NLA Insights
31 August 2026
U.P. PWD v. Vriddhi Infratech India Pvt. Ltd., 2026 SCC OnLine All 22854 — the Allahabad High Court has drawn a sharper line between contractual GST-computation disputes that an arbitrator may decide, and statutory tax questions that only the tax authorities can determine, while curbing an arbitrator’s ability to award penalty and interest on a GST liability that has not yet been finally assessed.
The dispute arose out of a road-widening contract entered into under the erstwhile VAT regime and continued after the transition to GST, raising a recurring question for the infrastructure sector: when a tax regime changes mid-contract, how much of the resulting dispute belongs to the arbitrator, and how much belongs to the tax authorities?
The U.P. Public Works Department (“Department”) awarded M/s Vriddhi Infratech India Pvt. Ltd. (“Contractor”) a ₹155.89 crore contract, executed on 27 April 2016, to widen the Bilraya–Panwari Road (SH-21) and Nepalpur–Bijwar Road (ODR) in Sitapur district from two to four lanes. The contract was entered under the old tax regime — Value Added Tax (VAT) — and accordingly the contractor quoted rates inclusive of 4% tax. From 1 July 2017, Goods and Services Tax (GST) replaced VAT, levying 12% tax on construction work payable by the contractor. Relying on the MoRTH Standard Operating Procedure (“SOP”), the contractor claimed GST at 12% for work executed after 30 June 2017. The dispute arose when the Department relied on State Government orders for the mode of calculation, prompting the parties to seek adjudication. The Dispute Review Expert (DRE) confirmed the binding nature of the Government orders, whereas the sole Arbitrator awarded the contractor approximately ₹11.35 crore, with 15% penalty and 18% interest, and left parts open for further GST assessment. Aggrieved by the award, the Department challenged it under Section 34 before the Commercial Court, which dismissed the challenge, leading to a Section 37 appeal before the Allahabad High Court.
Out of the eleven issues framed by the sole Arbitrator, the following major issues were raised in the appeal:
The Appellant (Department) argued that the dispute was not arbitrable as it involved a fiscal question reserved to tax authorities, and that the award passed by the sole Arbitrator was a patent error which vitiated the proceeding; that the MoRTH guidelines applied only to the extent of technical specifications of the work under the contract; and that the award was inconclusive as its finality was subject to assessment by the GST authority. The Appellant submitted that, since tax authorities do not partake in the nature of contractual disputes, the Court should set aside the findings of the Arbitral Tribunal and the Commercial Court.
The Respondent (Contractor) contended that the dispute concerned the contractual computation and adjustment of GST, rather than the statutory liability to pay GST, in respect of a contract that had been entered into between the parties under the VAT regime and continued under the GST regime; and that, in this backdrop, the SOP issued by the MoRTH was applicable as it factored in the changes in tax rates and the impact of the GST imposition. The Respondent submitted that the Section 37 appeal was untenable as there was no patent illegality in the findings of the sole Arbitrator.
The Court analysed the dispute by devising the following bifurcation of taxonomy:
On this basis, the Court categorised the present dispute under Head A as arbitrable. On the question of incorporation of the SOP under the MoRTH guidelines, the Court found no material supporting its applicability to tax provisions, and upheld the two Government Orders as binding on both parties. The Court also observed that the sole Arbitrator erred by acting as an Assessing Officer while imposing penalty and interest on the Appellant (Department) without clearly recording findings on its quantum, periods and shortfall in tax. Under the GST Act, the liability to pay tax is on the assessee (the contractor), who was required to deposit the tax in time.
The Court also highlighted important transitional provisions under Chapter XX of the GST Act, 2017, left unnoticed by the sole Arbitrator as well as both contracting parties — Sections 142(2), 142(10) and 142(11), which particularly deal with contracts entered into prior to the appointed date (1 July 2017) where there is an upward or downward revision post that date. The Court also underlined that, given the maximum period for concluding a GST assessment is three years, and since the work was completed in FY 2018–19, the assessments would have become final by the time the award was passed in 2024. The absence of a final assessment determining the contractor’s actual GST liability therefore further undermined the basis of the arbitral award.
The Court partly allowed the appeal, setting aside the Commercial Court’s judgment and modifying the award of the sole Arbitrator by severing and setting aside the findings on the applicability of the MoRTH-mandated SOP, GST entitlement, and imposition of penalty and interest on GST. These issues were directed to be re-adjudicated and remitted to the Arbitral Tribunal.
The judgment established a bifurcation of disputes under Head A and Head B to decide the arbitrability of GST-related issues, and laid down the limits of an arbitrator’s adjudication of GST claims. The Court also clarified that clauses incorporating technical specifications from the MoRTH do not import SOPs required to decide taxation issues, as technical, financial and commercial specifications are treated separately in the contractual framework, and borrowing one does not implicitly subsume the other unless specifically mentioned. The judgment also reiterated that an arbitrator, being a creature of the contract, is bound by its terms and cannot re-write the contract to fill in any lacunae, and that awards which depend on a future statutory assessment risk being held to lack finality.
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