Karnataka High Court Sets Aside Part Of Arbitral Award Over GST Computation On Non-Tendered Works

The Karnataka High Court has partly set aside an arbitral award in a dispute between the National Centre for Biological Sciences (NCBS) and URC Constructions Pvt Ltd.

The court held that the arbitral tribunal ignored material evidence while concluding that the value of non-tendered items was ₹9.65 crore exclusive of GST.

A division bench of Chief Justice Vibhu Bakhru and Justice C.M. Poonacha found that invoices and other records on the arbitral record showed that at least some GST was included in the ₹9.65 crore figure. The tribunal had failed to consider that material.

The bench held, “In view of the above, the impugned award, to the extent that it proceeds on the basis that the value of NT items exclusive of GST is `9,65,91,596/-, is set aside. The said conclusion ignores that the said amount is an aggregate of the amount included in the invoices and bills, and at least some of those invoices, which are on record, expressly include 18% GST. Failure to consider such relevant and vital evidence renders the impugned award vulnerable on the grounds of patent illegality.”

The dispute arose from a construction contract awarded by NCBS to URC in June 2017 for laboratory and research facilities. After the GST regime came into force on July 1, 2017, disagreements emerged over reimbursement of GST on the works executed. An Authority for Advance Ruling order issued in September 2019 held that GST at 18% was applicable.

URC invoked arbitration in August 2020. A sole arbitrator was appointed in June 2022. In August 2024, the arbitrator awarded URC ₹3.52 crore along with interest. The Commercial Court later declined to interfere with the award.

Before the High Court, NCBS confined its challenge to a single issue. It argued that the value of non-tendered items amounting to ₹9.65 crore already included GST.

The bench observed that taxes embedded in the contract price had to be deducted to arrive at the base value. GST would then be computed on that amount. The court noted that no such exercise was required for non-tendered items because they were outside the original bill of quantities and contract price.

Referring to the final bill relied on by the arbitrator, the bench observed, “The 21st and final bill referred to by the Arbitral Tribunal does not expressly indicate whether it was inclusive of GST or whether the value excluded GST at the rate of 18%. If at all, the words that the value is "full and final" would support the NCBS's contention that the figure was a rounded and final figure. However, the Arbitral Tribunal's interpretation of the said bill may not be amenable to review in proceedings under Section 34 of the A&C Act. However, there was other material on record that is relevant for addressing the dispute, which was not considered by the Arbitral Tribunal.”

The court examined records relied on by NCBS, including running account bills and invoices forming part of the ₹9.65 crore figure. Some of those invoices separately reflected GST at 18%. The bench observed that this indicated at least part of the amount already included GST.

The bench clarified that it was not necessary to determine the precise GST component included in the figure. However, it found that the tribunal's conclusion that the entire ₹9.65 crore amount was exclusive of GST could not stand in light of the evidence on record.

Accordingly, the court set aside the award on the limited issue concerning GST on non-tendered items. It left it open to URC to pursue its claim for the differential GST amount and consequential reliefs before the arbitral tribunal.