Arbitral tribunal must decide the core GST reimbursement dispute on merits, not on an unauthorised equitable basis.

An arbitral award was set aside because the tribunal did not decide the principal dispute on merits: whether the claimant was entitled to reimbursement of GST and input tax credit under the transitional GST framework, and whether the respondent could lawfully withhold reimbursement on that basis. The tribunal instead adopted a fairness-based split of the possible input tax credit loss, without a definitive finding on the core controversy. The Court held that an arbitral tribunal must decide disputes according to law and cannot substitute an equitable outcome unless the parties have authorised an ex aequo et bono determination. Fresh proceedings were permitted.

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Issues: Whether the arbitral award was liable to be set aside for failing to decide the principal dispute on the entitlement to reimbursement of GST and the alleged availability of input tax credit on excise duty, and for not deciding the dispute in accordance with law.

Analysis: The arbitral tribunal had proceeded on the footing that both parties should equally bear the possible input tax credit loss, but it did not return a definite finding on the core controversy, namely whether the claimant was entitled to input tax credit under the transitional GST provisions and whether the respondent could lawfully withhold the GST reimbursement on that basis. The award therefore left the main dispute undecided. The Court held that an arbitral tribunal must decide the dispute in accordance with law and cannot substitute a fairness-based resolution where the parties have not authorised it to act ex aequo et bono. Since the tribunal failed to adjudicate the central issue, the award could not stand.

Conclusion: The award was set aside in favour of the petitioners, with liberty to initiate fresh proceedings.

Ratio Decidendi: An arbitral award is liable to be set aside where the tribunal fails to adjudicate the principal dispute on merits and instead resolves it on an impermissible equitable basis contrary to the governing law.

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