Delhi High Court Holds CENVAT Shortfall Deduction Should Be From Gross Contract Price; Upholds Arbitral Award

A bench of Hon'ble Mr. Justice Avneesh Jhingan heard a Section 34 petition challenging an arbitral award dated 28.08.2024 (with addendum dated 22.11.2024) that arose from a dispute over deduction for shortfall in Minimum Guaranteed CENVAT Credit (MGCC) and reimbursement of excise duty under a turnkey contract for galvanising and cleaning lines. The petitioner sought setting aside of the award on grounds of limitation and incorrect contractual interpretation; the respondent defended the award and maintained prior judicial decisions supported the tribunal's view.

The Court dismissed the petition and upheld the arbitral tribunal's conclusions as a plausible construction of the contract that did not attract interference under Section 34 of the Arbitration and Conciliation Act, 1996. The judge found that the cause of action in respect of the MGCC deduction accrued on 09.03.2019 when the shortfall was actually deducted and that the claim for excise duty reimbursement was not barred because conciliation between the parties continued until 14.02.2022. The Court agreed with the tribunal that the contract note made the "contract price" reference unambiguous, and therefore the shortfall in CENVAT credit was to be deducted from the gross contract price. The Court reiterated the narrow scope of interference under Section 34 and emphasised that an arbitrator’s view would not be set aside where it was a "possible and plausible" construction. The Court, in its reasoning, observed: "If an arbitral tribunal's view is found to be a possible and plausible one, it cannot be substituted merely because an alternate view is possible. Construction and interpretation of a contract and its terms is a matter for the arbitral tribunal to determine. Unless the same is found to be one that no fair-minded or reasonable person would arrive at, it cannot be interfered with. If there are two plausible interpretations of the terms of a contract, then no fault can be found if the arbitrator accepts one such interpretation as against the other. To be in conflict with the public policy of India, the award must contravene the fundamental policy of Indian law, which makes it narrower in its application."

Background The parties executed a contract on 03.03.2008 for setting up a Hot Dip Galvanising Line and an Electrolytic Cleaning Line with stipulated completion within twenty‑eight months and specified contract prices. The contract contained clause 14.5.6 (MGCC) and an Appendix-I note stating: "All the necessary documents for availing the CENVAT credit shall be furnished, else balance shortfall shall be deducted from the contract price item serial no.12 above." The respondent deducted an amount as shortfall in MGCC on 09.03.2019; arbitration was invoked on 02.03.2022. The petitioner contended that claims were time‑barred because payment terms in clause 12.1.6 provided for payment within 45 days of proper invoices, and any cause of action arose on invoice dates. It further argued that clause 14.5.6 permitted deduction from the net contract value. The respondent countered that the cause of action for MGCC arose only on the date of actual deduction and that excise reimbursement remained under active consideration until conciliation concluded in February 2022. The arbitral tribunal interpreted clause 14.5.6 and the Appendix-I note to require deduction from the gross contract price; it relied on an earlier decision of this Court addressing an identical clause and note. The High Court applied settled principles under Section 34 — that interference was limited to instances of patent illegality, perversity or contravention of public policy — and held the tribunal's interpretation was plausible and consistent with precedent. The petition was dismissed and the pending application was also dismissed; no interim directions were issued.

Case No.: O.M.P. (COMM) 233/2025 Case Title: Steel Authority of India Limited v. Primetals Technologies India Pvt. Ltd. Appearances: For the Petitioner(s): Mr. Rajshekhar Rao, Sr. Adv. with Mr. Samaksh Goyal, Adv. For the Respondent(s): Mr. Rajesh Markanda, Mr. Keshri Kumar & Mr. Saurav Markanda, Advs.