The Allahabad High Court has in its recent ruling in the case of Bharat Forge Limited has held that bidders are required to mention GST Rate and HSN Code in Notice Inviting Tender to provide all tenderers/bidders a ‘Level Playing Field’.
Facts of the Case:
- The petitioner, Bharat Forge Limited is a company registered under the provisions of the Indian Companies Act having its registered office at Pune Cantonment, Mundhwa, Pune, Maharashtra.
- The respondent, Diesel Locomotive Works, Varanasi published a notice inviting e-tender for procurement of Turbo Wheel Impeller Balance Assembly. The Turbo Wheel Impeller Balance Assembly is an assembly critical to the 710G HHP locomotive run by the Railway. This product consists of a turbine and a compressor, coupled on a common shaft, and balanced to enable its rotation at speeds as high as 22,000 RPM (rounds per min).
- This assembly is an essential moving part of the 710-G turbocharger. With the drop in higher temperature exhaust gases, there is rotational energy delivered to the turbine which in turn delivers its input to the compressor, enabling pumping of high density air into engine cylinders, for combustion.
Contention of the petitioner:
- The Senior Advocate Mr.Anurag Khanna, Counsel for the petitioner contended that circular issued by the Railway Board and the tender document indicates that the bidders, including the petitioner herein were required to specify the percentage of local content in the material being offered in accordance with the Make in India Policy.
- The special conditions, inserted in the tender document, further provides that preference to “Make of India” will also be applicable to the subject tender. It was pointed out that neither the Notice inviting tender (NIT) nor the tender document published by respondent mentioned the relevant HSN code applicable to the procurement product.
- The petitioner claimed that the correct GST rate should be 18% and the HSN Code which falls under Chapter 84 of GST Tariff would be applicable. Whereas the Railways in the counter affidavit filed by them did not clarify the correct HSN Code or GST rate of the product and is trying to shift its responsibility by saying that the levy of tax and imposition of penalty for mis-classification of HSN Code is an area of concern of the tax authorities.
Order of Allahabad High Court: Deliberation and Ruling
- In our considered opinion, if the GST value is to be added in the base price to arrive at the total price of offer for the procurement product in a tender, and is used to determine the interse ranking in the selection process, it is incumbent on the part of the respondent nos.1 and 2 to clarify the HSN Code, i.e. to clear their stand with regard to the applicable GST rate and HSN Code of the “procurement product”.
- Thus, the mentioning of HSN Code in the tender document itself shall resolve all disputes relating to fairness and transperancy in the process of selection of bidder, by providing ‘level playing field’ to all bidders/tenderers in the true spirit of Article 19(1)(g) of the Constitution
of India.
- For any issue relating to the applicability of correct HSN Code or GST rate, it would then be the duty of respondents to seek clarification from the GST authorities. The respondents cannot
get away by saying that they are not required to mention the GST rate or HSN Code in the tender document, as it is integral to the process of selection of tenderer, moreso, in view of fact that the offers have to be evaluated based on the GST rates as quoted by each bidder and same will be used to determine the interse ranking.
In view of above deliberations, the division judge bench of Justices Sunita Agarwal & Jayant Banerji directed the General Manager, Diesel Locomotive Works, Varanasi 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, he 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 (Notice inviting tender) tender/bid document, so as to ensure uniform bidding from all participants and to provide all tenderers / bidders a ‘Level Playing Field’.
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Frah Saeed is a law graduate specializing in the core field of indirect taxes and is the Co-founder of taxwallah.com. She has authored many publications on GST and is into full-time consultancy on GST to big corporates. She as a part of taxwallah.com heads a team comprising of Chartered Accountants and Advocates and plays a key role in our mission to disseminate GST knowledge to all.
