Court Identifies Patent Illegality in Ignoring Evidence of GST Inclusion in Non-Tendered Items' Value
In a significant judgment, the Karnataka High Court, comprising Chief Justice Vibhu Bakhru and Justice C.M. Poonacha, has partially set aside an arbitral award concerning a financial dispute between the National Centre for Biological Sciences (NCBS) and M/s URC Constructions Private Limited. The court found that the arbitral tribunal had committed a patent illegality by failing to consider vital evidence regarding the inclusion of Goods and Services Tax (GST) in the computation of the value of non-tendered (NT) items.
The dispute arose from a contract for the construction of laboratory buildings and associated facilities by URC for NCBS. The central issue in the appeal was the determination of whether the value of NT items included GST. While URC claimed that the value was exclusive of GST, the NCBS contended that it was inclusive of 18% GST, leading to a difference of Rs. 1,47,34,311.
The High Court noted that the arbitral tribunal had relied solely on the 21st and final bill without considering the material evidence available in the form of running account (RA) bills, which indicated the inclusion of GST in some NT items. This oversight led the court to conclude that the award was vulnerable due to patent illegality.
The judgment emphasized that while the courts have limited scope to interfere with arbitral awards under Section 37 of the Arbitration and Conciliation Act, 1996, they can set aside awards that ignore vital evidence, amounting to patent illegality. The court has remanded the matter for recomputation of GST and interest, allowing URC to re-agitate its claims regarding differential GST if so advised.
The decision underscores the critical importance of thorough evidence appraisal in arbitration proceedings, particularly in complex financial disputes involving statutory tax components.
Bottom line:-
Arbitration and Conciliation Act, 1996 - Section 37(1)(c) - Arbitral award partially set aside due to patent illegality - Failure to consider vital evidence regarding inclusion of GST in the value of non-tendered (NT) items renders the award vulnerable - GST and interest awarded require recomputation.
Statutory provision(s): Arbitration and Conciliation Act, 1996 - Section 37(1)(c)
