State Has No Public Duty To Inidcate HSN Code For GST Rate In Public Tender : Supreme Court

A Bench comprising Justices K.M. Joseph and Hrishikesh Roy quashed the mandamus issued by the Allahabad High Court, inter alia, directing Central Government to verify the HSN Code from taxing authorities and indicate the same on bid documents, at the instance of a writ petitioner that claimed the non-disclosure of HSN Code in the public tender violates the doctrine of "level playing field" embodied in Article 19(1)(g) of the Constitution of India, 1950.

A global tender inviting e-tenders for procurement of turbo wheel impeller balance assembly was floated by Diesel Locomotive Work on 11.04.2019, under the Make in India scheme. Bharat Forge Ltd., one of the tenderers had approached the Allahabad High Court, inter alia, assailing that neither the Notice Inviting Tender (NIT) nor the bid documents mention the relevant Harmonised System of Nomenclature (HSN Code), which is adopted by the GST Council to indicate the GST rates of each product and services. It was contended by Bharat Forge that it had revealed the correct GST, i.e., at the rate of 18%, whereas the top three tenderers have shown the GST at the rate of 5% and accordingly their overall prices have gone down in comparison to Bharat Forge. Showing the HSN Code in the bid document, it had averred, facilitates the uniform disclosure of correct rate of tax for all the bidders. It was further argued that non-disclosure is capable of frustrating the 'Make in India' policy and depriving the local manufacturers. The High Court allowed the petition. The High Court's order was impugned by the Central Government before the Apex Court.

At the outset, the issue regarding maintainability of the petition seeking issuance of writ of mandamus was put forth by the Central Government. It was argued that writ of mandamus can be issued only if there was a breach of a statutory duty, which was not the case in the present matter. It was also submitted that the bid documents clearly stated that the Central Government would not be responsible for payment of taxes and duties on misclassification; it is expected of the tenderers to bid the correct rate of tax. The non-feasibility of mandating the Government to seek clarification regarding HSN Code, when there already existed authorities under the concerned tax statutes to assess and collect the tax, was also discussed.

Analysis by the Apex Court

The Court was of the view that for invoking writ of mandamus there ought to be a 'public duty', but not necessarily a statutory duty. It can be imposed by common charter, common law, custom or even contract. Moreover mandamus would also lie if the authority having discretion fails to exercise the same and act under the 'dictation of another authority'. Referring to a catena of judgments, the Court noted that scope of the writ of mandamus is quite wide and wherever there is a breach of public duty, the Courts ought to invoke it without going into further technicalities.

On the issue regarding ambit of judicial review of contracts entered into with the State, the Court opined that the scope is limited, but, it can interfere if the State acts arbitrarily, whimsically for any ulterior purpose; against public interest and when its action reeks of mala fides.

On perusal of the terms of the contract and bearing in mind that the GST regime puts liability on the supplier (petitioner) to pay tax, the Court was of the view that the liability was on Bharat Forge to enquire and thereafter arrive at a conclusion regarding the relevant HSN Code applicable to the item and the relevant rate of tax as well. It noted that in a communication, the Railway Board had indicated that the purchaser (Diesel Locomotive Work) 'may' incorporate the HSN Code in the tender document. Considering the tax regime and in the interest of the public the 'may' was read, by the Court, as to not cast a mandatory duty on the purchaser. It was of the opinion that the communication did not cast a public duty upon the purchaser to indicate the HSN Code.

"We are at a loss to further understand how in the name of producing a level playing field, the State, when it decides to award a contract, would 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. The liability to pay tax, in the case before us, is squarely on the supplier."

It was also observed that a circular, which is in the teeth of the tax statues, cannot bind the court. After much deliberation, it noted that even under the Make in India policy there is no public duty on the Central Government to declare the HSN Code in the tender.

However, in order to ensure that the successful tenderer pays the tax due, it directed that in all cases, where a contract is awarded by the Union Government, Railway Board, a copy of the document, by which, the contract containing all material details shall be immediately forwarded to the concerned jurisdictional Assessing Officer. The details of the officers would be provided by the tenderers.

Additional Solicitor General N Venkataraman appeared for the Union Government. Advocates Amar Dave and Girdhar Govind appeared for the respondents.

Case Name: Union of India And Ors. v. Bharat Forge Ltd. And Another

Citation: 2022 LiveLaw (SC) 691

Case No. and Date: SLP(C) No. 4960 of 2021 | 16 Aug 2022

Corum: Justices K.M. Joseph and Hrishikesh Roy.

Headnotes

Summary - A company submitted bids for a tender floated for Diesel Locomotive Work. The company argued that since the HSN for GST rate was not mentioned in the tender document, it wrongly added 18% GST in its bid, and lost out to other bidders who included 5% GST - The company appraoched the High Court which directed that HSN code should be mentioned to ensure a "level playing field" - Supreme Court reversed the High Court's view-

Award of Tender - There is no public duty on the part of the State to indicate the HSN code for GST rates in the tender document - Para 56- We are at a loss to further understand how in the name of producing a level playing field, the State, when it decides to award a contract, would 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. The liability to pay tax, in the case before us, is squarely on the supplier (Para 47)

Writ jurisdiction - Judicial review in contractual matters- limited scope of interference- unless the state action is clearly arbitrary, illegal, mala fide or contrary to the statute, courts would be loathe to interfere (Para 23)

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