The Madras High Court has termed arbitral award legally flawed for ignoring Goods and Service Tax (GST) hike clause.
The bench of Justice Abdul Quddhose has observed that arbitral award is in conflict with the public policy of India, since the arbitrator has failed to take note of the fact that the contractor involved in the said arbitral award has established beyond reasonable doubt based on the contractual provision that the said contractor is also entitled for an arbitral award in their favour in respect of increase in the rate of GST from 5% to 12% subsequent to the date of the contract.
The petitioner who was the claimant in the arbitration, was unsuccessful in the arbitration, as their claim for enforcement of the statutory variation clause on account of non-release of 7% differential GST amount by the respondent subsequent to the revision of the rate of GST was rejected on the ground that the petitioner might have included 13% differential GST in their quoted price for getting the award in their favour.
The issue raised was whether any additional Input Tax Credit (ITC) benefit accrued to the contractors due to the GST rate increase, when there was no corresponding change in input tax regime, has not been passed on to ICF, the employer.
The court held that he arbitral award rejecting one of the contractors claim suffers from perversity and is patently illegal for the various reasons.
Firstly, the arbitral award suffers from infirmity on account of misapplication and misreading of the clear terms of the bid document.
Secondly, the arbitral award disregards the settled position of law regarding ITC under the GST regime.
Thirdly, the impugned arbitral award is an unreasoned award and therefore, is violative of Section 31(3) of the Act.
Fourthly, the arbitral award is passed in ignorance of the vital evidence and therefore, is absolutely perverse in law.
Fifthly, arbitral award is in conflict with the public policy of India, since the arbitrator has failed to take note of the fact that the contractor involved in the said arbitral award has established beyond reasonable doubt based on the contractual provision that the said contractor is also entitled for an arbitral award in their favour in respect of increase in the rate of GST from 5% to 12% subsequent to the date of the contract.
Lastly, the only possible view that could have been taken by the Arbitral Tribunal is that ICF was contractually bound to reimburse the GST amount to the contractor on account of the statutory variation clause.
Case Details
Case Title: Union of India Versus M/s.Indra Industries
Case No.: Arb.O.P.(Com.Div) No.602 of 2023
Date: 09.04.2025
Counsel For Petitioner: AR.L.Sundaresan
Counsel For Respondent: Sandeep Sachdeva
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