Steel Authority of India v. Primetals Technologies India Pvt. Ltd. [(Delhi HC, 12 March]

STEEL AUTHORITY OF INDIA V. PRIMETALS TECHNOLOGIES

Whether the petitioner’s challenge under Section 34 of the Arbitration and Conciliation Act, 1996, to the arbitral award dated 15.10.2019, which allowed the respondent’s claims with costs and interest, justified in light of contractual disagreements concerning CENVAT credit and tax reimbursement?
Whether the learned Arbitrator correctly interpret the contract terms regarding the deduction of CENVAT credit and reimbursement of Central Sales Tax, and were the awarded claims, costs, and interest reasonable and in accordance with the petitioner-respondent contract?

The case, which involves a challenge to an arbitral ruling, is governed under the Arbitration and Conciliation Act of 1996. Sections 34 and 33 of the Act, which deal with appealing awards and correction/interpretation, are fundamental to the legal rules. Contract law considerations also apply when interpreting CENVAT credit and tax reimbursement contract conditions.

Steel Authority of India Limited (petitioner) issued a contract to a consortium that comprised the respondent for a steel mill project.
Among the terms stipulated in the contract were the acquisition of commodities and the reimbursement of taxes.
When the response sought recovery for Central Sales Tax (CST) paid by its subcontractors/vendors, disagreements occurred.
The petitioner challenged the reimbursement, claiming inconsistencies in the contract provisions concerning CENVAT credit and tax deductions.
The case was sent to arbitration, and the arbitrator recognised five claims made by the respondent and two counterclaims made by the petitioner.
Arbitration procedures were initiated due to a disagreement over the interpretation of the contract provisions, specifically involving deductions for the shortfall in CENVAT credit and reimbursement of CST.
By ruling dated 14.09.2018 in Arbitration Case(C) No.31/2018, the Hon’ble Supreme Court submitted the matter to a Sole Arbitrator.

The respondent was entitled to CST reimbursement under the contract, subject to a price schedule ceiling.
The arbitrator explained that deductions for the CENVAT credit deficiency could only be made from the gross contract price, not the nett contract price.
The refusal of the petitioner to repay CST paid by subcontractors/vendors was not warranted.
The arbitrator granted the respondent’s claims, including CST reimbursement, as well as actual arbitration costs and interest at 14% per year.
The petitioner’s Section 34 challenge to the arbitral award was dismissed, and the award was confirmed.
The refusal of the petitioner to repay CST paid by subcontractors/vendors was considered unreasonable.
The arbitrator granted the respondent’s claims, including CST reimbursement, as well as actual arbitration costs and interest at a rate of 14% each year.
The petitioner’s Section 34 challenge to the arbitral award was dismissed, and the award was confirmed.