Overview
In this case, the Karnataka High Court examined the scope of judicial interference with an arbitral award under the Arbitration and Conciliation Act, 1996. The dispute arose out of a construction contract between the National Centre for Biological Sciences (NCBS) and URC Constructions Private Limited for the development of laboratory buildings in Bangalore.
The controversy emerged after the introduction of the Goods and Services Tax regime during the execution of the project.
While the parties ultimately accepted that GST at the rate of 18% was applicable, they disagreed on the manner in which certain payments relating to non-tendered items were to be calculated.
It was claimed by the contractor that the value of such items was exclusive of GST, and it sought reimbursement accordingly.
NCBS, however, argued that the figures relied upon by the contractor already included GST and that any further edit would result in an inflated claim.
An arbitral award was passed substantially in favour of the contractor. The challenge raised by NCBS before the Commercial Court failed, leading to the present appeal before the High Court.
Facts of the Case
NCBS invited tenders in February 2017, for the construction of laboratory facilities. URC Constructions emerged as the successful bidder, and a formal agreement was executed in June 2017. The contract value exceeded ?43 crores, and the agreed rates were inclusive of the taxes applicable at the time.
Shortly thereafter, GST came into force across the country. The transition created disputes regarding the tax payable under the contract. The contractor maintained that GST at 18% was applicable and sought reimbursement on that basis. NCBS initially disputed the rate and asserted that a concessional rate should apply.
The issue was eventually clarified through proceedings before the Authority for Advance Ruling, which confirmed that GST at 18% was payable. Despite this clarification, disagreements continued regarding the computation of payments, particularly with respect to non-tendered items executed during the project.
Arbitration was invoked by the contractor. The tribunal allowed several claims and accepted the contractors calculation that the value of non-tendered items was exclusive of GST. NCBS challenged the award, contending that the underlying records demonstrated that the certified value already included GST.
Legal Issues
- Whether the valuation of non-tendered items was inclusive or exclusive of GST.
- Whether additional GST could be awarded on amounts that already contained a GST component.
- Whether the Court could interfere with the award under Section 34 and 37 of the Arbitration and Conciliation Act.
- Whether deductions relating to pre-GST tax components were justified.
- Whether the arbitral award suffered from patent illegality by ignoring the material evidence on record.
Decision
The Karnataka High Court partly allowed the appeal and interfered with the award to a limited extent.
It was found that the tribunal had relied primarily upon the final bill while overlooking several running account bills that formed part of the record.
These documents clearly indicated that the certified value of the non-tendered items already included GST at 18%.
Accordingly, the Court held that the addition of a GST component on the same amount was plainly erroneous and resulted in an incorrect computation. Such a finding, based on the omission of crucial evidence, amounted to patent illegality warranting judicial interference.
At the same time, the Court upheld the tribunal’s conclusions regarding the applicable GST rate and rejected the contention that Works Contract Tax should be deducted from the contractor’s entitlement.
Since the valuation of the non-tendered items formed the basis for consequential calculations of GST and interest, the Court set aside that portion of the award and left it open to the contractor to pursue recomputation of the claim in accordance with law. No order as to costs was passed.
Case Reference: - Commercial Appeal No. 383 of 2025 (DB, Before Vibhu Bakhru C.J. and C.M. Poonacha, J. Delivered by Vibhu Bakhru, C.J.)
