What was the main legal question in SAIL v. Primetals?

Whether the arbitral award allowing CST reimbursement and limiting CENVAT deductions was open to interference under Section 34 of the Arbitration and Conciliation Act, 1996.

How did the court view CENVAT credit deductions?

Deductions for shortfall in CENVAT credit were tied to the gross contract price, not the net price; the Arbitrator's view was upheld.

Was CST paid by vendors reimbursable?

Yes. Under the contract, CST paid by subcontractors/vendors was reimbursable within the price schedule cap.

What happened to the Section 34 challenge?

The challenge failed. The court found no ground to set aside the award and affirmed the Arbitrator's decision with costs and interest.

Why is this case useful to students?

It shows how courts respect arbitral interpretation of commercial terms unless the award is perverse or illegal, especially on tax reimbursement clauses.

Steel Authority of India v. Primetals Technologies

```

CASE_TITLE: Steel Authority of India v. Primetals Technologies India Pvt. Ltd. PRIMARY_KEYWORDS: Section 34, CENVAT credit, CST reimbursement SECONDARY_KEYWORDS: arbitral award, contract interpretation, Delhi High Court PUBLISH_DATE: 02 Nov 2025 AUTHOR_NAME: Gulzar Hashmi LOCATION: India Slug: steel-authority-of-india-v-primetals-technologies

Quick Summary

Steel Authority of India Limited (SAIL) and Primetals Technologies fell into dispute over tax-related clauses in a steel plant contract. The Arbitrator allowed Primetals’ claims for Central Sales Tax (CST) reimbursement and clarified how shortfall in CENVAT credit should be treated. SAIL moved under Section 34 to set aside the award. The court refused to interfere. The award—covering CST reimbursement, costs, and 14% interest—stood confirmed.

Issues

Could the arbitral award be set aside under Section 34 for its view on CENVAT credit deductions and CST reimbursement?
Did the Arbitrator correctly read the contract to (a) allow CST reimbursement within the price cap and (b) connect CENVAT shortfall deductions to the gross contract price?

Rules

Arbitration & Conciliation Act, 1996

Section 34: Limited grounds to set aside an award; court does not reappreciate evidence or re-interpret commercial terms unless the award is illegal, perverse, or shocks conscience.
Section 33: Correction/interpretation by the Tribunal; relevant to clarifying the award’s scope.
Contract law principles: Give effect to bargain; read tax clauses with the price schedule; avoid rewriting the deal.

Facts (Timeline)

Project Contract: SAIL awards steel mill contract to a consortium including Primetals; clauses cover supply, price schedule, and tax reimbursement.

Tax Dispute: Vendor/subcontractor CST bills raised; SAIL questions reimbursement; also disputes how to compute CENVAT shortfall deduction.

Arbitration: Sole Arbitrator appointed (Supreme Court referral in A. Case(C) 31/2018). Five claims by Primetals and two counterclaims by SAIL taken up.

Award: Tribunal allows CST reimbursement within cap; clarifies CENVAT shortfall deduction is against gross contract price; awards costs and 14% interest.

Section 34: SAIL challenges award; Court dismisses challenge and confirms the award.

Arguments

Appellant (SAIL)

Reimbursement of CST paid by vendors not envisaged or exceeded the agreed cap.
CENVAT shortfall should reduce the net price received by the contractor.
Award misreads the contract; hence liable to be set aside under Section 34.

Respondent (Primetals)

Contract permits CST reimbursement when paid on project supplies within the price schedule ceiling.
CENVAT shortfall deduction is linked to the gross contract price as per the agreed formula.
Award is reasoned and plausible; Section 34 does not allow review on merits.

Judgment

The Section 34 petition failed; the court upheld the arbitral award.
CST reimbursement allowed within the price schedule cap, including amounts paid by vendors/subcontractors for project supplies.
CENVAT shortfall deduction is referable to the gross contract price, not the net price.
Costs and interest @ 14% p.a. as awarded by the Tribunal were sustained.

Ratio Decidendi

When a commercial contract sets a price schedule and tax reimbursement mechanism, the Tribunal’s logical reading will not be disturbed under Section 34. Linking CENVAT shortfall to gross price and recognizing CST reimbursement within the agreed cap are reasonable interpretations that preserve the bargain.

Why It Matters

Shows the court’s hands-off approach under Section 34.
Guides drafting of tax reimbursement and CENVAT clauses in EPC/turnkey contracts.
Confirms that vendor-paid taxes can be reimbursable if the contract structure supports it.

Key Takeaways

Section 34 ≠ Appeal: No re-writing of contract by court.
CENVAT shortfall → Gross price basis maintained.
CST reimbursement allowed within schedule cap, even if paid via vendors.
Costs + 14% interest sustained where award is reasoned.

Mnemonic + 3-Step Hook

Mnemonic: “GROw CST, Not NET”

GRO = GROss price for CENVAT shortfall.
CST = CST reimbursement stays within cap.
Not NET = Reject net-price deduction theory.

3-Step Hook: (1) Read the price schedule → (2) Align tax clauses with that structure → (3) Respect tribunal’s plausible view under Section 34.

IRAC Outline

Issue	Rule	Application	Conclusion
Is the award vulnerable under Section 34 for its stance on CENVAT and CST reimbursement?	Section 34 limited review; contract interpreted as per price schedule and tax clauses.	Tribunal tied CENVAT shortfall to gross price; allowed CST reimbursement within cap, including vendor-paid CST for project supplies.	Challenge dismissed; award affirmed with costs and 14% interest.

Glossary

CENVAT Credit: A credit mechanism that allowed set-off of taxes paid on inputs against output tax (pre-GST context).
CST: Central Sales Tax on inter-state sale of goods (legacy regime).
Section 34: Provision to set aside arbitral awards on narrow grounds like illegality or perversity.

FAQs

CST reimbursement within the price cap, CENVAT shortfall tied to gross price, actual arbitration costs, and 14% interest.

Because the award was a plausible reading of the contract. Section 34 does not allow the court to re-try or re-interpret merely because another view is possible.

Only if the contract allows it and the total stays within the price schedule ceiling. Here, it did.

Align tax clauses with the price schedule and state whether deductions link to gross or net price to avoid later disputes.