It Is Responsibility Of Bidder To Provide Correct HSN Code And Corresponding GST Rate While Submitting Offer– SC

The Court held that it is the responsibility of the bidder to provide the correct HSN Code and the corresponding GST Rate applicable over a product while submitting the offer.

The Bench while reversing the findings of the High Court observed, "It has been provided in the tenders relied upon by the writ petitioner that it will be the responsibility of the bidder to quote the correct HSN Code and the corresponding GST rate while submitting the offer. Having regard to the terms, we cannot cull out a public duty to provide for the correct HSN code. Therefore, we cannot support the impugned judgment based on the issuance of tenders as contended."

The Court also held that under the reverse charge mechanism, the bidders as the suppliers of the goods and services will be liable to pay the GST as per the applicable rates and not the purchasers i.e., the Union of India in the case.

In this case, a global tender was published by the third Appellant (DLW, Varanasi). E-tenders were invited for procurement of turbo wheel impeller balance assembly 2BLW Part No. 16080385. The writ petitioner was one of the tenderers. So were among others Respondents 6 to 8 in the Writ Petition.

It was contended that of all the financial bids, L1 to L3 had quoted their payment of GST at a rate of 5% on the base rate, while the Respondent-Writ Petitioner had quoted its GST rate at 18%. It was the case of the Writ Petitioner that the GST Council had declared in the HSN Code that as far as the product is concerned in the case, the rate has been shown as 18%.

The further case of the writ petitioner was that neither the NIT nor the bid documents, mention the relevant HSN Code applicable to the product. It has sabotaged the preservation of the level playing field. This is for the reason that while the writ petitioner honestly revealed the correct GST rate, L1 to L3 showed the GST rate at a far lower rate, viz., 5 percent. This has distorted the tendering process.

The Writ Petitioner had made representations to the Appellant about the earlier instances of such unfair trade practices; however, no coercive steps were taken.

The Writ Petition approached the High Court.

The High Court had observed that mentioning the correct HSN Code was necessary to determine the GST rate, which is to be added to the base price to arrive at a final price.

The Court also held that the GST rate of 18% mentioned by the Writ Petitioner was correct whereas L1 to L3 did not quote the correct rate. Also, it was observed that it was the duty of the Appellants to provide the correct HSN code in the tender document.

Aggrieved the Appellants approached the Supreme Court.

ASG N. Venkataraman appeared for the Appellant, Counsel Amar Dave appeared for the Writ Petitioner, and Counsel Girdhar Govind appeared for the second Respondent before the Apex Court.

The Apex Court referred to the clauses in the Tender Document which includes Clause 2.7.6, 2.8.6, and 2.9.2. The Court also referred to the Statutory Variation Clause in the Document.

The Court agreed with the finding of the High Court concerning the realm of judicial review of the action of State in matters relating to contracts.

The Bench observed that it is correctly found that Court cannot examine the details of the terms of the contract.

The Court further also held that the High Court erred in holding that fair competition or level playing field would be denied to each bidder as someone may bag the tender by quoting the lesser rate of GST, creating a substantial difference in the total price.

The Bench in this context noted, "Undoubtedly, selection is based on aggregating the base price with the tax (GST). If there is lack of clarity, each bidder would be in a position to take a shot at the tender by understating the value of the tax."

The Court further referred to the various provisions of the GST Act and observed, "It is clear that the GST, be it under the Central Act and the State Goods and Services Act, are indirect taxes imposed on the supply of goods and services or both. Except in a case falling under the reverse tax mechanism, it is the supplier of the goods and services, who would remain liable to pay the tax."

The Bench added that it is the supplier who is obliged to file returns which include monthly returns and annual returns. He is also to self-assess and pay the tax in accordance with the provisions.

While referring to the clauses of the tender document, the Court held, "It is clear that the Clauses read together will yield the following result, bearing in mind also the GST regime. The liability to pay tax under the GST regime is on the supplier. He must make inquires and make an informed decision as to what would be the relevant HSN Code applicable to the items and the rate of tax applicable."

The Court further held that the Appellants are right in contending that there is no statutory duty, which could have been enforced in the manner done in the impugned Judgment. There is no public duty that is enforceable.

The Bench thus held that the Court cannot cull out a public duty to provide for the correct HSN Code. Therefore, the Court held, "we cannot support the impugned judgment based on the issuance of tenders as contended."

The Court additionally noted the Appellant's contention that the liability to pay the GST, an indirect tax lies with the supplier of goods and services. The Court held that the exception admitted by the Appellants is in cases covered under Section 9(3) of the GST Act which provides for a reverse charge mechanism.

The Court held that the Appellants had made out a case for the interference with the impugned Judgment.

Thus, the Court directed, "…in order to also ensure that the successful tenderer pays the tax due and to further ensure that, by not correctly quoting the GST rate, there is no tax evasion, we would think it is necessary to direct that, 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 Officer. It is accordingly ordered."

In the light of these observations, the Court allowed the appeal and set aside the impugned judgment of the High Court.

Cause Title - Union of India & Ors. v. Bharat Forge Ltd. & Another

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