Tendering Process not vitiated by quoting wrong GST rates/HSN Code by Suppliers – SC

Tendering Process was not vitiated by quoting wrong GST rates/HSN Code by Suppliers – Supreme Court

ABCAUS Case Law Citation
ABCAUS 3607 (2022) (08) SC

Important Case Laws relied upon by parties
Reliance Energy Ltd. 2007) 8 SCC 1
Sarvesh Refractories (P) Ltd. (2007)13 SCC 601
Rashtriya Ispat Nigam Ltd (2012) 5 SCC 306

A global E-tender was published by Railway for procurement of a part of machinery (‘the product’). The tabulation was made out for bidders emerging as L1, L2, L3 and L4.

However, a bidder approached Hon’ble High Court to direct the tendering Authority to clarify that the Procurement Product must be taxed at applicable GST rate under the relevant HSN Code and to disqualify those Bidders who had applied lesser GST Rate under incorrect HSN Code as against the applicable rate.

The case of the said Petitioner was that, neither the NIT (Notice inviting tender) nor the bid documents, mentioned the relevant HSN Code applicable to the product which had sabotaged the preservation of the level playing field. While the writ petitioner had honestly revealed the correct GST rate, L1 to L3 showed the GST rate at a far lower rate which distorted the tendering process.

The Hon’ble High Court issued a Mandamus directing the Tendering Authority that if the GST value is to be added in the base price to arrive at the total price of offer for the procurement of products in a tender and is used to determine Interse ranking in the selection process, it would be required to clarify the issue, if any, with the GST authorities relating to the applicability of correct HSN Code of the procurement product and mention the same in the NIT tender/ bid document.

The matter travelled to Hon’ble Supreme Court.

The case of the Union of India/the Appellant(s) was that a Writ of Mandamus can be issued, if there is a statutory duty. Whereas there was no statutory duty with the appellants to do as directed.

It was submitted that the bid document declared that the Tender Authority will not be responsible for payment of taxes and duties paid by the bidder on a misclassification or misapprehension of law.  If the rate of tax was expressed in the bid, then, the bid would be evaluated on the consideration of the base price, after adding the tax component. Should the bid of such a tenderer be selected, the Tendering Authority would, necessarily, pay the price to the bidder and absorb the tax also. On the other hand, in the case of a bidder, who does not reveal the rate of tax separately and merely quotes the base price, then, if he is selected, he would be entitled only to the payment of the amount quoted. In other words, the duty to pay the GST, being an indirect tax, is on the seller or supplier. He would have to file the return and assess the tax on self-assessment basis and pay the tax. This would equally be the position of the tenderer, who may quote the rate, which may not be the correct rate but a lesser rate. The Tendering Authority/Appellant is concerned only with selecting the lowest of the bidders, who is, no doubt, otherwise compliant with the norms.

The Hon’ble Supreme Court opined that Hon’ble High Court had erred. The Hon’ble Supreme Court observed that clearly the GST is indirect taxes. Except in a case under the reverse tax mechanism, it is the supplier who would remain liable to pay the tax. The supplier is obliged to file the returns. He is to self-assess and pay the tax in accordance with the provisions.

Further the Bide Document clearly stated that the purchaser (appellants) will not be responsible for the payment of taxes and duties paid by the supplier, on the basis of the misclassification or a misapprehension of law. The clauses of bid document could not have left the bidders or the purchasers in any uncertainty.

The Hon’ble Supreme Court opined that there was no statutory duty cast on the appellants to indicate the HSN Code in a tender under question.

The Hon’ble Supreme Court said that in the name of producing a level playing field, the State, awarding a contract would not be obliged to undertake the ordeal of finding out the correct HSN Code and the tax applicable for the product, which they wish to procure.  This is, particularly so when the State is not burdened with the liability to pay the tax.

However, the Hon’ble Supreme Court ordered that to ensure that the successful tenderer pays the tax due and by not correctly quoting the GST rate, there is no tax evasion, in all cases, where a contract is awarded by the appellants, a copy of the document, by which, the contract is awarded containing all material details shall be immediately forwarded to the concerned jurisdictional GST Officer.

It was also directed that the appellant(s) shall indicate that the tenderers will, in their bids, indicate the details of their Assessing Officers so that the appellants can effectively comply with this direction. It was also directed that Union of India and the Railway Board shall ensure that this direction shall be complied with by all units.

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