Government violated pact, paid Rs. 4.8 crore

BHUBANESWAR: The Comptroller and Auditor General has rapped the State Government for violation of agreement conditions which led to payment of penal interest of  Rs. 4.80 crore. Consultancy services for the World Bank- aided National Highway expansion project of the Bhubaneswar-Cuttack-Jagatpur section was awarded to a firm in January 1995 at a cost of  Rs. 12.44 crore. The contract provided reimbursement of taxes, duties and other impositions under the applicable laws on the consultant and its employees. Records of the Bhubaneswar National Highway division of the Works Department revealed that instead of paying the income tax on behalf of the consultant, the department deducted 30 per cent of the payment due to the firm as per the advice of the Income Tax Department. Raising a dispute, the consultancy firm referred the matter for arbitration and the arbitrator awarded payment of Rs. 2.31 crore in favour of the consultant along with interest of 12 per cent from July 1999 to  April 2000. If the Government failed to pay the award within 90 days from the date of the order, the petitioner will be entitled for 18 per cent interest on the amount awarded. Besides, the Government will also pay 50 per cent of the legal expenses and interest to the consultancy firm. However, the Government preferred to challenge the order of the arbitrator in the Orissa High Court which upheld the decision in August 2006. The department filed a special leave petition (SLP) against the order Of the Orissa High Court in the Supreme Court. The apex court dismissed the petition in August 2007 for lack of merit. After the dismissal of the case by the Supreme Court, the Government paid Rs. 7.81 crore including interest of  Rs. 4.80 crore to the firm in February 2008. The Government could have avoided paying such huge penal interest to the firm had it accepted the order of the arbitrator, the audit report said.  The department clarified that the income tax of the firm was deducted as per the advice of the Income Tax Department. This is not tenable in view of the specific conditions in the contract, the CAG said.