Ignoring material evidence showing value-inclusivity of GST in arbitral awards constitutes perversity and patent illegality.

The Appellant (NCBS) entered into a construction agreement with the Respondent (URC) on 19.06.2017

Following the rollout of the Goods and Services Tax (GST) on 01.07.2017, disputes arose regarding the applicable tax rate (12% vs 18%) and whether the value of non-tendered (NT) items was inclusive or exclusive of GST

An Arbitral Tribunal awarded URC ₹3,52,50,404/-, treating the ₹9,65,91,596/- value for NT items as exclusive of GST

NCBS challenged this under Section 34 of the Arbitration and Conciliation (A&C) Act, 1996, but the Commercial Court dismissed the petition on 28.04.2025

NCBS then preferred this appeal under Section 37 of the A&C Act, specifically challenging the inclusion of ₹1,47,34,311/- as differential GST on NT items

1. Whether the arbitral award is vitiated by "patent illegality" under Section 34(2-A) of the A&C Act for ignoring vital evidence regarding the GST component in non-tendered items

2. Whether the sum of ₹9,65,91,596/- representing the value of non-tendered works was inclusive or exclusive of 18% GST

The court primarily applied Section 34 and Section 37 of the Arbitration and Conciliation Act, 1996, regarding the grounds for setting aside arbitral awards

It relied on the principle from Delhi Airport Metro Express (P) Ltd. v. DMRC and Ssangyong Engineering and Construction Co. Ltd. v. NHAI, which establishes that an award is patently illegal and perverse if it is based on no evidence or if the arbitrator ignores vital evidence in arriving at a decision

The court noted the limits of appellate interference, affirming that the court cannot reappreciate evidence as a first appellate court unless the award shocks the conscience of the court or is patently illegal

The Court found that while an appellate court generally cannot reappraise evidence, the Arbitral Tribunal committed a "patent illegality" by ignoring vital documentary evidence

The Tribunal had relied solely on the 21st and final bill to conclude that the NT item value was GST-exclusive

The High Court observed that NCBS had produced earlier RA Bills (Nos. 6, 8, 9, 10, and 14) and a tabular statement (Annexure-R5) which explicitly showed that the aggregate figure of ₹9,65,91,596/- was composed of individual invoices that included 18% GST

The Court reasoned that by failing to consider these invoices—which directly contradicted URC’s claim that the figure was a "base value"—the Tribunal reached a perverse conclusion

Calculating a fresh 18% GST on a figure that already contained a tax component resulted in an ex-facie error

The Court held that the failure to consider vital evidence (the underlying RA bills) rendered that portion of the award patently illegal

Consequently, the awarded GST and interest must be recomputed

The Court clarified that while NCBS's specific figure for deduction was not yet fully established, URC is at liberty to re-agitate its claim for the differential GST value through appropriate proceedings