court passed an Order while considering the application filed by Respondent - original defendants under Section 8 of the Act.
  • Being aggrieved, the Petitioner approached the High Court of Gujarat (HC) seeking to quash and set aside the Impugned Order.

Issue at hand?

  • Whether the application under Section 8 of the Act filed after the written statement can be referred to arbitration?

Decision of the Court

  • The HC examined the MOUs dated November 03, 1986, and August 25, 2016, which contained arbitration clauses (Clause 14 and Clause 17), and noted that the ancestors of the parties had agreed to resolve any difference, impasse, or misunderstanding between them through arbitration. The Court then observed that the dispute concerned the alleged illegal construction over the open space of the suit property, which fell within the scope of arbitration as per the terms of the MOUs.
  • The HC placed reliance on the Supreme Court's decision in Asian Avenues Pvt Ltd v. Syed Shoukat Hussain1 and the Delhi High Court's decision in SPML Infra Ltd v. Trisquare Switchgears Pvt Ltd2 , which supported the view that a written statement could be considered as the first statement on the substance of the dispute for invoking the arbitration clause under Section 8.
  • Based on the above analysis, the HC arrived at the conclusion that the Respondents had properly invoked the arbitration clause by raising the arbitration issue in their written statement, making the application under Section 8 maintainable.
  • The HC upheld the order of the City Civil Court and allowed the application under Section 8 of the Arbitration and Conciliation Act. The HC clarified that the application was maintainable as it was filed within the time limit specified in Section 8, which requires parties to intimate the judicial authority about the arbitration clause before submitting their first statement on the substance of the dispute.
  • In view of the above, the HC found no grounds for interference, thereby holding that the matter had been rightly referred to arbitration and dismissed the Petitioner's application seeking quashing of the Impugned Order.

JSW Steel Ltd v. Commissioner of Central Excise, Thane II

Background facts

  • The Appellant is engaged in the business of manufacturing steel articles. In order to remove impurities and rust during the manufacture of steel, a 'pickling process' is carried out and Waste Pickle Liquor (WPL) is generated as a result of the pickling process.
  • The Appellant entered into an agreement with Indrox Global Pvt Ltd (IGPL) for re-generation of Hydrochloric Acid (HCL) from the WPL. Under the agreement, the Appellant supplied WPL to IGPL at a nominal price of INR 1 per metric ton. Thereafter IGPL used chemical reactors to generate HCL and ferric oxide from the WPL and supplied HCL back to the appellant at a nominal price as agreed under the agreement.
  • IGPL sold ferric oxide that was generated and retained 50% of the proceeds, while the remaining 50 percent was paid to the Appellants by issuing credit notes.
  • According to the Excise Department (Department), during an investigation covering the period from July, 2004 to March, 2008 it was discovered that IGPL had issued credit notes totaling to INR 44,11,132 to the Appellant. The Department considered this amount as an additional consideration received by the Appellant as per Rule 6 of the Valuation Rules, 2000 and hence contended that the same needed to be included in their transaction value.
  • In view thereof, the Department issued a show cause cum demand notice dated May 29, 2009 to the Appellant, demanding the differential central excise duty amounting to INR 7,02,413 as well as Education Cess (EC) of INR 14,048, Higher Education Cess (HEC) of INR 3,332 along with interest and penalty amounting to INR 1,20,750.
  • Vide the Adjudication Order i.e. Order-in-Original dated January 29, 2010 the demands raised in the show cause notice were confirmed along with interest and penalty and the appropriation of amount deposited during investigation also stood confirmed. Being aggrieved by this, the Appellant filed the present Appeal before the Customs, Excise and Service Tax Appellate Tribunal, Mumbai (Tribunal).

Issue at hand?

  • Whether the additional consideration received by the Appellant in the form of credit notes from IGPL for sale of ferric oxide by IGPL, which emerged through chemical reaction of WPL, admittedly supplied by the Appellant to the said IGPL, is required to be added to the transaction value as per Rule 6 of Excise Valuation Rules, 2000?

Decision of the Tribunal

  • At the outset, the Tribunal referred to the decision in the matter of Rajasthan Prime Steel Processing Centre Pvt Ltd v. CCE & CGST3 which dealt with the issue of whether the value received from the sale of auto parts in scrap should be included in the transaction value and the same is not applicable to the present case, since the auto parts by itself are not a waste product like WPL.
  • The Tribunal also placed reliance on its decision in the case of TATA Steel Ltd v. CCE4 whereby it was held that WPL is not an excisable good and, therefore, Rule 6 of Valuation Rules, 2000 has no application and the question of undervaluation does not arise.
  • The Tribunal held that the receipts from sale proceeds of ferric oxide which originated from WPL cannot be considered as consideration for WPL. The Tribunal stated that WPL is nothing but waste that emerges during the manufacture of steel and that waste that is thrown up during manufacture, cannot be said to be a produce of manufacture; hence is not liable to any duty.
  • The Tribunal further held that Appellant is not at all involved in generating HCL or ferric oxide out of the said WPL and hence no demand can be sustained against the Appellant on this ground alone.
  • In view of the above, the Tribunal set aside the Adjudication Order dated January 29, 2010 and allowed the Appeal filed by the Appellant with consequential relief.

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1. AIR 2023 SC 2185

2. (2022) SCC Online Del 1914

3. 2021-TIOL714-CESTAT-DEL

4. 2019-TIOL-3946- CESTAT-MUM

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