A CENVAT shortfall cannot be deducted absent an express contractual recovery term.

SAIL contracted with Primetals for installation of a power supply facility at Bhilai Steel Plant.

Article 2.1 stated that a minimum of ₹2,16,42,894 was to be passed on to SAIL as CENVAT credit.

During performance, changes in duty rates meant that Primetals paid and recovered only ₹1,08,81,516 in duty, and passed on CENVAT credit for that amount.

SAIL later deducted the alleged shortfall of ₹1,07,61,378 from Primetals’ invoices.

The arbitral tribunal upheld the deduction, treating the minimum credit as an assured contractual benefit.

The Single Judge set aside the award under Section 34, finding no contractual provision authorising recovery of the alleged shortfall from the invoices.

SAIL appealed under Section 37.

Whether the arbitral award’s interpretation of Article 2.1 and the GCC, permitting SAIL to deduct the alleged CENVAT-credit shortfall from Primetals’ invoices, was a plausible interpretation or an illegality going to the root of the award

Whether the Single Judge correctly applied the patent-illegality standard under Section 34, such that the order setting aside the award should be upheld in the Section 37 appeal

Whether differing arbitral interpretations of materially identical contractual clauses between the same parties supported applying a consistent interpretation in this appeal

Under Section 34(2A) of the Arbitration and Conciliation Act, 1996, a domestic arbitral award may be set aside for patent illegality where the illegality goes to its root, including where the award travels beyond the contract or is contrary to its terms; mere legal error or a different plausible interpretation is insufficient.

Section 37 provides a limited appeal, with review no broader than the restrictions under Section 34, but permits examination of whether the Single Judge correctly applied that standard.

The Court relied on Ramesh Kumar Jain v. Bharat Aluminium Company Limited, 2025 SCC OnLine SC 2857, on the limits of patent-illegality review, and National Highway Authority of India v. Progressive-MVR (JV), (2018) 14 SCC 688, on avoiding inconsistent outcomes where arbitral tribunals have interpreted the same contractual clause differently in pending proceedings.

The Court held that Article 2.1 required the passing on of CENVAT credit, but did not authorise SAIL to recover a shortfall by deducting it from invoices.

Read with Clause 14.5.2, the contractual scheme linked credit to duty actually paid and supporting documents; the contract provided for non-reimbursement where the required documents were not furnished, not for a separate deduction in the circumstances here.

Because the duty rate had fallen, SAIL reimbursed less duty and received credit corresponding to that lower amount; it had not paid the alleged shortfall and was not out of pocket for it.

The asserted “shortfall” therefore did not establish an amount recoverable from Primetals under Article 2.1.

The tribunal’s deduction lacked contractual support and was not even a plausible interpretation of the relevant terms, making the award patently illegal.

The Court also considered the interpretation adopted in the related proceeding involving the same parties and materially identical clauses, and declined to sustain contrary outcomes.

It held that the contract did not permit deduction of the alleged CENVAT-credit shortfall from Primetals’ invoices and that the Single Judge rightly set aside the award for patent illegality.

The appeal was dismissed, the impugned judgment was upheld, and pending applications were disposed of.