Employer Liable To Reimburse Customs Duty Paid By Contractor If Exemption Certificate Not Provided At Import Stage: HP High Court

The Himachal Pradesh High Court dismissed an appeal under section 37 of the Arbitration and Conciliation Act, 1996 (Arbitration Act) filed by Himachal Pradesh Power Corporation Ltd. (HPPCL) upholding an arbitral award in favour of Orange Business Service India Technology Pvt. Ltd. The court held that the failure to provide exemption certificate by employer at the time of importation of goods for ADB funded project made it liable to reimburse the customs duty paid by the contractor. A bench comprising Chief Justice G.S. Sandhawalia and Justice Ranjan Sharma found the Award passed by the Arbitral Tribunal which directed the reimbursement of Rs. 1 crore with 10% interest to be well reasoned, consistent with contractual terms and not vitiated by patent illegality. It held that “the Corporation having been satisfied with the supply, installation and commissioning of the project, now cannot turn around and shake off its liability on account of its own inefficiency.” Background The Appellant floated a tender for the installation and commissioning of IT infrastructure, Data Centre, and Disaster Recovery Centre for ERP implementation and the respondent was awarded a letter of intent. Subsequently, a formal agreement was also executed. Under clause 14.2 of the Agreement, the employer was obligated to pay custom duties on all imported products. However, the Respondent was to handle all logistics and clearance at its own expenses as per clause 21.4 subject to the necessary exemption certificates provided by the Appellant. The respondent imported the required equipment and paid the customs duty. Despite repeated requests, the employer failed to issue exemption certificates. The certificates were issued belatedly. The custom department rejected the respondent's plea for refunds on the ground that the exemption certificates were not provided at the time of import.The Appellant invoked the arbitration clause.The Arbitral Award was passed in favor of the Respondent directing the Appellant to pay Rs. 1 crore along with 10% rate. Contentions: The Appellant submitted that the respondent acted in haste and imported the required equipment without waiting for exemption certificates. When exemption certificates were issued, the respondent should have pursued custom refund remedies. Per contra, the Respondent submitted that the Appellant delayed in issuing exemption certificates because of which refund could not be timely claimed. As per Notification No. 84/97-Customs, the exemption could be claimed only at the time of import which was frustrated by the delay in issuing the certificates. The employer cannot evade liability after failing to provide timely exemption certificates, while simultaneously demanding strict adherence to project deadlines. Findings: The court noted that clause 14.2 of the agreement imposed liability on the Appellant to pay customs duty. The respondent had done its part by importing the equipment but the Appellant failed to provide exemption certificates on time. It held that “a reasonable view having been taken by the Tribunal, keeping in mind the terms of the contract and materials placed, there is no plausible reason to interfere.” It further observed that the repeated requests of the respondent were ignored and the certificates were issued only 14.06.2012 that is after a long time since the initial requests were made. The customs authority rightly rejected the refund claims as time barred under section 149 of the Customs Act. It held that “for their own inefficiency, belated certificates were issued… The Corporation, having been satisfied with the installation, cannot now disown liability.” The court agreed with the majority view and rejected the dissenting view that the respondent should have awaited for exemption certificates before importing the equipment. The court while agreeing with the majority view held that the deadlines required immediate import and the Appellant had failed to object at that time. It further held that the scope of interference under section 37 of the Arbitration Act is narrower than section 34. Only patent illegality justifies the court's interference. Ultimately, the court held that failure to issue exemption certificates on time coupled with satisfaction with the work completion fastened the liability on the Appellant to reimburse the customs duty. Case Title: Himachal Pradesh Power Corporation Ltd. Vs. M/s Orange Business Service India Technology Pvt. Ltd. Case Number:Appeal No. 01 of 2019 Judgment Date: 19/09/2025 For Petitioner: Mr. Shashi Shirshoo, Advocate For Respondent: Mr. Devashish Bharuka, Senior Advocate with Mr. Ravi Bharuka, Advocate (through V.C), Mr. Diwan Singh Negi and Mr. Devi Singh Verma, Advocates. Click Here To Read/Download The Order

Employer Liable To Reimburse Customs Duty Paid By Contractor If Exemption Certificate Not Provided At Import Stage: HP High Court

Mohd Malik Chauhan

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